CJorn^U ICaui irl^ool IGtbraty Cornell University Library KF 1414.T24 1888 A treatise on the law of private corpora 3 1924 019 226 749 The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019226749 A TREATISE LAW OF PRIVATE CORPORATIONS. BY HENEY O. TAYLOR, or THE NEW YORK BAR. SECOND EDITION. PHILADELPHIA : KAY & BROTHEK, LAW PUBLISHERS, BOOKSELLERS, AND IMPORTERS. 1888.. Entered according to Act of Congress, in the year 1888, by HENRY 0. TAYLOR, in the Ofi^ce of the Librarian of Congress, at Washington. Kf Collins Printing HouaE, 705 Jayne Street. PREFACE TO THE SECOND EDITION. The text has been carefully examined for the present edition, and the cases have been brought down to date. While the writer has amplified the treatment of a few topics, he has tried to keep the book a text-book properly speaking, adapted for reading and studj'^ as well as for reference. He wishes to acknowledge the aid he has received in the preparation of this edition from his friend Eobert H. Worthington and his brother Howard A. Taylor of the New York Bar. HENRY 0. TAYLOR. Nbw Yokk, May 1, 1888. PREFACE TO THE FIRST EDITION. The object of this Treatise is to give an accurate statement of the law regulating business enterprises which are prosecuted through the instrumentality of corporate organization ; to de- fine the rights and liabilities of the different classes of persons interested ; and to treat of those rights and liabilities accord- ing to the manner in which they come before the courts for determination. To accomplish this the writer, having briefly noticed the views regarding corporations held in the Roman and in the older common law, submits in the third and fourth chapters an analysis of the notion of a corporation, with some remarks on the resemblances between corporations and certain other legal institutions. There follows, in the fifth and sixth dhapters, a discussion of the rights and liabilities arising through the promotion and formation of a corporation. These chapters, which to a large extent are of an introductory char- acter, are succeeded by a detailed discussion of corporate powers, and the legal effect of acts done by or on behalf of a corporation in occasioning legal relations between it and outsiders. The subsequent portion of the work treats of the rights and liabilities of the persons having interests in the corporate enterprise, treats, that is to say, of the legal rela- tions subsisting with respect to it. These relations fall under three heads : First, those between the corporation on the one hand, and, on the other, the state, the shareholders, the oflacers, or the creditors of the corporation. Secondly, those between vii PREFACE TO THE FIRST EDITION. the different classes of persons interested, — between share- holders and officers, between shareholders and creditors, and between officers and creditors. Thirdly, those among persons of the same class ; that is, among shareholders, among officers, and among creditors. It is the opinion of the writer that the fiction of the " legal person" has outlived its usefulness, and is no longer adequate for the purposes of an accurate treatment of the legal relations arising through the prosecution of a corporate enterprise. By dismissing this fiction a clearer view may be had of the actual human beings interested, whose rights may then be determined without unnecessary mystification. There will remain the body corporate; an organized body of men, exercising, directly or through agents, certain authority in a certain manner ; there will remain the individual shareholders, the corporate officers and agents, the creditors of the corporation, and the public. To litigation arising from transaction^ respecting corporate in- terests there must be parties. The parties may be the corpo- ration on the one hand, standing often as the representative of the rights of all persons in the corporate enterprise, and, on the other, some outsider or the state, or some shareholder, officer, or creditor ; or the plaintiffs may be shareholders, the defen- dants officers, or the plaintiff a creditor, the defendant a share- holder. Suits may also be prosecuted in which names of share- holders or of creditors appear on both sides of the case. And the result of the suit will be affected by the position . occupied by the parties towards the transaction occasioning the litiga- tion. In view of these considerations, the arrangement adopted in this treatise is thought suited to an accurate exposition of cor- poration law. H. 0. TAYLOR. New Yokk, May 1, 1884. viii TABLE OF CONTENTS. CHAPTER I. SECTION The Notion of a Corporation in the Roman Law . 1-9 CHAPTER II. The Notion op a Corporation in the Common Law . 10-22 CHAPTER III. Analysis op the IJotion of a Corporation . ,. 23-51 CHAPTER IV. Resemblances between Corporations and certain other Leoal Institutions ... 52-Tl CHAPTER V. Legal Relations arising through the Promotion op A Corporation 72-90 CHAPTER VI. Legal Relations Consequent upon an Agreement to take Shares in the Stock op a Corporation to be Organized . . 91-112 ix CONTENTS. CHAPTER VII. SECTION Legal Effect op Acts done by or on behalf of a Corporation. Preliminary ..... • 113-119 Part I. Construction of Corporate Powers 120-166 Part II. Acts within the Corporate Powers . . 167-263 Part III. Acts beyond the Corporate Powers . . 264-334 Part IV. Liability of a Corporation for the Torts of its Agents and Servants 335-378 Part V. 1. Legal Effect of Acts done without the State incorporating the Corporation . . 379-402 2. Status of a Body of Men incorporated by the Legislation of two or more States . . 403-409 3. Citizenship of Corporations with respect to the Jurisdiction of the Federal Courts . 410-413 4. Succession *. 414-418 5. Consolidation 419-427 .6. Dissolution 428-437 CHAPTER VIII. Relations between the State and the Corporation ; INCLUDING Relations between the State and (a) - Shareholders, (&) Officers, and (c) Creditors of the Corporation 438-507 CHAPTER IX. Legal Relations between the Corporation and its Shareholders 508-611 CHAPTER X. Legal Relations between the Corporation and its Officers ... 612-650 X CONTENTS. CHAPTER XI. SECTION Legal Relations between the Corporation and its Creditors 651-682 CHAPTER XII. Legal Relations between Shareholders and Officers OF A Corporation . . .... 683-699 CHAPTER XIII. Legal Relations between Shareholders and Credi- tors OF A Corporation 700-751 CHAPTER XIV. Legal Relations between Officers and Creditors of a Corporation 752-775 CHAPTER XV. Legal Relations among the Shareholders of a Cor- poration . . . . . ■. 776-801 CHAPTER XVI. Legal Relations among the Officers of a Corpora- tion ... . .... 802-809 CHAPTER XVII. Legal Relations among the Creditors of a Corpo- ration ... 810-826 XI THE LAW OF PRIYATE CORPORATIONS. CHAPTER I. THE NOTION OF A CORPORATION IN THE ROMAN LAW.' Early Roman view, § 1 . A corporation not a person, § 2. Later Roman view, § 3. Special authority to form a corporation necessary only in later times, § 4. Varieties of Roman corporations, § 5. Illegal corporations. Dissolution, § 6. Corporate capacities, § 7. Corporate management, § 8. Hereditas jacens, § 9. § 1. In the early periods of the Roman law, the idea of a corporation seems to have been that of a collection of individuals among whom, as well as between whom man^i^ and outsiders, existed certain special legal relations. If the notion of a corporate whole or unit was present at all, it existed in a rudimentary shape, and was of slight importance. The basis of this view lies in the names of many of the older and more prominent of the Roman corporations ; names which were no other than the names of the members ; as, for instance, gentiles, virgines vestales, socii vectigalium publicorum. The pro- perty, consequently, of these corporations was spoken of a^ if it belonged to the members, as agri virginum vestalium.^ Later the term universitas became the generic name for corporations of all kinds,' a term which seems to have conveyed in the main ' See Digest, iii. 4, Quod cuiuscura- que universitatis nomine vel contra cam agatur; Digest, xlvii. 22, De col- legiis et corporibus ; Savigny, System des heutigen RSmischen Rechts, vol. ii. §§ 85-102 ; Windsclieid, Lehrbuch des Fandektenrechts, i. §§ 57-62 ; 1 Puchta, Pandekten, §§ 25-28 ; Arndts, Pandekten, §§ 41-47; Brinz, Pandek- ten, § 35 and §§ 69-63. ^ See Ihering, Gheist des Romischen Rechts, iii. Theil, note 468 to p. 344. ' The Rubric of Title 4, liber iii., of the Digest reads : "Quod cuiusuum- 1 § 3.] THE L)lW OF PRIVATE CORPORATIONS. [CHAP. I. ^the notion of a collection of individuals as opposed to the notion of a singularis persona, or one individual.' § 2. Gaius, in his division of persons,* which was afterwards followed in the Digest of Justinian,* never hints at tion°notT corporations; and, indeed, the staterbent may be person. hazarded that in no place in the whole body of the Pandects are corporations said to be persons ; though it is said that for certain purposes they are to be treated as such, personce vice fungitur.* It seems probable, moreover, that the law did not create this approach to a personification of corporations, but received it from the people, tolerating the fiction through deference to the popular view.° § 3. Nevertheless, though the Roman law never regarded a corporation as a person begotten of itself, and only man'view ^^^^ that for Certain purposes the law would treat it as such, yet in the periods of the later and more fully developed law, a corporation was regarded as a something, as a corporate whole or unit, distinct from its members.* To this corporate whole, and not to the individual members, attached the corporate rights and liabilities. " Si quid universitati debetur, singulis non debetur ; nee quod debet universitas sin- guli debent."' Consequently, the existence and identity of the que universitatis nomine," etc. See sie Personificationen sind | das Eecht Savigny, System, etc., ii. p. 261. The hat diese Personificationen nicht ge- term seems not to have been in nse macht," Windscheid in L^jtures. See much before the time of Cicero. Cor- Brinz, Pandekten, i. pp. 194-201. pus and collegium were also used, the ^ See Savigny, System, ii.- pp. 236- former more generally than the latter. 240. ' See Dig., iv. 2, lex 9, § 1. Cor- ' Dig.,iii. 4, lex 7, § 1. "Universi- porations sole did not exist at Rome, tatis sunt, non singulorum, veluti quae ' ' Neratius Priscus tres facere existimat in ci vitatibus sunt theatra et stadia et 'collegium' et hoc magis sequendum similia et si qua alia sunt communia est." Dig., 1. 16, lex 85. Still the eivitatium." Dig., i. 8, lex 6, § 1. scope of the applicability of this pas- " Das Wesen aller Corporationen bes- sage is not clear. teht darin, dass das Subject der Rechte 2 Gai. i. 9 et seq. nicht in der einzelnen Mitgliedern ' Dig., i. 5, lex 3. (selbst nicht in alien Mitgliedern * Dig., xlvi. 1, lex 22. zusammengenommen) besteht, sondern 5 ' ' Juristische Personen heissen Per- in dem idealen Ganzen, ' ' Savigny, Sys- sonen nicht bloss deswegen well sie tem, ii. 144. " Eine Juristische Person Rechtsubjecte sind ; sondern auch, -well ist eine nicht wirklich existirende, nur 2 CHAP. I.J CORPORATIONS IN THE ROMAN LAW. [§ 5, corporation were not affected by the change of even all its members. "In decurionibus vel aliis universitatibus nihil refert, utrum omnes idem maneant an pars maneat vel omnes immutati sunt, sed si universitas ad unum redit, magis admit- titur posse eum convenire et conveniri, cum jus omnium in unum recciderit et stet nomen universitatis."' § 4. There is no reason to believe that any special authoriza- tion from the state was necessary in the early time g ^j^^j ^^_ in order to form a corporation. Under the empire, thoiity to however, a special permission from the state became . poration necessary f and, by the pagan emperors, it was oniyTn ^at- granted with great reluctance.' The requiring of a *■■ ti°ies. special permission, as well as the reluctance of the emperors to grant it, seems to have been due to the evils arising from un- authorized and seditious societies. § 5. The first corporations at Rome were formed for the regulation of trade and the purposes of religion.* . . . Varieties of Under the republic municipal corporations come Roman cor- prominently into view, while the proportionate im- P°'"^*'°'>^' portance of religious corporations diminishes. The latter re- mained comparatively few in number until the conversion of the Empire to Christianity, to which event was due the aboli- tion of the general rule, that a religious corporation could take property as heres, that is, through universal succession, only by vorgestellte Person, welsche als subject liabilities assumed towards outsiders, von Rechten und Verbindlichkeiten This form, he thinks, was lost sight of behandelt wird." Windscheid, Pan- in determining the legal relations of the dekten, i. p. 147 ; see ib. p. 150. See, members among themselves. Ihering, also, Sav.,ii. 284-288; Dig., iii. 4, lex Gheist, etc., iii., Theil, pp. 219-220, 1, § 1; Dig., i. 8, lex 6, § 1 ; Dig., 343-344. Another writer thinks the xlviii. 1 8, lex 1 , § 7 ; Dig. , xl. 3, leges Roman law did not regard the property 1, 2, and 3 ; Dig., ii. 4, lex 10, § 4 ; pf a corporation as belonging to a per- Dig., vii. 1, lex 56. The statement son, but to a universitas, i. e., to no in the text seems to be upheld by the one ; as res nullius. 1 Brinz, Pan- great weight of authority; still Iher- dekten, 19'6. See Gai. i. 9, and Dig., ing, a distinguished jurist, says that i. 8, lex 1 pr. the members were the true subjects ' Dig., iii. 4, lex 7, § 2. of the corporate rights and liabilities ' Dig., iii. 4, lex. 1 pr. according to the Roman law, and that ' See Pliny, Epist. b. 10, letters 42, the corporation itself was only the form 43 . which the mass of these rights and * Sav. System, ii. p. 246. 3 § 7.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. I. virtue of a privilege specially conferred.' This rule had not prevented them, however, from receiving legacies or enjoying revenues through fidei commiss(e, or trusts, created in their favor.' § 6. If the objects of incorporation were illegal, the corpora- tion was liable to be dissolved by the state,^ which ^orfMonr" always had the power to dissolve corporations, even Dissoiu- against the will of the members ;. though the mem- bers, without the consent of the state, could not bring about a dissolution* any more than they could incorpo- rate themselves. Moreover, a dissolution of the corporation was not effected by the death of all its members.® § 7. The right of a corporation to make by-laws for the regulation of its affairs appears to be as old as the ca°Tdte Twelve Tables f and, not unlikely, the right to sue and be sued is equally ancient.' A municipal cor- poration could have possessio, and, therefore, could acquire ^ro- prietas through usucapio.^ And a municipal corporation, more- over, through its constitutional representatives, could acquire ' The principles of the (pagan) Ro- ' "Collegia si qua fuerint illicita man law on this point are expressed by .... dissolvuntur. Sed permittitur Ulpian, xxii. § 6. " Deos heredesin- iis, quum dissolvuntur pecunias com- stituere non possnmus, praeter eos quo munes si quas habent, dividere, pecu- Scto., constitutionibus Principum, in- niamque inter se partiri." Dig.,xlvii. stituere eoncessum est, sicuti Jovem 22, lex 3 pr. See Sav., System, ii. Tarpejum." " Es war dem Christen- 257, note o. thum Torbehalten," says Savigny, * Sav. System, ii. 280. " die Menschenliebe an sich zu einem ^ Sav. System, ii. 280. wichtigen Gegenstand der Thatigkeit ^ " Gaius, libro quarto ad legem zu erheben, und in dauernden, unab- duodecem tabularum. Sodales sunt, hangigen Anstalten gleichsam zu ver- qui eiusdem collegii sunt, quam Graeci korpern." System, ii. 264. After Itrupei'ai' vocant. His autem potesta- Constantine pia corpora could take as tem facit lex pactionem quam velint heres, through universal succession, sibi ferre dum ne quid ex publica lege Sav., System, ii. 301, 308; and by a corrumpant. Sed haec lex videtur ex law of the Emperor Leo, A. D. 469, lege Solonis translata esse." Dig., municipal corporations received the xlvii. 22, lex 4. same privilege. See Codex, vi. lex ' Dig., iii. 4, lex 7 pr. See Dig., 24, § 12. iii. 4, lex 2. ^ Dig., xxxviii. 3, lex 1 ; and Sav., ' Dig., xli. 2, lex 2. System, ii. 805, and authorities there cited. 4 CHAP. I.] CORPORATIONS IN THE ROMAN LAW. [§ 9. rights and inein* obligations. But, if its representatives bor- rowed money on its behalf, it was liable to repay only the part actually applied to its use.^ Execution against the goods of a corporation took place in the same manner (by a missio in pos- sessionem) as an execution against an individual.^ Criminal law did not apply to corporations ;' neither could they be held liable in actions arising ex delicto^ unless they had been enriched through the wrong.* § 8. As to the managemefit of the affairs of corporations under the Roman law, very little is positively known ; and corporate the few passages in the Pandects relating to this topic manage- seem applicable only to municipal corporations.* Little more can be said than that probably, for the transaction of im- portant business, the presence of two-thirds of the members was necessary to constitute a quorum; which number present, a majority vote was decisive.' § 9. From the Roman rule that the heres succeeded to, the legal personality of the deceased arose the peculiar conception of what many maintain to have been re- ja^^'g*."''^^ garded by the Roman law as a legal person, hereditas jacens. This was the sum of the rights and liabilities of the deceased at the time of his death, regarded as subsisting by itself as a unit or a whole, until it should be determined who was to be the heres ; " hereditas personae vice fungitur, sicuti municipium et decurio et societas."^ ' Dig., xii. 1, lex 27; see Sav. Sys- iv. 3, lex 15, § 1. See Grotius, De tem, ii. 294. Jure Belli, ii. xxi. 7. ' See Sav. System, ii. 297. ' It is possible that some of the pas- ' Sav. System, ii. 312. sages already cited as applicable gene- * Sav. System, ii. 317. " Sed an rally, were intended by the authors of in municipes de dolo detur actio, them to refer to municipal corporations dubitatur. Et puto ex suo quidem only. dolo non posse dari ; quid enim muni- ^ See Sav. System, ii. 324 et seq. cipes dolo facere possunt ? sed si quid Dig., 1. 9, leges 2 and 3; Codex, x. ad eos pervenit ex dolo eorum, qui res 31, lex 45 ; Dig., 1. 1, lex 19 ; Dig., eorumadministrant, putodandam. De iii. 4, leges 3 and 4 ; Grotius, De Jure dolo autem decurionem in ipsos decu- Belli, ii. v. 1 7. riones dabitur de dolo actio." Dig., ' Dig., xlvi. 1, lexv22; Dig., xli. 3, lex 15 pr. See Sav. System, ii. 365. 5 §12.] THE LAW OF PRIVATE CORPOKATIONS. [CHAP. II. CHAPTER II. THE NOTION OF A CORPORATION IN THE COMMON LAW.' Relation of the common to the Roman law, § 10. Coke's idea of a corporation, §§ 11-13. Blackstone's idea of a corporation, §§ 14, 15. . P.erpetual succession, § 16.. Capacity to sue and use a seal, § 17. Capacity to hold lands, § 18. Capacity to make by-laws, § 19. Dissolution, § 20. Doctrine that a corporation is a person, §§ 21, 22. § 10. The early common law of corporations was largely „ , ^. , borrowed from the Roman law.^ In the Roman Relation of the com- system, however, there are not to be found the fan- Roman tastio structures of split hairs, with which the com- ^*^" mon lawyers, aided by the philosophers of the schools, delighted to adorn their system of jurisprudence. The " myste- rious," " intangible," " invisible," " immortal," though " soulless" qualities of corporations are the creatures of the common law. § 11. In Coke on Littleton and Coke's Reports, the common „ , , ., law is embodied as in no other volumes,, It is, there- of a corpo- fore, in the main Coke's conception of a corporation which is given in this chapter, the modifications and developments of later authorities being briefly noted. § 12. " A body politic," says Coke, " is a body to take in suc- cession, framed (as to that capacity) by policy, and therefore it is called by Littleton a body politic ; and it is called a corpora- tion or a body incorporate, because the persons are made into a body, and of a capacity to take and grant, etc."' ' See Case of Sutton's Hospital, 10 Rep. 1 ; Comyn's Digest, Title " Fran- chise;" Coke on Lit., Thomas' Ed., Book I. chap. xiii. ; Viner's, RoUe's, and Bacon's Abridgments, Title " Cor- poration;" Kyd on Corporations, In- troduction ; Blackstone's Com., Book I, chap, xviii. ; 2 Kent's Com., Lecture 6 xxxiii. ; Angell and Ames on Corpo- rations, Introduction and chaps, i., ii., and iii. * E. g., the passage in Bracton, f, 7, concerning the ownership of public buildings is quoted from the Ins. of Justinian, ii. 1, § 6. s Co. Litt., 250 a. CHAP. II.] CORPORATIONS IN THE COMMON LAW. [§ 12. "And it is to be known that every corporation, or incorpora- tion, or body politic or incorporate, which are all one, either stands upon one sole person, as the king, bishop, parson, etc., or aggregate of many, as mayor, commonalty, dean, and chapter, etc., and these 'are in the civil law called ubiversitas si ve col- legium. N'ow it is to be seen what things are of the essence of a corporation.' 1. Lawful authority of incorporation, and that may be by four means, sc. by the common law, as the king himself, etc., by authority of parliament; by the king's charter;^ and by prescription. The 2d, which is of the essence of the in- corporation, are persons to be incorporated, and that in two manners, sc. persons natural, or bodies incorporate and political. 3. A name by which they are incorporated.' 4. Of place, for without a place no incorporation can be made. 5. By words sufficient in law, but not restrained to any certain, legal, and prescript form of words."* " . • . . When a corporation is duly created all other inci- dents are tacitly annexed. And for direct authority in this point in 22 E. 4, Grants, 30, it is held by Brian, chief justice, and Choke, that corporation is sufficient without the words to implead and be impleaded, etc., and therefore divers clauses sub- sequent in the charters are not of necessity, but only declaratory, and might well have been left out, as 1. By the same to have authority, ability, and capacity to purchase, but no clause is added that they may alien, etc., and it need not, for it is inci- dent. 2. To sue and be sued, implead and be impleaded. 3. To have a seal, that is also declaratory, for when they are incorporated they may make or use what seal they will.* 4. To restrain them from aliening or devising but in certain form ; ' " To the essence of a . . . .body do things that concern their corporation, corporate two things are only requisite, or otherwise there is no corporation." sc. an incorporation and a gift, and not Viner's Abridgment, Tit. Corp. (A. any words of fundare, exegire, and 2.) 1. stabilere, or words to that effect." * Sutton's Hosp., 10 Rep. 29 b. Case of Sutton's Hospital, 10 Rep. 28 a. = " A corporation cannot do an act ' Compare Franklin Bridge Co. v. in joats without their common seal, yet Wood, 14 Ga. 80. they may do an act upon record." ' " A corporation is a body politic, Viner's Ab't, Tit, Corp. (G. 2.) 9; consisting of material bodies, which, see Com. Dig. Franchise, F. 13, and jioined together, must have a name to 1 Kyd, 259-268. , 7 § 12.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. 11. that is an ordinance testifying the king's desire, but it is but a precept and does not bind in law. 5. That the survivors shall be a corporation, that is a good clause to oust doubts and questions which might arise, the number being certain. 6. If the revenues increase, that they shall be used to increase the number of the poor, etc., that is but explanatory. 7. To be visited by the governors, that is also explanatory. 8. To make ordinances; that is requisite for the good order and government of the poor, etc., but not to the essence of the incorporation. .... 10. The license to purchase in mortmain is necessary for the maintenance and support of the poor, for without revenues they cannot live, and without a license in mortmain they cannot lawfully purchase revenues, and yet that is not of the essence of the corporation, for the corporation is perfect without it."i " And it is great reason that an hospital, etc., in expectancy or intendment, or nomination, should be sufficient to support the name of an incorporation, when the corporation itself is only in abstracto ; . . . . for a corporation aggregate of many is invisible, immortal, and rests only in intendment and con- sideration of the law; and therefore in 39 H. 6, 13 b. 14, a dean and chapter cannot have predecessor nor successor, 21 E. 4, 27 (72) a, and 30 E. 3, 15. They cannot commit treason nor be outlawed nor excommunicate, for they have no souls,^ neither can they appear in person, but by attorney. A corporation ag- gregate of many cannot do fealty, for an invisible body can neither be in person nor swear; and .... it is not subject to imbecilities, death of the body and divers other cases. A thing which is not in esse but apparent expectancy is regarded in law.* .... So nCte, reader, a difference between an estate or interest, which none can take without present capacity, and a power, liberty or franchise, or thing newly created, which may take effect infutu.ro."* ' Jh. 30 b and 31 a. souls .... and this was the opinion 2 That corporations have no souls of Manwood, chief baron, touching was clearly demonstrated before the corporations." Tippling v. Pexall 2 days of railroads. " None can create Buls. 233. souls but God; but the king creates ' Sutton's Hosp., 10 Rep. 32 b. corporations ; therefore they have no * lb. 27 b. 8 CHAP. II.] CORPORATIONS IN THE COMMON LAW. [§ 14. § 13. By implication, as well as by express words, could a corporation be created ; for, " it is well observed, that in old times the inhabitants or burgesses of a town or borough were incorporated when the king granted to them to have gildam mercatoriam."' § 14. A century and a half after the time of Coke, Blackstone speaks of the nature of corporations somewhat in detail. " As all personal rights," says he, " die with stone's idea the persons, and as the necessary forms of investing °ation"^^°" a series of individuals, one after another, with the same identical rights, would be very inconvenient, if not im- practicable, it has been found necessary, where it is ,for the advantage of the public to have any particular rights kept on foot and confirmed, to constitute artificial persons who may maintain a perpetual succession, and enjoy a kind of legal immortality. These artificial persons are called bodies politic, bodies corporate (corpora corporata), or corporations."* Again, says Blackstone, " The name of the corporation is the very being of its constitution ;" and, he continues, " the rights, capacities, and incapacities, which are necessarily and insepa- rably incident to every corporation, which incidents, as soon as a corporation is duly erected, are tacitly annexed of course are : (1) To have perpetual succession . . . and, therefore, all aggregate corporations have a power necessarily implied of electing members in the room of such as go oft". (2) To sue and be sued, implead or be impleaded, grant or receive by its corporate name, and do all other acts as natural persons may. (3) To purchase lands and hold them for the benefit of them- selves and their successors, which two are consequential to the former. (4) To have a common seal ... (5) To make by-laws or private statutes for the better government of the ' lb. 30 a. " By special words the 172, 188. "A corporation is good king may make a limited corporation without limiting any number certain for a special purpose ; as if the king of persons to be of the corpora- grants probis hominibus de Islington tion." Viner's Abt. Tit. Corp., F. 9. et successoribus suis rendering a rent ; "And one corporation may be made this is a corporation to render the rent out of another corporation." Sutton's to the king, and not otherwise." Hosp., 10 Rep. 31b; see ib. 33 b. Viner's Abt., Tit. Corp., G. 3 ; see, « 1 Bl. Com. 467. also, Stebbins v. Jennings, 10 Pick. 9 § 16.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. II. corporation, which are binding on themselves, unless contrary to the law of the realm, and then they are void."* § 15. Blackstone's statements are usually noteworthy for their perspicuity rather than their logic. Throughout his enumeration of the ordinary incidents of corporations, it is apparent, by his indiscriminate use of singular and plural pro- nouns, that he is not able wholly to make up his mind whether the capacities enumerated attach to the corporation as a unit, or to the members. § 16. As Coke says : " A body politfc is a body to take in succession;"' so Blackstone regards the capacity of succession, perpetual succession as the quality which, more than any other, constitutes the corporation what it is, and differentiates it from what it is not. " This is the very end of its incorporation," says he, " for there cannot be a succession forever without an incorporation."' Mainly to this quality, then, is due the artificial personality of the corporation.* But is it entirely clear how this quality is a quality of the corpora- tion at all ? for, as Coke himself says, " A dean and chapter cannot have a predecessor nor a successor."" Perpetual succession of whom ? how ? and to what ? Appa- rently of the members, who, by fulfilling conditions prescribed by the charter, succeed to the rights and duties of former mem- bers, or acquire similar rights and incur similar duties; These rights and duties relate to the corporate property, purpose, and to the capacity of corporate action ; in fact to the corporation. ' 1 Black. Com. 475, 476 ; Kent ence, a body corporate, an artificial adds a sixth, the power of amotion or being, is constituted." Nelson, C. J., removal of members. 2 Kent, Com. in Thomas v. Dakin, 22 Wend. 71. 278. 5 Supra, § 12. "Succession, how- ^- Supra, § 12. ever, is a property of the individuals, ' 1 Bl. Com. 475. who exercise the corporate rights. ' "The distinguishing feature, far They succeed each other. But to say above all others, is the capacity con- that the corporation itself has perpet- ferred by which a perpetual succession ual succession, which is the expression of different persons shall be regarded in general use, and sufficiently accurate in the la.w as one and the same body, for general purposes, appears to be a and may at all times act in fulBlment solecism." S. A. Foote, arguendo, of the objects of association as a single in Thomas v. Dakin, 22 Wend. 32. individual. In this way a legal exist- 10 CHAP, ir.] CORPORATIONS IN THE COMMON LAW. [§ 17. On the other hand, the corporation has certain rights, to which duties on the part of its members correspond. These duties are the objects of the rights of which the corporation is the subject or possessor. Towards outsiders, however, the corpo- ration appears as the only subject of rights, outsiders taking no cognizance of the legal relations between the corporation and its members. Indeed, a common law corporation, as it appears towards the outside world, may be compared to the human body, which remains, as a whole, continuously the same, while the particles of matter composing it change from day to day. The outside world perceives no change in the particles ; it does not even see them; and so can take no cognizance of their relations to the body as a whole. Accordingly, it would seem that in so far as a corporation is to be regarded as a person, or as a whole, distinct from the members, the attribute of per- petual succession denotes the quality of remaining the same while the succession of its members goes on. And the same what ? as to its members, the same object of rights belonging to them, as well as the same subject of rights which have for their objects duties on the part of the members ; as to the out- side world, the same subject or object, as the case may be, of rights subsisting between outsiders and the corporation.* § 17. The second and fourth of the ordinary incidents of cor- porations mentioned by Blackstone, the capacity to capacity to sue and be sued in the corporate name, and to use a sue and use corporate seal, are legal contrivances adapted, the one to facilitate the enforcing of corporate rights and lia- bilities, the other to facilitate corporate action. These two in- cidents may be thought out without conceiving the corporation to be a person, though by retaining this fiction one may dis- pense with looking deeper into the matter to discern who it really is that acquires rights and incurs liabilities through the use of the corporate seal, and who it is whose rights and lia- bilities are enforced by suits in the name of the corporation. ' These remarks are oiFered merely term "perpetual succession," a term as an attempt to analyze the meaning whiph, as used by them, is not suscep- attached by the common lawyers to the tible of clear analysis. 11 § 21.J THE LAW OF PRIVATE CORPORATIONS. [CHAP. II. § 18. The third of the ordinary incidents— the right to pur- chase and hold lands for the benefit of themselves and kjids!'"* successors — is of importance. For this, as Coke says,' a special license in the charter is needed because of the statute of mortmain, but he adds that this right is not of the essence of the corporation, for the corporation is perfect without it. § 19. The last ordinary and inseparable incident mentioned by Blackstone is the power to make by-laws, " bind- by-i"ws.* ing upon themselves, unless contrary to the law of the realm." But Coke says that this right is not essential to a corporation,'' and it is not even ordinarily incident to charitable corporations, whose by-laws are supposed to ema- nate from the founder.' The right to make by-laws, moreover, is inconceivable as a capacity appertaining to the corporation as a unit, as an artificial person, and can be conceived only as a capacity of the members acting as a body. § 20. " When an integral part of a corporation is gone and the corporation has no power of restoring it, the cor- poration is so far dissolved that the crown may grant a new charter to a diflerent set of men."* But, says Coke, " A corporation may be aggregate of many without a head, vide 18 E. 2."° By the death of all natural persons of which the corporation consists, it is dissolved ;* but it is not dissolved by a mere surrender of the charter.' § 21. It was a logical outcome of the notion of a corporation as a person, as a subject of rights and liabilities dis- thatacor- tinct from its members, that liability for corporate a°'per°son!'^ acts should be limited to corporate funds, and that upon the dissolution of a corporation all its rights and liabilities should become extinct.* ■ -Supra, § 12. confreres are void ; for when the sisters ' Supra, § 12. are dead this is not any perfect corpo- ' See Angell and Ames on Corp., § ration." Viner's Abt., Tit. Corp. J. 1. 330, and authorities there cited. ' Case of Sutton's Hospital, 10 Rep. * Rex V. Pasmore, 3 T. R. 199; 30 b. Bacon's Abt., Tit. Corp. G. "If a « Viner's Abt., Tit. Corp. J. 14; corporation be made of confreres and see 2 Kyd, chap. 5, pp. 440 et seq. sisters, and after all the sisters are ' Viner's Abt., Tit. Corp. J. 26. dead, all grants and acts made by the ' " The debts ofa corporation, either 12 CHAP. II.] CORPORATIONS IN THE COMMON LAW. [§22. § 22. The preceding is a mere attempt to outline the common law idea of a corporation. How a corporation came to be regarded as an artificial person seems plain. To see only this fiction of a legal person was easier than looking through it to discriminate and determine to whom the rights arising through incorporation really belong. Besides, up to the present century, the fiction was adequate for the regulation of corporate afliairs ; and what system of law ever looked ahead and saw th,at certain of its fictions were to be stumbling-blocks to unborn genera- tions? The development of law is but a hand to mouth process. to it or from it, are totally extinguished by its dissolution." 1 Bl. Com., 484. Compare the rule of the Roman law, § 6, note 3. One or two definitions of a corporation, which presumably proceed more or less from a common law point of view, may be of interest here. "A corporation, or a body politic, or body incorporate, is a col- lection of many individuals united in one body, under a special denomina- tion, having perpetual succession under an artificial form, and vested by the policy of the law with the capacity of acting in several respects, as an individual, particularly of taking and granting property, of contracting obli- gations, and of suing and being sued ; of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less exten- sive, according to the design of its institution, or the powers conferred upon it, either at the time of its crea- tion, or at any subsequent period of its existence." 1 Kyd on Corp., 13 (1793 A. D.). "A corporation is an artificial being, invisible, intangible, and exist- ing 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 immor- tality, 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. . . . It is chiefly for the purpose of clothing bodies of men in succession with these qualities and capacities that corpora- tions were invented and are in use. By these means a perpetual succession of individuals are capable of acting for the promotion of the particular object like one immortal being." Marshall, C. J., in Dartmouth College v. Wood- ward, 4 Wheat. 636. Compare An- drews V. Union Mut. Fire Ins. Co., 37 Me. 256; Ohio Ins. Co. v. Munne- macher, 15 Ind. 294. "A corporation is a franchise possessed by one or more individuals, who subsist as a body politic, under a special denomination, and are vested by the policy of the law with the capacity of perpetual succession, and of acting in several respects, however numerous the asso- ciation may be, as a single individual." , 2 Kent Com., 268. See, also, Louis- ville R. R. Co. V. Letson, 2 How. 497, 552 ; Bank of U. S. v. Deveaux, 6 Cr. 65, per Binney arguendo. 13 §23.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. III. CHAPTER III. ANALYSIS OF THE NOTION OF A CORPORATION; The two meanings of the term "cor- poration," § 23. Meaning of the terms .i' legal institu- tion" and "legal relation," §§ 24- 27. The constitution of a corporation. In- corporation, §§ 28-30. Fundamental agreement between the corporators, § 31. The corporate funds, §§ 32, 33. Legal relations in respect of the cor- porate funds, §§ 34, 35. Result of the analysis, § 36. Persons between whom exist the legal relations respecting the corporate enterprise, § 37. Corporate management, § 38. Order of treatment, § 39. General nature of the legal relations existing in respect of the corporate enterprise, § 40. Trust relations, §§ 41-47. The corporation also a body of men, §§ 48-50. Conclusion. The "legal person," § 51. § 23. In " a corporation," according to the usual understand- The two ^^S of the term by business men as well as lawyers, meanings exist elements which are the manifestations of law, " corpora- and physical elements which are in no sense! the mani- *'°"" festations of law ; for a corporation is regarded as a legal institution, and at the same time as a collection of per- sons. Indeed, the indiscriminate use of the term " corporation" to denote what exists through the operation of rules of law, as well as to denote physical existences, has caused much confu- sion. The use of the term, however, to convey two meanings, or one twofold meaning, seems unavoidable in the present con- dition of legal terminology ; but much of the confusion result- ing from this equivocal use may be avoided by forming a clear idea of each meaning of the term, or an adequate notion of both sides of its twofold meaning.* ' A few definitions will illustrate the two meanings of the term "corpo- ration," and the confusion sometimes arising. Kent says (2 Com., 267), 14 "a corporation is a franchise pos- sessed by one or more individuals, who subsist as a body politic, under a spe- cial denomination, and are vested by CHAP. Ill,] ANALYSIS OF A CORPORATION. [§24. § 24. Accordingly, let us in the first place regard a corpo- ration as a legal institution. The term legal institution con- the policy of the law with the capacity of perpetual succession, and of acting in several respects, however numerous the association may be, as a single in- dividual." Blackstone (2 Com., 37) also calls a corporation a franchise. On the other hand, Kyd (1 Kyd on Corps., IS) says : " A corporation, or a body politic or a body incorporate, is a collection of individuals, united in one body," etc. See, also, Kansas Pacific R. K. Co. V. Atchison, T. & S. F. R. R. Co., 112 U. S. 415. Or, as Mr. Jay Gould has said, a corporation is " a body of men who unite, associate, concentrate their ability, capital, and intelligence in the undertaking of a work great or small, which any one of them individually would be unwilling to undertake. If there are losses, they agree to bear each his proportion. If there are profits, they agree to divide them." The definitions of Kent and Black- stone convey the one meaning of the term "corporation," and Kyd's and Mr. Gould's the other. The two fol- lowing definitions show how the two meanings may be confused. " A corporation is a body created by law, composed of individuals, united under a common name, the members of which succeed each other, so that the body continues the same, notwith- standing the change of the individuals who compose it, and is for certain pur- poses considered as a natural person." Angell and Ames on Corps., § 1. It IS plain that in so far as a corporation is a body created by law, it is not com- posed of individuals who are not created by law. " A corporation is a legal institution devised to confer upon the individuals of which it is composed powers, privi- leges, and immunities which they yronld not otherwise possess, the most import- ant of which are continuous legal identity and perpetual or indefinite succession under the corporate name, notwithstanding successive changes, by death or otherwise, in the corporators or members of the corporation. It conveys, perhaps, as intelligible an idea as can be given by a brief defini- tion, to say that a corporation is a legal person, with a special name, and composed of such members, and en- dowed with such powers, and such only as the law prescribes." 1 Dillon Munic. Corp., 25. In having more than one meaning the term "partnership" resembles the term "corporation." For instance, Dixon (Law of Partnership, 1) says : " A partnership is a voluntary unin- corporated association of two or more persons," etc. ; while Kent (3 Com., 23) says : " Partnership is a contract of two or more persons," etc. Again the Indian Contract Act (§ 289) says : "Partnership is the relation which subsists between persons who have agreed," etc. Thus partnership is an association of individuals, is a contract, or a relation ; and finally Rutherford (Inst, of Nat. Law, bk. 1, ch. 13, § 9) gives the following lucid definition : " When two or more persons join money, or goods, or labor, or all of these together, and agree to give each other a common claim upon such joint stock, this [?] is partnership." On the other hand the term "surety- ship" has but a single meaning, t. e., the legal relations arising upon an 15 § 26.] THE LAW GF. PRIVATE CORPORATIONS. [CHAP. III. notes a body of legal rules in their manifestation in legal rela- tions' between persons of whom certain correlated theter^s" conditions of fact are predicable." For instance, the stitfuon" rules of law which manifest themselves in legal rela- and " legal ^joug when a person has agreed to answer for the debt, relation." ^ . « i • j. • j.t • default, or miscarriage of another, constitute, in tneir manifestation, the legal institution of suretyship. The facts that one person has made a promise to another, which some third person has promised the promisee that the original pro- misor shall fulfil, constitute correlated conditions of fact which are predicable of the promisor, pronjisee, and surety, who are the persons between whom the legal relations subsist. § 25. It is through fulfilling conditions of fact by doing certain acts, that persons bring themselves within the operation of rules of law which thereupon manifest themselves in rights and liabilities. Every right implies a corresponding liability, and every liability a corresponding right ; which is to say, a right with its corresponding liability constitutes a legal relation. Accordingly, when persons by their acts have brought them- selves within the operation of a group of legal rules, and these rules have in their consequent operation manifested themselves in legal relations between such persons, the sum of these legal relations, i. e., the manifestation of these rules in operation upon individuals, constitutes a legal institution. I 26. It is, therefore, little moi-e than an identical proposition agreement to answer for the debt, refrain from doing something, and a default, or miscarriage of another. It liability means the liability of being never means the individuals betvfeen obliged, by the state acting at the in- whom these relations subsist. stance of the individual possessing the ' In the term "legal relation" the right, to do or refrain; though the word "legal" is used in a broad sense, term liability usually denotes a posi- and not as opposed to " equitable." tive duty to do, rather than h negative ^ The writer has looked in vain for a duty to refrain. Every right implies a definition of this term. His definition corresponding liability, and, together is but an attempt to determine a with this liability, constitutes a legal meaning in which he may use the term relation between two or more persons, consistently. The mental process by See, also, § 442. which this definition was arrived at is Rights and liabilities are called the somewhat as follows: A right is the creatures of law, but, in truth, they power of an individual with the aid of are rather manifestations of law than the state to compel another to do or its creatures. Consider any ordinary 16 CHAP. III.] ANALYSIS OF A CORPORATION. [§ 27. to say that rules of law' manifest themselves in legal relations only between persons of whom correlated conditions of fact are predicable. For instance, an enabling statute in connection with the general rules of corporation law, roughly speaking, may be said to constitute a group of legal rules which may manifest themselves in a legal institution consisting of legal relations, (a) among the persons who file the articles of associa- tion and subscribe for shares, and (6) between such persons and others who may afterwards deal with them as a body corporate in respect of the corporate enterprise. Here the agreeing to the articles and the filing of them are the conditions of fact which must be predicable of the corporators before these legal relations can exist among them ; and that other persons have had deal- ings with the corporators in respect of the corporate enterprise are the further conditions of fact which must be predicable of the corporators and such persons before legal relations between these two classes can exist. § 27. A corporation, then, is the manifestation of a body of rules of law in legal relations between persons who have fulfilled the prerequisite conditions of fact. But what rules of law ? In general, those applicable to corporate enterprises, constituting rule of law. "The lessee shall pay premises, a legal relation arises, to the lessor the rent agreed on in the wit, a manifestation of law, t. e., a. lease," This general proposition, as concrete instance of law in operation, stated here, is not accurate, for there which may be expressed in the follow- is no absolute command from the state ing proposition : " A. has the right to to lessees to pay rent (as there is a' compel B. to pay the rent as agreed on command from the state to all men to in the lease." But there are other refrain from murder). The correct legal relations between A. and B. in legal proposition is this : " At the in- respect of the demised premises, which stance of the lessor, the state will com- further legal relations are the mani- pel the lessee to -pay the rent," which festations of other rules of law, and means that lessors have the right to the sum total of all these legal rela- compel lessees to pay the rent. This, tions, existing in respect to some then, is the general rule. Now where definite subject-matter, is what the certain conditions of fact become pre- writer intends by the term legal in- dicable of A., that is, when A. becomes stitution as the manifestation of a group the lessor of certain premises, and of legal rules in operation. See § 444. when certain correlated conditions of ' The writer leaves out of considera- fact become predicable of B., that is, tion rules of criminal law. when B. becomes the lessee of those 2 ■ 17 I 29.] THE LAW OF PKIVATB CORPORATIONS. [CHAP. lit. what is comiuonly called " corporation law," and, in especial, those contained in the enabling statute, or in the charter of the corporation, if there is one. For it will be borne in mind, that by filing articles of association in pursuance of statutory pro- visions, or by accepting a charter, persons bring themselves within the operation not only of the rules of law in the ena- bling statute or charter, but also of rules applicable generally to corporate enterprises, including many of the rules of the law of contracts and of agency.* § 28. These more general rules of law, together with {hose contained in the enabling statute, or in the charter, tution of a if there is one, are embraced in what may be called ikm.""^!!!- the constitution'' of the corporation ; and the action corpora- ^f these rules (i. e., the manifesting of themselves in legal relations), as caused by the corporators fulfilling the prerequisite conditions of fact (filing articles of association or accepting a charter), may be called incorporation, the result of which is a legal institution, to wit, a corporation. § 29. But the legal relations which arise immediately conse- quent upon incorporation are not its entire consequences. In- corporation has the further indirect result that future acts in respect of the corporate enterprise will give rise to legal rela- tions different from those which such acts would have occa- sioned had there been no incorporation. Had there been no in- corporation, the corporators might have proceeded to carry out the same business enterprise which they intend to prosecute after incorporation. They might have subscribed an amount of capital equal to the capital stock mentioned in the articles of association, and they might have done business on this capi- tal, although not incorporated. But, doing business as an un- incorporated firm, they would have incurred liabilities which, ' SeeKelfeu. Rundle, 103U. S.222. tion connotes a body of legal rules in " See Relfe v. Rundle, 103 U. S. their manifestation," etc. By the 222. It will be noticed that the term term constitution is intended the same "constitution of the corporation" con- body of rules, but considered as pas- veys a notion similar to that conveyed sive without regard to their manifesta- by the term " corporation," meaning a tion in legal relations ; without regard, legal institution. As was said, some that is, to whether individuals are with- pages back, "the term legal inRtitu- in their operation or not. 18 OHAP. III.] ANALYSIS OF A CORPORATION. [§ 31. through incorporation, they avoid. The legal relations arising in respect of their enterprise, for instance through contracts entered into in its prosecution, would have been the raanifestar tioH, not of corporation, but of partnership law. § 30. Incorporation, however, far from changing the legal effect of any and all acts which may be done by the persons who are corporators, changes the legal effect' only of acts done in respect of the corporate enterprise. The constitution of a cor- poration is operative only in relation to the purposes of incor- poration and the means of their attainment. It is only as to these purposes, that the corporators, through incorporation, are enabled to act as an incorporated body ; and it is only acts in relation to the corporate enterprise that occasion the rules of law embraced in the constitution of the corporation to operate upon the actors. Phrasing the whole matter somewhat diffe- rently, it may be said that the corporators by incorporation ac- quire the legal competency to employ certain funds or other property for the attainment of a certain object in a manner in which it would not have been legally competent for an unin- corporated company to act. § 81. By far the most important of the acts which on the part of the corporators bring about incorporation, is the agreement, contained in the charter or articles of mental association, whereby the parties thereto .agree that the bftwee™ legal relations constituting the corporation shall arise Jators"^^"" between them. This agreement is fulfilled through incorporation, which causes certain of the contemplated legal relations to arise, and provides for the coming into existence of further legal relations upon the doing of further acts in respect of the corporate enterprise. Upon incorporation this agree- ment receives the sanction of the rules of law in the constitu- tion of the corporation, its terms becoming a part of the legal rules which manifest themselves in legal relations in respect of the corporate enterprise. Whether, and in what sense, the state may be regarded as a party to this agreement will be discussed in another chapter.* Here, it suffices to say, that the agree- > Legal effect, i. e., the legal rela- ' Infra, chap, viii., § 438 et seq. tions 'which an act occasions. J9 §; 33.] THE LAW OF PKIVATE CORPORATIONS. [CHAP. III. ment thus embodied in the constitution of the corporation can- not be changed by the state unless the state reserves the power to change it; and this amounts to saying that the constitution of the corporation cannot be changed in any material respect by the state, unless the power to change it is reserved.* If this power is reserved, the agreement between the corporators, em- bodied in the constitution, must be regarded as made subject to the power of the state to alter the constitution and the agree- ment which it contains. § 32. The legal relations resulting from incorporation subsist in respect of the object of incorporation specified in the charter or articles of association and the means of attaining this object. The cor- *' ^"i ^^^ Corporate funds and property. Roughly porate speaking, the general result of these relations is that the corporate funds become a so-called trust fund set apart for the attainment of the object of incorporation, as will be explained. § 33. What is the legal situation of these funds ? Can any one be said to own them ? Austin says :^ " The proprietor or owner is empowered tq turn or apply the subject of his property or ownership to uses or purposes which are not absolutely un- limited, but which are incapable of exact circumscription with regard to class or number." And again, the owner " may not use his own so that he injure another, or so that he violate a duty, relative or absolute, to which he himself is subject. But he may turn or apply his own to every use or purpose which is not inconsistent with that general or vague restriction." From the idea of ownership conveyed by these passages from Austin, it is plain that corporate funds cannot with propriety be said to be owned by any one ;' tha,t is to say,- the legal rela-, tions subsisting in respect of corporate funds are unlike those subsisting in respect of property which is mine. Using the term " corporation" in the sense of a legal institution, to say that the corporation owns the corporate funds is meaningless, ' Except in the exercise of certain ' "Strictly speaking, ownership is powers which the state is held always the right of a natural person or persons to reserve, see §§ 465, 466. only." State v. Bank of Louisiana, 6 * Lect. xlvii. on law as to its pur- La. 745, 759; see also Angell and poses and sujyects. Ames on Corp., § 160. 20 CHAP. III.] ANALYSIS OF A CORPORATION, [§ 35. for the legal relations in respect of the corporate funds are nothing but the major part of the legal relations composing the corporation ; and consequently to make this assertion is to say that a mass of legal relations owns the major part of itself, which is nonsense. On the other hand, using the terra corpo- ration in the second sense before referred to,' as meaning a body of men, to assert that the corporation owns the corporate funds is to make not a meaningless, but an incorrect assertion. Even in law, it is best not to use terms in two senses. The term ownership connotes an indefinite multitude of rights in respect of the thing owned, including the right to destroy it. This multitude of rights is certainly not possessed by the corporators either singly or as a body corporate; and, accordingly, with no propriety can they be said to own the corporate funds. § 34. The discussion of the legal relations in respect of the corporate funds, L e., the funds standing in the name j^ j ^^-^^ of the corporation, will constitute a large part of this tions in volume. The general outline is this : The state has the corpo- the power or right to enforce the application of these ^^ ^ "^° ^* funds to the objects of incorporation, at least so far as the public is interested in their attainment; the shareholders have the right to apply these funds to these objects ; and the creditors of the corporation have the right to prevent the diversion of these funds from the objects of incorporation to the injury of creditors. The result of the respective rights of these different classes of persons is that corporate property becomes a fund set apart for the attainment of certain purposes from which it can- not be diverted without the consent of all whose legally pro- tected interests would be injured by such diversion. It becomes a trust fund, a " Zweckvermogen," as a German writer, Brinz, has aptly termed it. § 35. Persons, not shareholders, bring themselves within the operation of the rules of law in the constitution of the corpo- ration by contracting with the corporate representatives. The rights of such persons are -the manifestations of these rules, which, in their operation, exclude the operation of other rules ; ' See § 23. 21 § 37.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. III. as, for instance, rules whose operation would have been occa- sioned by contracting with the agent of an unincorporated firm. § 36. The result of the analysis reached at this point is briefly this : a corporation, considered as a legal institution, th^e anaiy- is the sum of the legal relations resulting from the ^oint.*'^ operation of rules of law in its constitution upon the various persons, who, by fulfilling the prerequisite conditions, bring themselves within the operation of these rules. The general effect of these legal relations is to convert the cor- porate funds, in respect of which, through the operation of the constitution of the corporation, ownership properly speaking ceases, into a trust fund for the attainment of the objects of incorporation. § 37. It is needful here to state more specifically between Persons whom these legal relations subsist. There is first between the ' State, which is to be viewed in two characters : ist the {a) as the political superior from whom emanate the lattons're- rules of law which manifest themselves in legal rela- specting tions in respect of the corporate enterprise ; arid (b) as porate a party between whom and others, through incorpo- ration, arise legal relations of a peculiar nature pro- tected by the constitution of the United States.' Secondly, there are the shareholders ; thirdly, it will be convenient to re- gard the persons who ordinarily manage the corporate affairs — the directors and other ofl[icers — as a distinct class. Creditors constitute the remaining class of persons interested in the cor- porate enterprise. Their only interest is to be paid what is due them, and their only right is that the corporate funds shall not be wasted or misapplied so as to endanger the payment of their claims. It will be necessary, moreover, to consider the legal relations subsisting between individuals of the same class ; and, finally, there is still another and somewhat different view, which it will be convenient if not necessary to take of the legal relations in respect of the corporate enterprise. They must be regarded as subsisting between individuals of, a class and the body cor- ' See chap, viii., § 438 et seq. 22 CHAP. III.] ANALYSIS OE A CORPOKATION. [§ 39. porate as representative of the interests of all persons in the corporate enterprise. § 38. The very notion of any organized body of men, or body- politic or corporate, implies the existence of certain ^.^^ ^^^^ rules for the management of the affairs of the body, manage- The constitution of a corporatioa always contains rules for the management of the corporate enterprise ; provid- ing, as it does, that acts within the scope of the purposes of incorporation shall, if done by certain persons, have the same legal effect as if done or assented to by every one interested in the corporate enterprise. These certain persons are said to exercise the corporate powers. By filing articles of association, or accepting a charter, shareholders agree that the corporate enterprise shall be managed as provided for in the charter, or in the enabling statute and articles of association. Their indi- vidual right to manage the funds subscribed they surrender into the hands of a majority of themselves, and into the hands of the officers of the corporation, as provided for in the consti- tution. To the provisions in regard to the corporate manage- ment creditors impliedly assent in contracting with the corpo- ration. Thus, the body corporate, consisting of the shareholders as an organized body acting through the will of the majority and composing the corporation (regarded not as a legal institution, but as a body of men'), is an agency with plenary authority to employ the corporate funds for the purposes of incorporation, and the acts of directors within the scope of their authority to act for the corporation are to be regarded as the acts of the body corporate. The remedy of persons aggrieved through the misapplication of corporate funds lies ordinarily against the body corporate ; and the majority of questions litigated in court arise between some person or persons and the body corporate as representing all persons in any way interested in the corporate enterprise. § 39. In accordance with the foregoing remarks, the legal relations constituting the corporation will, in the chapters which follow the chapter on the legal effect treatment. ' §§ 48-50. 23 § 41.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. III. of acts done on behalf of a corporation,* be treated in the following order: First, relations between the state and the body corporate as representing all persons interested in the corporate enterprise, and between the state and the different classes of these persons ; secondly, the legal relations between the body corporate and these different classes of persons; thirdly, the legal relations between these different classes of persons ; and, lastly, the legal relations among persons of the same class. § 40. Here a few remarks must be made on the general nature of these relations. They exist for the most part in nature of respect of a certain fund, as to which various persons ttoBsexirt- l^av^ rights. But not all of these various persons ing In re- (^jj^ creditors, for example) have ordinarily a voice in SpBCti 01 the • -1 -1 11 corporate the management of this lund ; and consequently these enterprise, ^^g-gpg^^ pcrsons have not equal opportunity to pro- tect their respective interests. Some of these persons, moreover, on account of rules which may exist in the constitution of the corporation, may be temporarily unable to enforce certain of their rights f as, for instance, creditors may be temporarily dis- abled by the rule of general application that no creditor of the corporation can bring an action against the shareholders indi- vidually to enforce either unpaid subscriptions or statutory liability, until he has obtained judgment against the corpora- tion, and execution thereunder has been returned unsatisfied. From these and other considerations, it would s.eem that many of the relations in respect of the corporate enterprise are what are loosely called " trust relations," a species of legal relation the essential peculiarities of which it would be well to deter- mine before proceeding further. § 41. When ' one man owes a legal duty to another, which other actually or presumably is not in a position to reMons." enforce, at least for the time, the law imposes on the person owing the duty a stricter accountability to the person to whom the duty is owed than ordinarily exists between man and man. That is to say, the circumstances are such that ' Chap. vii. temporarily in abeyance, or not yet ' Or we may say their rights are consummate. 24 CHAP. III.J ANALYSIS OF A CORPORATION. [§ 44. rules of law apply to the two persons, which manifest them- selves in peculiarly advantageous rights in the person under a disability. These are rights whicli, were it not for the circum- stances causing the disability as a compensation for which they are given, the person under the disability would not have had. For instance, through inexperience and on account of other cir- cumstances, an infant is presumed incapable of protecting itself against the acts of its guardian. Accordingly, not all the rules of law, applying ordinarily to transactions of sale, for instance, apply when the guardian purchases his ward's property ; but cer- tain other rules of law apply, which create further rights in the ward, and impose a most stringent accountability on the guar- dian, preventing the latter from taking advantages and profits to which he would have been entitled had the seller not been his ward. § 42. Accordingly, wherever there exists what is called a trust relation, there will be found an inability on the part of the cestui que trust to protect himself against the improper acts of the trustee ; an inability arising either from the status of the former, as infancy or insanity, or from the special circumstances of the case. A client cannot adequately guard against, the im- positions of his attorney, nor an absent principal against the improper acts of his agent. § 43. Again, where a trust relation exists, there will usually be an actual confiding in the trustee by the cestui que trust, who intrusts his aflfairs to the former, or whose property may be con- fided to the trustee by others, as in testamentary guardianship. And the law will protect such confidence from abuse. The element of actual confidence does not exist when a person is held to the duties of a trustee by reason of his wrongful act, as the wrongful taking of another's property. § 44. A trust relation arises between directors and shares holders, because it is impracticable for the latter to keep them- selves adequately informed of the state of the corporate business, and because they have put confidence in the directors. The directors are in a position to do the shareholders injuries, against which the latter can protect themselves only through the aid of the rules of law which manifest themselves in trust relations between these two classes of persons. Trust relations exist also 25 § 47.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. III. between the directors and the creditors of thfe corporation, on account of the inability of the creditors to protect their inte- rests in the funds which the directors manage. § 45. Possibly it may also be said that shareholders, to the extent of their unpaid subscriptions to the capital stock, are affected with duties towards creditors, which constitute trust relations between them; for unpaid subscript;ions, just as much as those paid in, are held to form part of the corporate funds, of the trust funds, to be devoted to the objects of incorporation ; objects which include the payment of liabilities contracted in their pursuit. Yet this proposition is questionable, and there is a decision to the contrary.* § 46. The reason last stated points to the third element often present when a trust relation exists, to wit, possession by one person of property of which another is the legal or equitable owner, or in respect of which the other has rights. This element occasions a trust relationship when one person has wrongfully taken the property of another ; and the same • element may be regarded as occasioning a trust relationship between' bailor and bailee in respect of the property bailed ; and thus a person may be held as trustee for another in certain respects, or in respect of certain property, while in other respects he owes the latter no special duty. ♦§ 47. In short, the circumstances ordinarily occasioning a trust relationship are: First, actual or presumptive inadequacy of the legal rules applicable to transactions of the same kind with the transaction occasioning the supposed relation, to bring about what the law regards as just or expedient ; an inadequacy which may be due either to status or the peculiar circumstances of the case; secondly, confidence invited by one person, and by another actually reposed, in the discretion, honesty, and ability of the former ; and thirdly, possession, rightful or wrongful, of property belonging to anotherj or in respect of which the other has rights.* • Morrison v. Savage, 56 Md. 142. suitable, except for the roughest olassi- ^ It appears at a glance that the fication. term trust relation is vague and un- 26 CHAP. III.] ANALYSIS OF A CORPORATION. [§ 51. § 48. Thus far a corporation has been regarded . solely as a mass of legal relations. It is now necessary to deter- mine who are the individuals composing the corpo- poratSn ration regarded, not as a mass of legal relations, but ai^o a body T.1P ^., . -, ^ , of men. as a body or men. Can it be said that the corpora- tion, or body corporate, is composed of all the persons between whom these legal relations subsist? This conception would embrace all persons in any way interested in the corporate en- terprise ; it would embrace the state as representing the public, and, besides the shareholders* and directors, it would also em- brace the creditors of the corporation. No doubt this concep- tion would be adequate ; but, in the first place, it is repugnant to any popular or technical meauing of the term corporation ; and, moreover, the conception of such an undefined body of men, if not hopelessly indefinite, would be at least too unwieldy for use. § 49. On the whole, it is more in accordance with the ordi- nary use of terms, and a far clearer and more serviceable con- ception to regard the corporation as consisting of the share- holders, who may with propriety be said to constitute the body corporate, as it is through their acts, or the acts of their prede- cessors, that incorporation is caused. The management of the corporate enterprise is in their hands, or in the hands of persons chosen by them ; and on them and their appointees the consti- tution confers the competency to do acts which Occasion legal relations in respect of the corporate enterprise ; in them and their appointees, that is to say, are vested the corporate powers. § 50. The shareholders, then, vested with the corporate powers, are the body corporate, corporation, or company. It is their acts, when done in the manner prescribed in the consti- tution of the corporation, that are, properly speaking, acts of the corporation. The main feature of their organization, as a body corporate, is that by virtue of their organization acts done in pursuance of its terms and within the scope of its purposes are in effect the acts of all ; and, accordingly, such acts of a majority of a requisite quorum are to be regarded as the acts of the whole body. § 61. Such, then, are the two meanings of the term corpora- tion ; the one, the sum of legal relations subsisting in respect of 27 §51.] THE. LAW OF PRIVATE CORPORATIONS. [CHAP. III. the corporate, enterprise ; the other, the organic body of share- Conciusion ^olders whose acts cause the operation of the rules The "legal of law in the constitution. These two conceptions person." ^jjeiu^e all that is really connoted by the term in whatever sense used. And, if so, what has become of the vene- •j^le "legal person"? is he still somewhere, as he has al^ys been imagined? or is he nowhere, as he has always actually been? Shall we regard him as being not only the sum of the legal relations in respect of the corporate enterprise, but, also, as being at the same time the body corporate consisting of shareholders ? Shall we say, he is the combination, the mystic unification of our two conceptions ? Better not ; better forget him. For he is a conception, which, if it amounts to anything, is but a stumbling-block in the advance of corporation law towards the discrimination of the real rights of actual men and women. And then, after all, what has he ever been but an ab- straction materialized in a name ?' ' How persons could succeed each other in the enjoyment of the same rights was a puzzle in the early law, to be solved only through regarding the successor as continuing in some way the legal personality of his predecessor. Sefe the chapters on Succession in Mr. Holmes's interesting work "On the Common Law." The best known in- stance of the continuance of legal per- sonality is the universal succession of the Boman law. But the early com- mon law notions of succession resemble those of the Roman law more closely than is ordinarily supposed. The fiction of a legal person was largely due to the difficulties of the early lawyers in respect of the succes- sion of one person to the rights of another. Even to-day we help out our thought by saying that an assignee "stands in the shoes" of his assignor. However useful this fiction may once have been, it as to-day inadequate for the purpose of doing justice among 28 persons interested in corporate enter- prises. And even where it can still be used, matters may be frequently sim- plified by avoiding it. Take, for in- stance, the following passage: "If a person becomes surety to several peo- ple for the conduct of a servant in their employ, and those people are after- wards incorporated, the surety is dis- charged ; for the person created by the act of incorporation is different from the persons in whose employ the ser- vant was, and with whom the surety contracted." 1 Lindley on Part., 214 ; seeBensingeru. Wren, 100 Pa. St. 500. In this passage a fiction is used to prove a legal proposition, the plain reasons of which lie on the surface. The contract of suretyship is strictly construed in favor of the surety. In the passage quoted, the liability of the corporators for acts of their servants, as well as their relations to the latter were changed by their own incorpora- tion. Any such change discharges the CHAP. III.] ANALYSIS OF A COEPORATION. [§51. surety, who made a certain distinct contract, ■which was not a contract to guaranty the fidelity of a servant of an incorporated body of men. It is in respect of the doctrine of ultra vires, that the fiction of a legal person is most pernicious, as this fiction involves regarding a corporation as a unit, and retards the proper discrimi- nation of the rights of different persons in regard to ultra vires acts. Moreover, in the present condition of business enterprises in this country, this fiction may give rise to insolvable problems. For instance, a railroad company. whose road extends through two states, is organized under charters from both ; each charter being the counterpart of the other. Is the result one or two " legal persons" ? Since as much may be said on one side as the other, the problem is as insolvable as it is gratui- tous. The question of real importance is : What are the rights and liabilities arising under these charters in respect of the corporate enterprise ? And this question may be answered without reference to whether this railroad com- pany is one or two "persons," or Siamese twins born of different mothers. 29 §53.] THE LAW OF PRIVATE CORPOKATIONS. [CHAP. IV. CHAPTEE IV. RESEMBLANCES BETWEEN CORPORATIONS AND CERTAIN OTHER LEGAL INSTITUTIONS. Object of the chapter, § 52. What law applicable to corporations, §53. New York statute of 1875, §§ 54, 55. New York joint-stock associations, §56. Comparison, § 57. Limited partnerships, § 58. Partnerships: dissimilar from corpo- rations at common law, § 59. Points of difference remaining, §§ 60, 61. The element common to these various legal institutions, § 62. Material questions, § 63. Law applicable to corporations how determinable, §§ 64, 65. Changes in corporation law, § 66. The use of analogy, §§ 67-69. The application of general .principles, §§ 70, 71. § 52. The object of this chapter is to point out some of the elements which corporations have in common with Sechapter. Certain other legal institutions, and to determine somewhat more specifically than was attempted in the preceding chapter the rules of law which manifest them- selves in the legal institutions called corporations. The danger of reasoning unguardedly as to questions of corporation law from the analogy of other legal institutions will be referred to incidentally. § 53. The common law notion of a partnership was sharply differentiated from the common law notion of a cor- applicable poration. Nowadays it would not be easy to find a Mon^'""^^" business corporation corresponding to the common law notion of a corporation. On the other hand, we find everywhere a great multitude of legal institutions, in great part the manifestations of statutory law, which resemble part- nerships in some respects, while, in other respects, they resemble common law corporations. The law of these legal institutions, however, is not the law of partnership, nor is it altogether the common law of corporations. It is rather the statutory law 30 CHAP. IV.] RESEMBLANCES TO OTHER INSTITUTIONS. [§ 55. under which they are organized, together with the later phases of the common law of corporations, construed and interpreted in accordance with the general rules of the law of contracts and of torts. To notice here a few of the statutory provisions applying to some of these institutions will give point to the remarks which will follow. § 54. On June twenty-first, 1875, the legislature of New York passed " An act to provide for the organization of certain business corporations." Under this' act, York stat^ any five or more persons, a majority being residents "*^°^^ ''^• of the state of K"ew York, may file in the office of the secretary of state at Albany an application for a " certificate of incor- poration." The application must set forth the intended name, object, and duration of the proposed corporation ; as well as its intended place of business, and the amount with a description of its capital stock. Upon the filing of this application, the secretary of state is authorized to iSsue a license to those per- sons to open subscription books as commissioners ; and when, in pursuance of the terms of this license, one-half of the pro- posed capital stock has been subscribed for, the commissioners may call a meeting of the subscribers to adopt by-laws and elect directors of the company. By-laws having been passed, directors elected, and a certified record of the proceedings filed with the secretary of state, " the secretary of state shall issue" a final certificate of incorporation. These companies have the ordinary " powers of corporations." § 55. Corporations created under this act are of two classes, " limited liability" companies, and " full liability" companies. In the former class, the shareholders remain severally liable to the creditors of the company, to the amount of stock held by them, for all debts of the company, until the whole amount of the capital stock has been paid in, and a certificate to that effect made and recorded. But no execution can issue against the " stockholders until an execution has been issued against the company, and returned unsatisfied." In the "full liability" companies, all the shareholders are "severally individually liable .... for all debts and liabilities of such company, and may be joined as defendants in any action against the company ;" 31 § 66.] THE LAW OF PRIVATE COBPORATIONS. [CHAP. IV. though execution can issue against the stockholders only under the conditions prescribed in regard to the " limited liability" companies. In both classes of compa^iies, contribution among shareholders in respect of their individual liability is provided for ; and it is also provided that a dissolution of the company shall not impair any remedy given against such company, its shareholders, or officers for any liability incurred prior to its dissolution. § 56. A comparison of these " full liability" corporations with certain joint-stock companies, which are not called " joi^°'^ " corporations," will show the difficulty of using the ciattons "° term " corporation" in classifying legal institutions. Chapter 258 of the New York laws of 1849 provides : (1) that any joint-stock company or association of seven or more shareholders or associates may sue and be sued in the name of the president or treasurer for the time being of such joint stock company or association ; (2) that such suit shall not abate by reason of the death or removal of the president or treasurer ; (3) that the president or treasurer shall not be personally liable for any such suit (though this provision is not to exempt him from any liability to which he is subject as a stockholder in the company) ; (4) that suits against the company shall be prose- cuted in this manner in the first instance ; but that, after judg- ment entered and return of execution thereon unsatisfied, suits may be brought against the stockholders individually. Chap- ter 245 of the laws of 1864 contains the following provisions : " 1. Whenever, in pursuance of its articles of association, the property of any joint-stock association is represented by shares of stock, it shall be lawful for said association to provide by their articles of association that the death of any stockholder, or the assignment of his stock, shall not work a dissolution of the association, but it shall continue as before ; nor shall such company be dissolved, except by judgment of a court for fraud in its management, or other good cause to such court shown, or in pursuance of its articles of association. 2. Said associa- tions may, also, by said articles of association, provide that the shareholders may devolve upon any three or more of the part- ners the sole management of their business. 3. This act shall in no court be construed to give said associations rights and privi- 32 CHAP. IV.] RESEMBLANCES TO OTHER INSTITUTIONS. [§ 58. leges as corporations." Chapter 289 of the laws of 1867 pro- vides that it shall be lawful for any joint-stock association to purchase, hold, and convey such real estate (1) as shall be neces- sary for its immediate accommodation in its business ; (2) as shall be mortgaged to it in good faith ; (3) as it shall purchase at sales under judgments, decrees, or mortgages held by it. " The said joint-stock company shall not purchase, hold, or con- vey real estate for any other purpose; and all conveyances of such real estate shall be made to the president of such joint- stock company, as such president, and who, and his successors, from time to time, may sell, assign, and convey the same, free from any claim thereon against any of the shareholders, or any person claiming under them."' § 57. It thus appears, comparing the statutory provisions last quoted with those of the act of 1875 before referred to, that these joint-stock associations substantially ^0*^^*"" resemble the " full liability" companies : yet the lat- ter are called " corporations," while, as to the former, the legis- lature, in the same breath in which it gives them similar privi- leges and capacities, declares that in no court shall the statutory provisions regulating these associations " be construed to give them rights and privileges as corporations."^ § 58. Limited partnerships afford another illustration of the difficulty of saying what constitutes a corporation. Limited Such a partnership exists where one or more of the partner- partners are liable individually for the firm debts, and one or more, provided the requii-ements of the statute are com- plied with, incur no personal liability for stch debts beyond the amount contributed by them to the capital of the firm. Thus in limited partnerships exists a liability restricted to cer- ' See also chap. 937 of laws of 18^7, See as to actions against them Van chap. 290, laws of 1868, and chap. Aernam v. Bleistein, 102 N. Y. 355. 699, laws of 1881. The Massachu- ^ It must be admitted that this pro- setts courts hold these New York joint- vision dates from 1 854, 20 years before stock associations not to be corpora- the act of 1875 was passed. Still, both tions, and that their members may be acts apparently stand together as part sued as partners. Boston & Albany of the present statutory law of New E. K. Co. V. Pearson, 128 Mass. 445. York. See also Braw v. Farwell, 81 N. Y. 6. 3 33 §58.] THE LAW OF PKIVATE CORPORATIONS. [CHAP. IV. tain funds, as is the case with most corporations. There are, moreover, corporations in respect of which there is no restricted liability ; and so a limited partnership, which is not called a corporation, possesses an ordinary corporate attribute which some corporations lack.' are considered ^Masi-corporations, as that act provides for a continuance of the partnership, notwithstanding a change of partners. In this case the partnership has the corporate attribute of succession. And a mining joint- stock association was deemed a quasi- corporation, because a suit for a de- mand against the company might, by virtue of an act of Parliament, be brought against the directors. Here is attached the corporate liability of being sued without the names of each individual partner composing the com- pany." Angell and Ames on Corp., § 25, citing Harrison v. Simmins, 4 M. & W. 510. Aptain, it is said in the same work at § 40 : "A trading association may be but a mere partnership ; or it may have corporate powers to a small ex- tent and sub modo ; or it may be in- vested with corporate functions to a considerable and yet limited extent; or it may exist with all the incidental functions and peculiar privileges which a grant of unconditional [?] corporate power confers." It would be hard to conceive of anything more conditional than a grant of the most "uncondi- tional" corporate power. See also 2 Kent, Com., 274. Of course, in all these cases of " guasi-corporations," whether public or private, the real questions are what joint or corporate action can be taken ? and what are the legal relations aris- ing ? See Liverpool Ins. Co. v. Mas- sachusetts, 10 Wall. 566. ' A limited partnership has been called a juasi- corporation; see Angell and Ames on Corp., § 45. In Thomas V. Dakin, 22 Wend. 9, 112 (1839), it was decided by the Supreme Court of the state of New York, whose chief justice at the time was the venerated Nelson, that certain banking institu- tions, formed under "an act to author- ize the business of banking," passed April eighteenth, 1838, were corpora- tions. The year following this de- cision, the case of Warren v. Beers, 23 Wend. 103, 196, was decided in the Court for the Correction of Errors in the same state. In this case, after the greatest deliberation, it was held that these same banking institutions were not corporations. The difficulty of saying, more than forty years ago, what constitutes a corporation is shown by the arguments and decisions in these two cases. Likewise, in respect of public cor- porations, it is hard to say what con- stitutes them corporations. A city with a special charter has more extensive powers of a corporate action than a town, or a county, or "dock commis- sioners." In fact the last two are considered rather guost-corporations ! Perhaps the following extracts will show what a gwasi-corporation is. "There may be also private corpora- tions created with powers sub modo, and for a few specified purposes only, and which are properly quasi-corpora- tions. The joint-stock banks in Eng- land of modern creation, called into existence by the act of 7 Geo. IV., 34 CHAP. IV.] RESEMBLANCES TO OTHER INSTITUTIONS. [§ 61. § 59. Baron Lindley, in his work on Partnership, quotes many definitions of that term, but prudently refrains Partner- from giving one himself, remarking pertinently, that ^JJJP^ = ^'^- " to frame a definition of any legal term which shall fromcorpo- be both positively and negatively accurate, is possible common only to those who, having legislative authority, can ^'^' adapt the law to their own definition."' Still, every one has an idea of an ordinaiy business partnership ; and an ordinary partnership difters from a corporation at common law chiefly in the following points : first, it is not an artificial person ; secondly, a change of partners dissolves the firm ; thirdly, the partners are personally liable for all the firm debts ; fourthly, they are each other's agents in respect of the firm business ; and, fifthly, a partnership requires no special sanction for its existence. § 60. E"ot all of these points of difference remain to-day. It is no longer clear that a corporation is a distinct per- p . , . son ; and as to the third of these points it may be said, difference that in many corporations the members are person- ally liable, and that in some (limited) partnerships, not all the partners are personally liable. Moreover, under the general enabling statutes, the importance of the " special sanction" has passed away, and a corporation usually requires no more special sanction than a limited partnership, ^o legal institution exists save through the sanction or operation of the rules of law of which it is a manifestation. § 61. The differences which still exist, however, between a corporation and a partnership, make the application to the one of rules of law regulating the other likely to lead to error. Two points of radical dift'erence remaining to-day are these : (1) In a partnership, each partner is the agent of the other partners in respect of the partnership business, while this is not true of shareholders in a corporation. (2) The members of a corporation may transfer their shares at will, and thereby, with certain exceptions, relieve themselves from all liability in regard to the corporate enterprise, the transferee of the shares succeed- ing to all the rights and liabilities of the transferror. But a ' 1 Lindley on Part., p. 1. 35 §62.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IV. The ele- ment com- mon to these va- rious legal institu- tions. partner cannot thus relieve himself from his liability, and a transfer of his interest ordinarily necessitates a winding up of the partnership business.' § 62. In one respect, all these various institutions resemble each other, though not very closely. In connection with all of them are certain funds and property con- stituting a trust fund to be devoted in a certain manner to the accomplishment of certain objects. In the idea of a trust fund there are many gradations ; but the essential quality running through them all is that which, viewed negatively, consists in the absence of complete ownership with the power of arbitrary disposal in any person ; or, viewed positively, consists in this, that certain persons, other than the possessor or apparent owner, have rights in regard to the fund. These rights differ greatly, being of more import- ance in respect of a limited partnership,* or a corporation, than in respect of an ordinary partnership, or an unincorporated joint-stock association of unlimited liability. ' In many respects, an unincorpo- rated joint-stock association resembles an ordinary partnership. " The fun- damental distinction between partner- ships and unincorporated companies is, that a partnership consists of a few in- dividuals known to each other, bound together by ties of friendship and mu- tual confidence, and who, therefore, are not at liberty without the consent of all to retire from the firm, and sub- stitute other persons in their place; whilst a company consists of a larger number of individuals, not necessarily acquainted with each other at all, so that it is a matter of comparative in- difference whether changes amongst them are effected or not. . . . Indeed itmay be said that the law of unincor- porated companies is composed of little else than the law of partnership modi- fied and adapted to the needs of a large 36 and fluctuating number of members." 1 Lindley on Part., 5. See, generally, for distinctions between partnerships, joint-stock associations, and corpora- tions, the introductory chapter to Lind- ley on Part. "Commercial men and accountants are apt to look upon a firm in the light ■ in which lawyers look upon a corpora- tion, i. e., as a body distinct from the members composing it, and having rights and obligations distinct from those of its members. . . . But this is not the legal notion of a firm ; . . . speaking generally, the firm, as such, has no legal recognition. This non- recognition of the firm, in the mercan- tile sense of the word, is one of the most marked differences between part- nershipsand incorporated companies." 1 Lindley, ib. 206-207. ° Innes v. Lansing, 7 Paige, 583. CHAP. IV,] RESEMBLANCES TO OTHER INSTITUTIONS. [§ 64. § 63. In all instances, the material questions nowadays aris- ing in connection with any of the legal institutions mentioned will be : What are the means and capaci- ^^estons ties of corporate action ? and what are the rights and liabilities arising among the persons interested ? These are the real questions of vital importance, the decision of which will not ordinarily depend on whether or not a given institution is to be called a corporation, which indeed is little more than a question of how far a mediaeval nomenclature is applicable to modern institutions. § 64. Such being the resemblances between corporations, joint-stock associations, and partnerships; and the designation of the class to which any given institu- caWe^o^''" tion belongs being so difficult, as well as barren of cprpora- ° ° ' ^ tiODs, now results when accomplished, how may the rules of law determin- which manifest themselves in the mass of legal rela- tions constituting a corporation be determined ? These rules, as stated in the preceding chapter, are contained in the consti- tution of the corporation. Some of them, and the legal rela- tions in which they manifest themselves, may be readily deter- mined, as they are embraced in the enabling statute, or in the special charter, should there be one. Complementary to the rules of law in the enabling statute, exist, as constituent ele- ments of the corporate constitution, the rules of law embraced in what may roughly be called corporation law, a term which connotes the mass of legal rules which have come into exist- ence through the requirements of society with respect to joint action for a common object. A corporation, like any other legal institution, corresponds to a certain need of society ; and the rules of law, manifesting themselves in it, are those which this need has called forth. These rules cannot always be reasoned out, or, in logical sequence, deduced from one another, because they do not compose a logically consistent whole ; neither do they always appear reasonable in relation to the needs of society to-day.. There is no reason to believe, however, that these apparently illogical rules were not, in their incep- tion, logical and consistent with the mass of other rules of law then manifesting themselves in the institution in question. Many legal institutions of ancient origin, whose growth is ob- 37 § 66.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IV. scured through lapse of lime, can no longer be analyzed into their constituent elements ; nor can the process through which was attained the known resultant of their combined factors be traced historically or reasoned out from general principles. This process cannot, as it were, be reasoned out backwards, because many of the rules manifesting themselves in these institutions, at least in their application to these particular in- stitutions, are of historical origin and technical. To say that a legal rule is of historical origin and therefore not reducible to logical, principles, means that it is the resultant of a combina- tion of dift'erent maxims of diverse origin, each of which in its own origin was perhaps logical and consequent enough, but appears in the present combination quite anomalous because of the obliteration of some step in the process of combination. Again, to say a rule' is technical and not logical, is saying in most instances substantially the same thing, that it is an old rule, which at its origin was the outgrowth of other rules, in connection with which it was likely logical ; that now these other rules are forgotten, and the " technical" rule remains a sort of logical anachronism, which is as impracticable to fit in with the present system of law, as to use the flint of an old " Queen Anne" in a modern " Winchester." § 65. Consequently, the constitution of a corporation, to which we must turn for the answer of legal questions arising in re- spect of the corporate enterprise, far from being so logical and consistent that some of its elements being known, the rest may be inferred with the unerring certainty with which the struc- ture of a fossil bird may be inferred from its footprints ; far from being a logical and consistent whole, the constitution of a corporation is a conglomerate of rules the union of which was due not to chance, for there is no chance ; but to causes and occasions of which we may be ignorant. § 66. In the course of time, some of the rules of corporation Changes in ^^^^ ^^^^^ adaptability to the needs of corporate enter- corporation prises ceasing, have been silently dropped by the courts, or abolished by legislation. The new rules needed in their place have been either patently created by the legislature in the shape of statutes, or formed through a more obscure and intangible process. When Jiot enacted by the CHAP. IV.J RESEMBLANCES TO OTHER INSTITUTIONS. [§ 68. legislature, new rules which come into being seem to be formed by the courts reasoning them out in two methods ; first by analogy, and, secondly, by applying general principles of- law and common sense to the case in question. § 67. When to the solution of a question of law arising in respect of some legal institution, as, for instance, a corporation, a rule of law applicable to some other ^aiogy^ °^ kind of legal institution, as, for instance, partner- ship, is applied by reason of the analogy between a corporation and a partnership, what has been done is this. A rule, for the application of which to one legal institution there are pro- bably sound reasons, has, because of some resemblance between this and another legal institution, been applied to the latter, in respect of which the reasons for the application of the rule may fail, for not unlikely the two institutions resemble each other in points which the rule in question does not touch. The appli- cation, then,' of the rule to the latter institution having been caused by a misleading analogy, will likely be found unwise, and in this application the substantial reasons, which are the roots of any rule of law, failing, the rule itself will shortly like dead wood drop away. § 68. Analogies between legal relations constituting corpora- tions and legal relations constituting partnerships may be at times advantageously, if guardedly, used for purposes of illus- tration. But if inferences are to be drawn from such analogies, too great care cannot be taken to determine wherein the an- alogy consists ; an inquiry which may often resolve itself into an inquiry how far the reasons for the application of the rule to the one legal institution hold good for the application of the rule to the other. To illustrate, take the instance of a corporation, the shareholders of which are affected with personal liability for the debts of the corporation, judgment having first been obtained against the corporation, execution levied thereunder and returned unsatisfied. Suppose suit to have been brought against the corporation, judgment obtained, the execution there- under returned unsatisfied, and that suit is brought against the shareholders personally. Some courts, reasoning from analogy, have held the shareholders liable as guarantors, while in other t courts they have been held liable as partners. But the gene- 39 § 70.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IV. ral analogy between the liability of a surety and that of a share- holder is as misleading as the analogy between the liability of a shareholder and that of a partner. On the one hand, acts may be done which would discharge a surety from his liability, which do not discharge a shareholder from his; and, on the other hand, by a bona fide transfer of shares the liability of the shareholder may cease, while a partner, by selling out his inte- rest in the firm, cannot free himself from his liability to part- nership creditors. 'So. The liability of a shareholder in re- spect of his shares in such a corporation, is the liability neither of a surety nor of a partner, for the reasons which led to the formation of the rules regulating the liability of a surety or of a partner are not necessarily, or even probably, present. The liability in question is, properly speaking, the liability of a shareholder in that particular corporation, and is determined by the rules contained in the corporate constitution.' § 69. There are, however, elements in the liability of a share- holder in such a corporation which are in truth analogous to certain elements in the liability of a surety or partner. But these elements are the manifestation of legal rules common to all three kinds of institutions, and, therefore, to be regarded no more as rules of corporation law than as rules of the law of partnership or suretyship. They are rather legal rules of almost universal application, reasons for which exist in respect of almost all legal institutions. They are rules which, like the rule that for a valid contract there must be a consideration, form the basis of the law of contracts, or, like the rule that a man is responsible for the ordinary consequences of his acts, form the basis of the law of torts. § 70. The second method by which courts may form new rules of law, is by applying to the case in question aJionlt general principles of law of extended application, frindpies. The objection to this method is that it is well nigh impracticable on account of the difficulty in deter- mining what are these general principles of law. Still, this objection is not insurmountable. However much jurists may differ in regard to the science of jurisprudence, that there is ' See, for a fuller discussion of this question, §§ 712-720 40 CHAP. IV,] KBSEJUBLANCBS TO OTHEE INSTITUTIONS. [§ 71. some such science founded on general principles in themselves logical, just, or farseeingly expedient, according as one may phrase it, few would deny. It is not necessary for jurisprudence that it should be based on principles, true, just, or expedient for all time. It is enough for such a science that it be based on foundations that will last out a generation or two. As such, it will be the expression of the systematized common sense or intelligence of men specially trained in law. § 71. Indeed, to form a new rule based on general principles of law, is no more than forming a rule which shall not shock the trained intelligence of jurists; and such a rule will be con- sistent with the law as a whole, in so far as any rule can be consistent with a huge body of rules, some of which are incon- sistent with the rest. Forming a new rule of law amounts to little more than deciding a novel case in accordance with what seems to the court, considering the general state of the law and of society, to be on the whole most expedient or just. The danger arising from reasoning from the analogy of different legal institutions is, lest a rule of law be applied where the reasons for its application fail ; and in truth, where a rule of law already identified with one legal institution is advantage- ously applied to another, it will be because good reasons for the application of the rule exist, and not because of the resemblance of one institution to a fancied prototype. 41 §72.] THE LAW OF PRIVATE CORPORATIONS. [OHAP, V. CHAPTER V. LEGAL RELATIONS ARISING THROUGH THE PROMOTION OF A CORPORATION.' The law applicable, § 72. Two classes of persons interested, § 7.?. Liability of promoters. General prin- ciples, §§ 74, 75. Legal relations between promoters and parties contracting with them, § 76. Responsibility of promoters for the acts of other promoters, § 77. Liability of contracting promoter whose contract binds, or is adopted by, other promoters or the corporation, , §§ 78, 79. Legal relations between promoters, §§ 80, 81. Legal relations between promoters and the corporation subsequently formed ; promoters' secret profits, §§ 82-84. Right of promoters to indemnity from the corporation subsequently formed, §85. Liability of corporation to compensate promoters, § 86. Legal relations between the corporation when organized and persons with whom the promoters have contracted on its behalf, §§ 87-90. § 72. A GENERAL remark may be premised in regard to the group of topics under consideration in this and the applicable, succeeding chapter : Incorporation not having as yet taken place, the rules of law in the constitution of the corporation are not yet in operation, and " corporation law" as such will usually be found inapplicable. Consequently, the various rights and liabilities arising through the promotion of a corporation will be determinable in accordance with the general principles of the law of contracts, of agency, and of partnership. We are, for the most part, dealing with contracts made by certain persons with certain others, which, to be sure, have some ulterior end in view, as contracts usually have ; but the fact that this ulterior end is the incorporation of a company does not necessarily affect the rules of law by which these con- ' This and the next chapter lead up acts done subsequent to incorporation to the discussion of the legal effect of by or on behalf of the body corporate. 42 CHAP. V.J PROMOTION OF A CORPORATION. [§ 75. tracts are to be regulated, and the relations arising from them determined. The preceding statement, however, must he taken with this qualification : the fact that the ulterior end of these contracts was the formation of a corporation may give such corporation, when formed, rights, and even subject it to duties in regard to such contracts and their subject-matter. § 73. The persons interested in the formation of a corpora- tion may be roughly divided into two classes: (1) T^ogi^sB Persons who actively take part in the scheme of pf persons organization, and (2) persons who merely subscribe for, or agree to take shares in the stock of the corporation to be formed. Very often, perhaps usually, the same persons who promote the scheme of organization subscribe for shares in the stock of the future corporation ; but their functions as pro- moters and as subscribers are distinguishable, and for a proper determination of the legal relations arising through the pro- motion and formation of a corporation these two classes of functions should be kept distinct. § 74. Persons acting in concert to bring about the formation of a corporation are responsible for their acts as a mat- _ T . f. , 1 1 ■ 1 J. Liability of ter of course, and, if they have given good reason to promoters. infer that they will be responsible for the acts of each principles. other, then on the ground of estoppel, if on no other, they will be so responsible to any person acting on the faith of the inference which their acts have occasioned. Accordingly, if they have held themselves out as each other's principals, or as each other's partners, although no relationship of agency or partnership in fact exists between them, they will be estopped from taking advantage of the real state of affairs to the detri- ment of persons who have acted, and with reason, on a belief in the existence of such agency or partnership. § 75. In fine, on the general principle that a man is to be held responsible for the natural and ordinary results of his acts, the following propositions may be laid down as govern- ing many of the rights and liabilities of the promoters of a corporation : , I. A man is bound for the fulfilment of a contract entered into by him, and is, of course, personally liable thereunder 43 § 75.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. V. when the other contracting party has no reason to suppose him to be acting merely as agent. II. A. will be liable for all acts done by B. within the scope of any authority which A. by his acts or representations has induced other persons to suppose that B. has received from A., at least towards those persons who have acted reasonably and in good faith on belief so occasioned; and in such case, A.'s liability for B.'s acts will be identical whether the relation- ship, which A. has caused to be believed to exist between himself and B., actually exists or not.^ III. If A. contracts as agent, when in fact he has no principal or no authority from his principal to ma;ke the contract in question, A. will be personally liable, not necessarily on the contract, but on an implied warranty of authority f except where the extent of A.'s authority is known to the other con- tracting party,' or is a matter with knowledge of which the other contracting party is affected by some rule of law.* IV. If A. contracts as agent, when in fact he has no authority to make the contract in question, and yet the circumstances are such that some one is held liable as principal (in accordance with Proposition II.) to the other contracting party, or if the person or body for whom A. purported to contract ratifies the contract," A. will not be personally liable to the other contract- ing party, unless there is evidence that credit was given to A. personally f for any implied warranty of authority is unbroken. V. In the instance stated in that part of the preceding proposition governed by Proposition II., A. might be liable in damages to his principal or partner.' VI. When A. contracts as principal and agent as well, that is, as a partner, he will be liable personally on the contract, and the liability of those for whom he contracts will be governed by the rules stated in Proposition II. VII. When an act has been done by A. as agent, when in ' See Story on Agency (9th ed.), § the Liability of Officers and Agents of 4^3. Corporations, pp. 77-80. Compare §§ 2 Story on Agency, §§ 264, 264 a. 752-754. ' Story on Agency, § 265. = Story on Agency, § 251. * See Jefts v. York, 4 Cush. 871; « See Story on Agency, §§ 263, 423. S. C, 10 Cush. 392; Thompson on ' Story on Agency, 8 217 c 44 CIIAP. v.] PROMOTION OF A CORPORATION. [§ 76. fact A. either had no principal, or, having a principal, had no authority from him to do the act in question, and nothing had been done by the person or body on behalf of whom the act was done by A., from which authority to do the act could have been inferred, — in neither case can such person or body adopt or ratify the act of A. without incurring all the liability which would have attached to such person or body had the requisite authority from him or it to do the act in question in fact ex- isted at the time when the act was done."^ VIII. The preceding proposition holds good as to the liability incurred by the subsequently ratifying principal towards the other contracting party, only in the absence of express agree- ment in regard thereto ; and in like manner, by express agree- ment between the agent and his principal subsequently ratify- ing, the liability of the latter to indemnify the former may be varied. IX. An agreement to enter into partnership at some future time does not make the parties thereto partners, at least before the arrival of the time specified.^ . § 76. Except in the case of illegal contracts, or where the authority of an agent is known to the other contract- Legal reia- ing party, or is a matter with knowledge of which tween^'pro. the other contracting party is affected, there is no moters and , . , parties con- question that when a person contracts with another traeting he is liable personally for the damages arising from ^^' ' ^"'' the non-performance of his side of the contract, unless he con- tracts so as to bind some one else to perform his side of the contract, and the other contracting party knows; or should know, that the contract is made on behalf of that outside per- son, and so may fairly be presumed to give credit to him. It follows that a promoter of a future corporation ordinarily is personally liable to the other contracting party, because the ' See Story on Agencj", §§ 242-244, stringitur mandati actione. Dig. lib. 250, 251, 419, 445; also Lindley on 50, tit. 17; De div. reg. jur., § 60. Partnership (Am. ed.), vol. ii. pp. See Year Boole, H. 7 (H. 4), fo. 34, 755-758, star paging. Katihabitio pi. 1. mandato comparatur, Dig. lib. 46, tit. ' See Lindley on Partnership (Am. 3; De Sol. Sen. 12, § 4. Si quis ed.), vol. i. pp. 27-33. ratum habuerit quod gestum est, ob- 45 §76.] THE LAW OF PRIVATE COEPOKATIONS. [chap. V. promoter has no principal ;* and the subsequent adoption of the contract by the corporation when organized will not free the promoter from his liability to the other contracting party with- out the consent of the latter,^ because it cannot be presumed that a party contracting gives credit to a corporation not yet organized, and therefore not yet capable of being bound. Of course it is competent for the promoter to stipulate that the contract shall not be binding unless the corporation is subse- quently organized ; but in this case the promoter simply makes a conditional contract. So, further, it might be agreed between the contracting parties that in no event should the promoter incur any personal liability, but that the contract should be binding only on the corporation to be subsequently formed.' In such case the promoter would not be liable ; the other party could at any time wi1;hdraw as long as his side of the contract remained executory, unless he had in the meanwhile received some valid consideration for his promise ; and as for the corpora- tion, ordinarily it would not be bound by the contract- unless it adopted the same after its organization.^ It is plain that any ' If officers of a corporation pur- port to sign a note on its behalf before its organization, they will be person- ally liable thereon. Hurt v. Salisbury, 55 Mo. 310; see Hopcroft v. Parker, 16 L. T. N. S. 561. " " There must be two parties to a contract, and the rights and obliga- tions which it creates cannot be trans- ferred by one of them to a third per- son who was not in a condition to be bound by it at the time when it was made." Erie, C. J., in Kelner v.. Baxter, L. R. 2 C. P. 174. It is plain that while a party may assign his -rights under a contract, he may not thereby free himself, from his lia- bilities ; but it might be inferred from the words of the chief justice that it was incompetent for a corporation to adopt any contract made on its behalf by one of its promoters prior to its or- ganization, which seems unreasonable. 46 Still, Scott V. Lord Ebury, 36 L. J. C. P. 161, holds that a corporation subsequently formed cannot ratify the acts of a promoter so as to relieve him of his liability arising from them, be- cause the corporation " was not in ex- istence" when the liability was in- curred. In this latter case, however, the court, who by agreement were al- lowed to draw inferences of fjict, con- sidered that the contract was made on the credit of the promoters and that there was no evidence of a consent on the part of the other contracting party to substitute the liability of the cor- poration. ' Landman v. Entwistle, 7 Exch. 632 ; see Higgins v. Hopkins, 3 Exch. 163 ; Rennie v. Clarke, 6 Exch. 292. * As to the responsibility of the cor- poration in regard to contracts of its promoters, see §§ 87-90. CHAP, v.] PROMOTION OF A CORPORATION. [§ 77. contract like the last would be of a very doubtful and condi- tional nature, and such as a court would never imply, or allow a jury to imply, unless all other interpretations were excluded by the terms of the contract, itself. § 77. Thus far in regard to the personal responsibility of the promoter who himself makes the contract in regard to which the question ot his liability arises. As to biiity of a his responsibility for the acts of his co-promoters for uie*acts other principles of law are involved, which it was °^ °^^f ^ ^ ' promoters. attempted to formulate in Propositions II., VII., VIII., and XI. Promoters of a corporation are not presump- tively partners,' and they do not become such merely by becom- ing bound on the same instrument. Accordingly, a promoter is not responsible for the contracts of other promoters in the absence of evidence that he has authorized the others to con- tract for him or pledge his credit.* Nevertheless, applying principles stated in the propositions referred to, if promoter A. causes any. person, acting reasonably, to believe that promoter B. is his agent, A. will be held liable as principal for whatever B. does within the scope of whatever agency A. by his conduct has caused to be inferred to exist between himself and B. Likewise, promoters will be held liable as partners if they have held themselves out as such, or negligently or fraudulently allowed themselves so to be held out by their co-promoters. Thus a prospectus of a projected company, to be formed for the conveyance of immigrants to British Columbia, contained ' Keynell v. Lewis, 15 Mees. & W. into by the committee of management, 517; Bailey v. Macaulay, 13 Q. B. appointed by the provisional commit- 815; 1 Lindley on Part., pp. 31-33. tee, it is a question for the jury whether ^ Patrick v. Reynolds, 1 C. B. N. the defendant appointed the managing S. 727 ; Burbridge v. Morris, 3 H. & committee hisagenttopledgehiscredit. C. 664 ; Wilson v. Curzon, 5 Eng. Where, however, nothing else appears Eailway Cas. 24. A fortiori a pro- than that there is a managing commit- moter is not responsible for the con- tee appointed by the provisional corn- tracts of other promoters entered into mittee, the jury ought not to conclude before he became in any way connected that the former has authority to pledge with the enterprise ; Beale v. Mouls, the credit of the latter ; Williams v. 5 Eng. Railway Cas. 105. Pigott, 5 Eng. Railway Cas. 544 ; see In an action against a provisional Dawson v. Morrison, ib. 62. committee-man on a contract entered 47 § 78.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. V. statements calculated to induce belief that arrangements had been perfected for carrying passengers overland, and invited persons to take passage tickets. The defendants allowed their names to be inserted in this prospectus as directors in the con- templated company, receiving for the use of their names two hundred paid-up shares and a promise of indemnity. The prospectus, with their names attached, was published in the Times. It was held that a jury were warranted in inferring that a person who contracted for his passage with the secretary did so on the faith of these representations in the prospectus ; and that such a person could recover damages from the defen- dants, the representations proving untrue.' § 78. One other statement in regard to the liability of pro- moters may be ventured. "When a promoter makes contracting a Contract merely as agent for the other promoters, whose'con- ^^o have not as a matter of fact authorized him to tract binds make the contract in question, but who have acted adopted by in such a Way as to justify others in believing that motersor such authority had been given, so that the party ration'^''" contracting with the promoter is enabled to hold the other promoters on the contract, he cannot hold the promoter personally who contracted merely as agent ; not on the contract, for the contract purported to bind the other promoters only, and not on the breach of any implied warranty of authority, for the other promoters were in fact bound by the contract.^ This, in practice, would prevent the p'arty with whom the promoter contracted as agent from choosing whom to sue. It would' not be competent for him to proceed against the agent on the ground that the agent had actually no author- ity to make the contract ; for that is something with which such contracting party has nothing to do, provided he can hold the principals. His interest is in no way affected, as he gave credit to the principals, not to the agent ; and as long as the very persons to whom he gave credit are bound to him what more can he claim ? All else is merely a matter to be settled • CoUingwood v. Berkeley, 15 C. B. Argyll, 6 Q. B. 47" ; Wood v. Argyll, N. S. 145 ; see also Maddick v. Mar- 6 M. & G. 928. shall, 17 C. B. N. S. 829; Lake v. " See Proposition IV., § 75. 48 ( ' ' CHAP, v.] PROMOTION OP A CORPORATION. [§ 79. between the agent and his principals. Moreover, when pro- moters adopt acts of one of their number, in regard to which no liability would otherwise have attached to them, they assume all liability which would have attached to them had the act been authorized by them before it was done. They must ratify in toto, if at all, unless of course the other con- tracting party, with' full knowledge of the situation, agrees to a variation from the original liability.* § 79. Reasoning by analogy from the above,, it would seem that in so far as the subsequently formed corporation assumes' the liability of the promoter, who contracted as its agent, towards the other contracting party, who contracted with the promoter as the agent of the corporation, and gave credit to the corporation, knowing that it had not yet been organized — something highly improbable,* — the personal liability of the promoter would cease ; and for the same reasons as before ; for it was to the corporation that the other contracting party gave the credit, and the corporation has assumed the liability. To be sure, if the other contracting party did not know that the corporation was unorganized at the time, he cannot justly be presumed to have contracted on its credit; and therefore no subsequent ratification' by the corporation would free the pro- moter from personal liability ; and, if the promoter represented that the corporation was organized when the contract was made, he would be liable in an action for deceit. Finally, while it may be true that the subsequently formed corporation agrees by implication, on adopting the contract of its promoter, to indemnify him from all liability under the same, and this because the corporation is entitled to the full benefit of the contract,* yet this. reason fails when considering the rights of the other contracting party, who may have good grounds for refusing to accept the exclusive liability of a body ' See Propositions VII. and VIII., to establish the fact that credit was § 75. given to the corporation; and, unless ^ It could never be presumed that a the whole transaction had been reduced party contracting with a promoter gave to writing, this would be a question for credit to a body not yet organized, the jury, see § 76. Therefore evidence would be required ' See §§ 82-84. 4 49 § 81.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. V. which had not been organized at the time of making the con- tract. § 80. Promoters are bound to observe good faith in their dealings with each other, and one promoter must in- latfons'^*' demnify the others for damages arising from any between unauthorized acts of his affecting their rights and promoters. . r,^ ■, -, n • . , • . i interests. Should, for instance, one promoter with- out authority attach the names of his co-promoters to any pros- pectus or other document, he would be liable for their damages resulting. Moreover,, although promoters may have acted in such a manner as to induce belief in outsiders that the relation- ship of agency or partnership exists among them, so that as to outsiders they, have made themselves responsible for each other's acts, still, if no such relationship in truth exists, any promoter doing any act by which liability attaches to his co-promoters may be held to indemnify them. If, as a matter of fact, the relationship of agency or partnership exists between promoters, they will be held, as among themselves, to the strict account- ability of trustees; and the legal and equitable rules, regulating agency and partnership, will be applicable. § 81. The principles pf law applicable to persons becoming jointly bound on one instrument apply to promoters, and in such case, should one of them be obliged to pay the whole debt, he can enforce contribution from his co-debtors.^ So, where promoters have made an agreement to share expenses, such agreement will hold good between them, and will be en- forceable at the suit of any one of their number who may in good faith have paid more than his share of the expenses of the scheme. Promoters, or provisional committee-men, although not partners, are not entitled, in the absence of any special agreement, to remuneration from each other for their services in promoting the organization of the corporation.* ' Several provisional committee-men that each was liable to contribute to became yotn^Z^ liable on the same con- the one who had paid the whole debt tract. One of their number was forced only the same aliquot part that each to pay the whole debt. Subsequently would have been obliged to contribute ' he brought suit for contribution, some had there occurred no deaths ; Batard of his associates having died in the v. Hawes, 2 El. & B. 287. meantime. It was held, provisional ' Parking. Pry, 2 C. & P. 811. The committee-men not being partners, case of Holmes «. Higgins, 1 B. & Cr. 50 CHAP, v.] PROMOTION OP A CORPORATION. [§ 82. § 82. The relationship existing between the promoters and the corporation as subsequently organized is a fidu- ciary relationship, regulated by legal and equitable tioas be- *' principles in many respects similar to those applica- ^ters^an'd ble to the relationship of agency.* Strictly speaking, the corpo- a promoter cannot be called the agent of the corpora- sequentiy tion which has not yet been organized, It is never- promoters' thelesB true that if a person acts in such a way as to ^^^^^ P™' give rise to the reasonable presumption that he is acting in the interests of a corporation about to be formed, and other men act, relying on his acts and representations, believing him to be acting as he appears to be acting, such a person will be estopped from denying that he was acting in the interests of the future corporation, when such a denial would injure others who have acted upon the faith of his acts and representations. Moreover, if the facts correspond to the appearances, which correspondence he will not be allowed to controvert, and he is really acting in the interests of the future corporation, his rela- tions thereto can be regulated only byTules similar to those pre- vailing in the law of agency. Therefore, speaking elliptieally, he will be estopped from denying that he acted as the agent of the corporation. Accordingly, as against a person acting as promoter, the corporation is entitled to the full benefit of all acts done and contracts made by him while acting in that capacity ; and the promoter, as between himself and the corpo- ration, is entitled to no secret profits ; he may not purchase property for the corporation, and then sell the same to the cor- 74, decides the same point in the same promoter for misfeasance as a corpora- way, But on the ground that promoters tion could bring against one of its offi- are partners ; in this respect the case cers. A promoter, to be sure, would be is no longer law ; see § 7 7. liable to the corporation in damages for ' But not in every respect ; for the any fralud committed by him in con- corporation, in the nature of things, tracting with it of a nature that would not having entrusted its property to render one individual liable under or- the promoter, never having employed dinary circumstances to another. But the promoter to act for it, and not being usually the only action maintainable bound by his contracts unless it ratifies by a corporation against its promoters or voluntarily accepts the benefit of is an action to make them disgorge se- them after its incorporation, could ordi- cret profits, narily bring no such action against a 51 §83.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. V. poration at an advance.' And if a promoter, in payment for property belonging to him or in which he is pecuniarily inte- rested, receives from the corporation moneys vphich, as being secret profits, he is not entitled as against the corporation to retain, and distributes a portion of these profits among his co- promoters or associates, he will be liable to refund to the corpo- ration, not only the profits retained by himself, but also those which he has thus distributed.^ § 83. If, however, a person owning a piece of property be- comes a promoter in a scheme of incorporation, even when the scheme relates to the developihent of this very piece of pro- perty, he may sell the property to the corporation, aiid have his price paid without regard to the original cost of the property to him f for, when he acquired the property, ex hypothese he did ' Simons v. Vulcan Oil Co., 61 Pa. St. 202; Short v. Stevensoii, 63 Pa. St. 95 ; Chandler v. Bacon, 30 Fed. Rep. 538 ; Hickens v. Congreve, 1 R. & M. 150; Beck u. Kantorowicz, 3 K. & J. 230 ; New Sombrero Phosphate Co. V. Erlanger, L. R. 5 Ch. D. 73 ; aff'd, 3 App. Cas. 1218; Phosphate Sewage Co. v. Harmont, L. B. 5 Ch. D. 394; Bagnal v. Carlton, L. R. 6 Ch. D. 371. "Nothing is more com- mon than for persons to acquire pro- perty, to form a company on purpose to buy it, and to conceal their own- true position from the company they so form. Such a transaction can never stand." 2 Lindley on Part., 580. The same principles hold in transactions looking towards the formation of an ordinary partnership. See Fawcett u. AVhitehouse, 1 R. & M. 132; and in general, Tyrrell v. Bank of London, 10 H. L. C. 26. 2 Getty V. Devlin, 70 N. Y. 504. 'See Cover's Case, 1 Ch. D. 182, which discusses how far a person pro- moting the formation of a company to develop property belonging to himself may act towards the company, in sell- 52 ing his property to them, as towards an outsider to whom he owes no spe- cial duties. The case did not decide the point under discussion in the text, i. e., that such a person could sell at a profit and retain the profit, but merely that his having done so was no ground to sustain an application on the part of a shareholder for the removal of her name from the list of shareholders on the winding up of the company. The case was not considered to conflict with the eases cited in the last note. See James, L. J., in 5 Ch. D. 118. Dor- ris V. French, 4 Hun, 292, resembles Cover's Case, and decides the same point the same way. It was held in a recent English case that if a promoter sell his 0W|^ property to the corpora- tion without declaring the fact that it is his, the corporation may rescind if in a position to do so, but cannot com- pel the promoter to pay over the dif- ference between what he paid for the property at a time when he was not a promoter anc^ what the corporation paid him for it. In re Cape Breton Co., 26 Ch. Div. 221 ; aflF'd, 29 Ch. Div. 795. CHAP, v.] PROMOTION OF A OOEPORATION. [§ 83. not act as promoter. Nevertheless, if at the time of making the sale to the corporation he occupies towards the corporation, as promoter or otherwise, a position of" trust and confidence, while he may sell without reference to the original cost of the property to him, yet. it would seem, on general principles of law and equity applicable to persons holding positions of trust, that he should not be permitted to sell at an unfair or exorbitant price.* Accordingly, it becomes of importance to determine, as nearly as the nature of the case will permit, the point of time when any person begins to act as a promoter, and so presumably in the interests of a company to be organized. This can be deter- mined only from his acts and representations. Does he hold ' See the cases cited in the last two notes. Perhaps the last sentence in the text does not accord with the view taken by Sharswood, C. J., in Dens- more Oil Co. V. Densmore, 64 Pa. St. 43,49. ". . . . Any man or number of men who are the owners of any kind of property may form a partnership or association with others, and sell that property to the association at any price which m«y be agreed on between them, no matter what it may have originally cost, provided there be no fraudulent misrepresentations made by the vend- ors to their associates. They are not bound to disclose the profit they may realize by the transaction. They were in no sense agents or trustees in the original purchase, and it follows that there is no confidential relation between the parties which affects them with any trust.' ' The last sentence seems to cnntnin anon gequitur ; i.e., A. did not occupy a position of trust towards B. when A. acquired the property, there- fore A. does not hold such a position towards B. when A. sells the property to him. The original cost is imma- terial; the property may have been given to the promoter ; but it does not follow that he may sell to his associ- ates at an exorbitant price. Moreover, the sentence referred to is hardly con- sistent with the following from the same opinion. " Where per- sons form such an association, or begin or start the project of one, from that time they do stand in a confidential relation to each other, and to all others who may subsequently become mem- bers or subscribers ; and it is not com- petent for any one of them to purchase property for the purposes of such a company, and then sell it at an advance, without a full disclosure of the facts. They must account to the company for the profit, because it is, legitimately theirs." The learned judge seems to think that the property must have been acquired during the existence of the fiduciary relation, in order to charge the seller with any of those duties towards his vendee which persons standing in a confidential relation owe each other ; but this seems not essen- tial, for the maxim caveat emptor, and the rules of law proceeding from it, never apply between persons occupy- ing positions of mutual trust and con- fidence; see also Lungren v. Pennel, 10 Weekly Notes of Cases (Pa.), 297. 53 § 85.J THE LAW OF PRIVATE CORPORATIONS. [CHAP. V. himself out generally in what he says and does as promoting the formation of a corporation ? and does he represent himself as acting and contracting on its behalf or for its ultimate bene- fit ? It would seem that the character of promoter should be held to have been assumed at any time when these questions could have been answered generally in the affirmative.' § 84. The application of the foregoing principles is illustrated by McElhenny's Appeal.^ McElhenny, not acting as a promoter, sold some property to persons who were getting up a company, to which they in turn intended selling the property. He then united with the promoters, and they all together turned the property over to the corporation at a large advance. After- wards the corporation, discovering these facts, brought suit against McElhenny, or rather' against his executors, as he had died in the mean time, to make his estate refund the profits he had made from the two sales of his property. The Supreme Court of Pennsylvania held, that the estate was entitled to retain the profits which McElhenny had made from his first sale to the p^-omoters, but should pay back the profits he had derived from his interest in the subsequent sale from the promoters to the corporation. § 85. It is probably true, as a general legal propositi(4n, that jj. , , . when A. makes a contract for B., who is not as yet promoters A.'s principal, while A. becomes responsible from nity from the outsct, for the performance of the contract made poraSo'n ^7 ^™» -^-5 ^J assuming the contract as principal, ' " On the one hand, it is plain that him, or to trust persons who are under afiduciary relation between a promoter his control, and who are practically and a company may exist long before himself in disguise ; he also assumes the actual formation of a company by this duty if he calls the company into registration. On the other hand, it is existence in order that it may buy obvious that somethinft must be done what he has to sell ; but he does not beyond a purchase and a resale to con- assume such duty by negotiating with stitute such a relation ; something persons who have themselves assumed must, it is submitted, be done by the that duty, and who are in no way promoter to impose upon him the duty under his influence." 2 Lindley on of protecting the interest of those who Part., 585. See Albion Steel and ultimately form the company. He Wire Co. v. Martin, 1 Ch. D. 680. assumes this duty if he assumes to act ^ gj p^^ gj^ jgg_ for them, or if he induces them to trust 54 CHAP, v.] PROMOTION OF A CORPORATION. [§ 86. thereby assumes to indemnify A. from any liability subse- under the contract towards the other /;ontracting formed, party. .This agreement to indemnify would be implied, and B. would become principal as from the time of making the contract. Where B., however, who subsequently as principal assumes the contrast made by A. as agent, is a cor- poration wl^ich was not organized at the time of making the contract, apparent difficulties arise. It would seem illogical to imply — ^and the discussion at present is confined to cases where no express assumption of liability is made — any agreement on the part of the corporation, which at the time of making the contract could have had no agent, to indemnify any one who at that time attempted to act on its behalf. IfeverthelesSj as under such circumstances the corporation would be entitled to the full . benefit of the contract made by its promoter, and, as towards the corporation, the promoter would be charged with the duties and liabilities of an agent, it seems no more than equitable that an agreement should be implied on the part of the cor- poration to indemnify the promoter, in so far as the corporation has voluntarily accepted the benefit of the contract, against any liability towards the other contracting party.* This would hold good, however, only in those cases where the original contract as made by the promoter would not have been ultra vires the corporation after its organization.^ The corporation, moreover, could expressly agree to assume any liability incurred by the promoter contracting on its behalf ; but such an agreement, were it other than the law under the circumstances would imply, would be a new contract, and would have to be supported by a valid consideration and be within the powers of the corporation. § 86. In England by statute many companies are i-equired to pay the expenses which are incurred in their formation ; and when such a statute applies, a member of the company will be entitled to be paid for his trouble and time in forming it.' ' See Parsons v. Spooner, 5 Hare, porate it. Marchand v. Loan and 102. Pledge Association, 26 La. Ann. 389. 2 Thus a corporation is not liable to See generally also §§ 87-90. repay money advanced for the purpose ' Garden v. General Cemetery Co., of influencing the legislature to incor- 5 Bing. N. C. 253 ; see In re Bramp- 65 §87.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. V. corpora- tion to compen- sate pro- moters. In the absence, however, of any statute, it is the law through- out the United States that the corporation subse- Liability of •,„',. ,. , , quently forraed is not liable to compensate its pro- moters for their services in forming it and procuring subscriptions to its stock ; for, aside from the techni- cal difficulties in tha way arising from the fact that the corporation was not incorporated at the time when the services were rendered, it is thought reasonable to regard such seryices as having been given in view of the benefit expected from the organization of the company.' If, however, after its incorporation, the corporation recognizing the services of its promoters, expressly promises to pay for them, an action will lie against it on this express promise f and likewise, if, after its incorporation, it ratifies the promises of its promoters to pay for the services of other persons performed for it before its incorporation, an action will lie on this ratification.* And such a ratification will arise if the corporation, after notice that the services were rendered on promises of the promoters that they should be paid for, voluntarily accepts the benefit.^ § 87. I may be said, generally, that a corporation when organized, in the absence of ratification on its part, tionsbe^*"' is uot responsible for the acts nor bound by the con- corpora-^ tracts of its promoters,* unless made so by its charter. ton V. Longtown R'y Co., L. K. 10 Ch. 177 ; Kitchens v. Kilkenny R'y Co., 9 C. B. 536. ' Roekford Rock Island, etc., R. R. Co. V. Sage, 65 111. 328 : Bell's Gap R. R. Co. V. Christy, 79 Pa. St. 54 ; New York and New Haven R. R. Co. V. Ketchum, 27 Conn. 171; Hall v. Vermont and Mass R. R. Co., 28 Vt. 401 ; Marchand v. Loan and Pledge Association, 26 La. Ann. 389. Com- pare Perry v. Little Rock, etc., Ey. Co., 44 Ark. 383. ' See Western Screw and Mfg. Co. V. Cousley, 72111. 631; Franklin Fire Ins. Co. V. Hart, 31 Md. 55. 56 ' McDonough v. Bank of Houston, 34 Tex. 309 ; compare Safety Deposit Life ins. Co. v. Smith, 65 111. 309. * Low V. Connecticut and P. R. R. R. Co., 46 N. H. 284. ' Gent D. Insurance Co. 107111. 652; Penn Match Co. v. Hapgood, 141 Mass. 145; Munson v. Syracuse, etc., R. R. Co., 103 N. Y. 58; Payne v. New South Wales Coal Co., 10 Ex. 283 ; Gunn v. London and Lancashire Fire Ins. Co., 12 C. B. N. S. 694. See 1 Lindle'y on Part., 895 ; Hutchin- son V. Surrey Consumers' Gas Light Ass'n, 11 C. B. 689. CHAP, v.] PROMOTION OF A CORPORATION. [§87. which it has accepted and thereby agreed to.* But t'o" wbea this is not identical with the proposition that the cor- and^pereons poration may ignore the engagements entered into by ^e*' ^^""^ its promoters, when it has had the benefit of them. promo- ters have _ -111 contracted it cannot be said that the promoters were the agents o" its be- of the corporation ; but, nevertheless, the corporation may adopt such acts of its promoters intended for its benefit, and may ratify such of their contracts made on its behalf, as would have been within the powers of the corporation after its organization ; and this it may do notwithstanding that it was not organized when -those contracts were made.^ And if it ' Tilson V. Warwick Gaslight Co., 4 B. & C. 962. See Shaw's Claim, L. K. 10 Ch. 177; and Caledonian, etc., K. Co. V. Helensburgh, 2 Mac- queen, 391. » Whitney 'v. Wyraan, 101 U. S. 392 ; Spiller v. Paris Skating Eink Co., 7 Ch. D. 368. See Penn Match Co. V. Hapgood, 141 Mass. 145, 149. It must be admitted that a number of English cases, criticised in Spiller v. Paris Skating Kink Co., have held that a corporation could not ratify the acts of its promoters, because not in existence when the acts were done. See Kelner v. Baxter, L. R. 2 C. P. 174 (ante, § 76) ; Scott v. Lord Ebury, 36 L. J. C. P. 161 (ante, § 76) ; and Melhado v. Porto Alegre R. Co., 9 C. P. 503. In the last case Coleridge, C. J., seemed to think such cases should be decided differently, but could "find no legal principle" upon which an action brought against a corporation on a contract made by its promoters before, and ratified by it after, its or- ganization could be maintained. It may be true, according to the common law, that no mere stranger, on whose behalf an agent did not even pretend to act, may ratify the contracts of such an agent so as to require rights or incur liabilities in regard thereto, towards the other contracting party. See Wilson v. Lumman, 6 Man. & Gr. 236. And it is said in the Digest: " Ratihabitio constituet tuum nego- tium, quod ab initio tuum non erat, sed tuaconteraplationegestum." Dig. lib. 3 tit. 5 ; De Neg. Ges. 5, § 11. (Mommsen's ed.; otherwise cited as 6, § 9.) But at common law a chose in action was regarded as non-assign- able ; and in the Roman law the com- petency to acquire rights and incur liabilities through an agent was of late growth. Moreover, a promoter does purport to act on behalf of the future corporation ; and the future corpora^ tion, as between itself and its pro- moter, is entitled to the full benefit of his acts (see §§ 82-84) ; and it is only through the acts of its promoters that a corporation is formed. To say that the corporation when organized can- not adopt and ratify such contracts of its promoters made on its behalf, as would have been within its powers to enter into after its organization, is to say that a body of men, when incor- porated and actirig as a corporation, cannot ratify those contracts (of some of their n&mber, probably) which it would be competent for them, acting 67 §87.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. Vi ratifies their contracts, then, in the absence of express agree- ment with the other contracting party, the corporation must be as a corporation, to make, and which ■were made on their behalf, and in or- der that they might subsequently act as a corporation. Instances would seem hard to find where ratification could more properly take place. There is, however, another question, which has nothing to do with the doc- trines of ratification in themselves con- sidered. Suppose that a corporation has been formed, and that a given act is within its powers of corporate ac- tion. This act was done on behalf of the corporation, by its promoters prior to its organization. May it not be said in such a case that, although it may be within the powers of the corporation to do such an act after its organization, yet, nevertheless, the corporate powers took their beginning at a certain time, and it may not have been the inten- tion of the legislature to allow a body of men to act as a corporation prior to their incorporation, or to allow them to ratify acts done prior to their incor- poration, as that might amount td the same thing ? In other words, is it not ultra vires the corporation to adopt acts done prior to its organization, even though they be such acts as the corporation since its organization could legally perform ? A reasonable view of this question should be taken. Un- doubtedly a corporation cannot legally act as such before its organization, and, therefore, cannot legally adopt a long series of acts of the same nature as those which it was organized to per- form. It cannot begin its corporate action and take up its corporate busi- ness as from a time long anterior to its organization. But, properly speaking, onlv such acts can be regarded as acts 58 of promoters which have for their final object the formation of a corporation. It does not come within the functions of promoters to carry on a business, but only to form a corporation to carry one on. It would be absurd to hold acts, extending through years, done in a business similar to that to be carried on. by the corporation when formed, to have been done on behalf of a future corporation. At the same time it would be a strained, not to say absurd, doctrine to hold it ultra vires a corporation to adopt those acts of its promoters done on its behalf, which it could itself legally perform since its organization, and which were proper and reasonable acts for its promoters to do in order to bring about the formation of a company and start it on its corporate career. The proper test to apply to such cases is not : would the contract in question have been within the powers of the corpora- tion had it been organized when the contract was made ? but, is it within the powers of the corporation to make the same contract now, supposing it had not been made then ? or, can the company legally carry out that very contract? As Lord Chancellor Cran- worth says, in Preston v. Liverpool and Manchester R. Co., 5 H. L. C. 605: "It can only be that contracts which the railway company might law- fully have entered into after the com- pany had been formed shall be bind- ing, if they were entered into by those who might be considered as agents for the company before the company came into corporate existence." To illus- trate : suppose certain persons, with a view of forming an insurance company; CHAP, v.] PROMOTIOK OF A CORPORATION. [§ 88, held to have assumed the liabilities which would have attached to it, had its promoters been its agents at the time when they contracted on its behalf.' The English courts, moreover, have gone a step further, and have held, even where there has been no ratification by the corporation, that a corporation should not be allowed to use its powers, which it has been enabled to ob- tain through the engagements of its promoters, in disregard of those engagements and to the prejudice of the persons with whom those engagements were made. § 88. On this point, the leading case is Edwards v. The Grand Junction Railway Co.^ There the promoters of a railway com- pany met with opposition from the trustees of a turnpike road. It was agreed between them that the trustees should withdraw their opposition to the company's bill, and that the company should, if the bill passed, carry the turnpike road over a bridge of certain dimensions. The trustees withdrew their opposition, and the bill passed ; but the company refused to and wishing to find out for certain how shall pay the reasonable legal expenses much business such a company would of its organization. This agreement, get from the beginning, go about mak- undoubtedly, the corporation can adopt ing contracts of insurance on behalf of and ratify ; for, not only can it legally the future company, the insurance to fulfil this agreement, but it could itself becin at a point of time anterior to the competently agree to pay those very ibrmation of the company ; the com- expenses. pany is afterwards organized. These As to what will not constitute a were contracts which the company ratification by the company, it is held could legally have made had it been in England that articles of association organized at the time ; yet it seems are a contract of the shareholders inter doubtful whether the company could se, and therefore an outsider cannot assume those contracts so as to render base an action against the company itself liable for losses which occurred on any of their provisions. Eley v. before it was organized. If the pro- Positive Assurance Co., 1 Ex. D. 20 moters had contracted that the com- and 88 ; but see Touche v. Metropoli- pany should insure, the insurance to tan Warehousing Co., L. R. 6 Ch. 671: begin with the formation of the com- ' See Propositions VII. and VIII., pany, in that case the company could § 75. have adopted and ratified the con- ^ 1 M. & Cr., 650; ace. Petre v. tracts ; for, after its organization, it Eastern Counties E. Co., 1 Eng. K'y could legally have made those very Cas. 462. See /»» re Hereford Wagon contracts. Compare Gent v. Insur- Co., 2 Ch. D. 621 ; 1 Lindley on Part., ance bo., 107111. 652. Again, suppose 398-400. But compare /n re Rother- promoters agree that the corporators ham Alum, etc., Co., 25 Ch. Div. 103. 59 § 90.] THE LAW OF PRIVATE COKPOBATIONS. [CHAP. V. perform. An injunction was granted to restrain the company from violating the agreement, and sustained on appeal. In giving judgment in the case, Lord Cottenham said : " But the question is not whether there be any binding contract at law, but whether this court will permit the company to use their powers under the act, in direct -opposition to the arrangement made with the trustees prior to the act, upon the faith of which they were permitted to obtain such powers." This case has been repeatedly questioned,' and its authority is doubtful. It may be hard for the party contracting with the promoter to have no remedy against the corporation ; but he should have known that the promoter could not bind the future company, and it would work great injustice and hardship if the company were to be held liable on contracts made by its pro- moters which the charter or- articles of association did not men- tion, and which persons taking shares in the stock of the com- pany had no means of discovering.* § 89. In determining the liability of a corporation in regard to any contract made by its promoters on its behalf, the essen- tial points to consider will be these : Was the contract one that the corporation as actually organized could legally have made after its incorporation ; and, if so, has the corporation since its incorporation ratified the contract expressly, or impliedly by voluntarily accepting the benefit of the same in such a manner as to estop it from denying that it has ratified the contract t^ § 90. The following propositions are submitted as an* attempt to embody the law on the subject, supposing the contract made by the promoters to be one which the corporation after its in- corporation could competently have made. ' See Preston v. Liverpool and Man- p. 57 ; and see Williams v. St. George's Chester R. Co., 5 H. L. C. 605 ; Cale- Harbor Co., 2 DeG. & J. 547. But donian, etc., E. Co. v. Helensburgh, the contract never was ratified, and 2 Macqueen, 391; Leominster Canal therein lies the difficulty with the deci- Co. V. Shrewsbury, etc., R. Co., 3 K. sion. &J. 654; Shrewsbury u. North Staf- " See Caledonian, etc., R. Co. v. fordshire R. Co., L. R. 1 Eq. 593. Helensburgh, 2 Macqueen, 891, .405- Still, the particular agreement in Ed- 407. wards v. Grand Junction R. Co. would ' Despatch Line v. Bellamy Mfg. have satisfied the test of contracts rati- Co., 12 N. H. 205 ; see Fister v. La fiable by the corporation in note 2 to Rue, 15 Barb. 323. 60 CHAP, v.] PROMOTION OF A COKPOKATION. [§ 90. , I. As long as the contract remains executory on both sides, the party who contracted with the promoter cannot enforce the contract against the corporation, unless the corporation has ratified the same ; and the corporation cannot enforce the con- tract against the other contracting party, without carrying out all the engagements entered into with the other contracting party at the time of making the contract.' n. When a contract made by a promoter on behalf of a future corporation has been ratified and performed by the latter, it may force the party who contracted with the promoter to perform on his side.* III. Whfen the contract has been executed by the other con- tracting party, the corporation should be held to perform on its side, if (1) it has ratified the contract,* or (2) voluntarily ac- cepted the benefit arising frora-the performance of the contract in such a manner as to estop the corporation from denyihg that it has ratified the contract.* But, on the other hand, if the benefit from the contract came to the corporation without any voluntary action on its part, or on the part of those whose acts in regard to the subject-matter of the contract are to be re- garded as the acts of the corporation, tken there is no principle in law or equity on which it can be compelled to carry out en- gagements entered into without its authority, and which it has never even impliedly ratified. ' Burrows v. Smith, 10 N. Y. 550. See Richwald v. Commercial Hotel 2 See Bedford and Cambridge E'y Co., 106 111. 439, 448. Co. V. Stanley, 32 L. J. Eq. CO. * Bonner v. American Spiral Hinge 3 Bonds issued by promoters before^ Mfg. Co., 81 N. Y. 468 ; Grape Sugar, incorporation may, after incorporation, etc., Mfg. Co. v. Small, 40 Md. 395; be ratified by the directors so as to be- Little Rock and Fort Smith R. R. Co. come valid obligations of the corpora- v. Perry, 37 Ark. 164 ; Paxton Cattle tion. Wood v. Wheelen, 93 111. 153. ,Co. v. First Nat. Bank, 21 Neb. 621. 61 §91.J THE LAW OF PRIVATE CORPOKATIONS. [CHAP. VI. CHAPTER VI. LEGAL RELATIONS CONSEQUENT UPON AN AGREEMENT TO TAKE SHARES IN THE STOCK OF A CORPORATION TO BE ORGANIZED. Is the agreement binding? § 91. Consideration, §§ 92-95. Conditional agreement to take shares, §§ 96, 97. When deposits may be withdrawn, § 98. Certain defences, § 99. Legal relations arising from a valid agreement to take shares, § 100. Assignment of subscriber's interest, §§ 101, 102. Legal relations between subscribers and promoters, § 103. • When promoters are liable to sub- scribers for deposits, § 104. Fraudulent subscriptions, § 105. Misapplication of deposits, § 106. Subscriptions in general enforceable by the corporation when organized, §§ 107-109. Rights of subscribers against the cor- poration, § 110. Effect of subscriber's laches, §§ 111, 112. § ^1. In the first place, is an agreement to take shares in the stock of a corporation binding upon the parties agreement thereto?' If the agreement is made as prescribed by bindmg ? statute and with persons, usually called commis- sioners, who, for the purpose of receiving subscriptions, are constituted by statute the representatives of the corporation while it is in the process of formation, the right acquired by the subscriber to shares in the company when formed, or, what is the same thing, viewed from the opposite point of view, the obligation which the company when formed will be under to allot shares to the subscriber, is a valid consideration for a sub- scription ; if indeed it may not be said, that, when a statute specifies certain persons with whom agreements to subscribe are to be made, those agreements, provided the requirements of the ' See generally, Kidwelly Canal Co. Eastern Plank Road Co. v. Vaughan, V. Raby, 2 Price, 93 ; Selma and Ten- 20 Barb. 155 ; S. C, 14 N. Y., 546. nessee R. R. Co. v. Tipton, 5 Ala. 787 ; 62 CHAP. VI.J AGREEMENTS TO TAKE STOCK. [§92. statute are complied with, are good "by force of the act itself," without any further consideration ; for the rule of law requir- ing a consideration is but a rule of law which like other rules may be modified by statute or impliedly abrogated in respect of certain contracts.' § 92. When, however, the agreement to take shares is made simply by the subscribers among themselves, then taking for granted that the parties to the agreement y°n*''^®''*" are capable of contracting, and that the proposed ob- jects of the contemplated corporation are not illegal, the question whether the agreement is binding resolves itself into a question ' Union Turnpike Co. v. Jenkins, 1 Caines Cas. 381 ; Hamilton and Deans- ville Plankroad Co. v. Kice, 7 Barb. 157. In the former of these cases Radcliffe, J., said, giving the opinion of the court at p. 389 : " The subscrip- tion was taken by commissioners who were authorized to receive it, and in the form prescribed by the act. That form contains an absolute promise to pay the money to the president, direc- tors, and company. On the one hand, the interest of the company in selling the shares, and the public advantage to be derived from the success of the institution ; and on the other, the ex- pected profits to accrue from the stock, were sufficient considerations to up- hold the promise. By force of the act itself also it must be considered as good. The legislature also must have intended that it should be obligatory, for else the formal manner in which it was prescribed to be taken would be senseless and nugatory." This case was reversed in Jenkins v. Union Turnpike Co., 1 Caines Cas. in Error, 386, mainly on the ground that the terms of the statute had not been com- plied with. It still seems to the writer that the principle stated in the text and in the citation from Judge Rad- cliffe's opinion is sound. See, also, Selma and Tennessee Railroad Co. v, Tipton, 5 Ala. 787, 809; Thorp v. Woodhull, 1 Sand. Ch. 411 ; Danbury and Norwalk R. R. Co. v. Wilson, 22 Conn. 435 ; and opinion of Bowie, C. J., in Taggart v. Western Maryland R. R. Co., 24 Md. 563. In Angelland Ames on Corp., § 527, it is said : " It seems that the criterion of the liability of a subscriber to stock in a corporation is whether any act has been done by which the corporation has been forced to receive the subscriber." On the other hand, where signing a subscription paper is not an essential part of the machinery devised by the legislature for forming a corporation, it has been held that signing such a paper imposes no obligation on the subscriber which the corporation can enforce. Troy and Boston R. R. Co. v. Tibbits, 18 Barb. 297; Same v. War- ren, ib. 310; Sedalia W. & S. R. Co. V. Wilkcrson, 83 Mo. 235; see Erie and N. Y. City R. R. Co. v. Owen, 32 Barb. 616; Dorris u. Sweeney, 64 Barb. 636 ; S. C, 60 N. Y., 463. But see §§ 107-109. As to the allotment by commissioners, see Crocker v. Crane, 21 Wend. 211 ; Walker V. Devereux, 4 Paige, 229. 63 §92.] THE LAW OF PRIVATE CORPORATIONS. , [CHAP. VI. as to the mutual sufficiency of consideration between the dif- ferent parties.* It is often said rather loosely, that the mutual promises of the different contracting parties constitute the con- sideration for each other f but to this it is answered with appa- rent pertinency, that, when the binding force of these very promises is in question, to say that they constitute valid con- siderations for each other is reasoning in a circle;* still, perhaps, this objection is more specious than real. It is usually said that consideration is either benefit received, or trouble or detri- ment caused ; but if the nature of consideration be looked into a little more closely, it will appear that, in reality, the detriment caused is at the present day the essential part of the considera- ' See Eastern Plank Koad Co. v. Vaughan, 14 N. Y. 546, 553 et seq. The promise to take the shares implies a promise to pay for them ; Spear v. Crawford, 14 Wend. 90 ; approved in Rensselaer, etc., Plank Boad Co. v. Barton, 16 N. Y. 457, note. See, also, generally as to this last, §§ 513, 514. ' Twin Creek, etc., Turnpike Co. V. Lancaster, 79 Ky. 562 ; Watkins v. Barnes, 9 Cush. 537 ; New Lindell Hotel Co. V. Smith, 13 Mo. App. 7 ; Osborn v. Crosby, 63 N. H. 583. " The agreement to associate together under the act to accomplish the pur- poses designed would seem a sufficient consideration. The consideration need not move from the party with whom the contract is made. The considera- tion of one promise is that others will make like promises." Shepley, C. J., in Kennebec and Portland R. R. Co. V. Palmer, 34 Me. 366. See Edin- boro' Academy v. Robinson, 37 Pa. Sr. 210; Thompson v. Page, 1 Mete. 565. ' Methodist Episcopal Church v. Kendall, 121 Mass. 528, holds that a gratuitous subscription to promote the objects for which a corporation is estab- lished, cannot be enforced unless the 64 promisee has done something or in- curred some liability relying on the promise; and it is not sufficient that others were led to subscribe by the subscription sought to be enforced. See Poughkeepsie, etc., Plank Road Co. V. Griffin, 24 N. Y. 150 ; Phillips Limerick Academy v. Davis, 1 1 Mass. 113; Essex Turnpike Co. v. Collins, 8 Mass 291 ; Burt v. Farrar, 24 Barb. 518; Amherst Academy d. Cowles, 6 Pick. 427. But see Bryant v. Good- now, 5 Pick. 228, 229, where it is said: "Where one subscribes with others a sum of money to carry on some common project, lawful in itself, and supposed to be beneficial to the projectors, and money is advanced upon the faith of such subscription, an action for money paid, laid out, and expended may be maintained to re- cover the amount of the subscription, or such portion of it as will be equal to the subscriber's proportion of the expense incurred." See, also, Homes V. Dana, 12 Mass. 190; Trustees of Farmington Academy v. Allen, 14 Mass. 172; Whitsitt v. Trustees Pres- byterian Church, 110 111. 126; Osborn V. Crosby, 63 N. H. 683. CHAP. Vr.] AGREEMENTS TO TAKE STOCK. [§ 93. tion,' for where detriment has been caused to the promisee, it is immaterial whether the promisor has been benefited or not; as, for instance, in the ordinary case of a guaranty the promisor, is not benefited, but the promisee acting upon the promise, in lending money or performing services, suffers detriment in legal intendment. As a usual thing, where detriment has been caused to the promisee, benefit will have accrued to the promisor; but it is nevertheless to the detriment caused that we must look, as that is always sufficient to constitute a valid consideration.^ Moreover, the consideration is presumed equal to the promise made therefor ; and, however unequal in reality these two may- be, the law will take no notice of their inequality, xinlessthe in- adequacy of the consideration is such as to raise a presumption of unfair advantage or fraud.* § 93. Let us now apply these principles to an agreement to take shares in the stock of a corporation to be organized. If the agreement to take shares is entered into by all the parties at the same time, it would, at least if drawn so that the parties purported to agree with each other, usually contain an aniple consideration, the consideration for the promise of A. being the detriment caused B.,C., D., etc., the other parties, in promising to take shares, the simple act of signing^ such an agreement , being sufficient detriment caysed to support a promise. It may be said further that the detriment caused B., C, J)., etc., in ' See Langdell's Summary of the is to pay money absolutely, and the Law of Contracts, § 55- consideration is money given, the law ' It has been the writer's opinion will take notice of inequality between that benefit received at the time of the consideration and the promise ; making the promise is also a good con- and, therefore, money paid will not sideration, whether detriment be caused support a promise to pay more than 1;o the promisee or not ; that is, whether the same sum with interest. See or not the consideration move from the Langdell's Summary, etc., § 55. A promisee. But this is not universally court of equity, moreover, will some- accepted as law. See 2 Wharton on times regard the actual adequacy of Contracts, § 784 et seq., and an article consideration in deciding whether op by the writer in the April, 1881, num- not to decree the specific performance her of the American Law Eeview on of a contract. "The Eight of a Third Person to Sue * See Haigh v. Brooks, 10 Ad. & on a Contract made in his Favor." El. 309, 323 ; Brooks v. Ball, 18 ' There is an exception to the rule Johns, 337. ' stated in the text. Where the promise 5 65 § 93.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VX. promising to take shares, or in merely signing an agreement, is ample consideration to support the promise of A., irrespective of the questibn whether the promises of B., C, D., etc., in them- selves considered, are valid promises or not.* In other words, where it is expressly stipulated in the agreement, or where, from the tenor of the same, it may appear, that the making of the mutual or respective promises contained in the agreement is to constitute the consideration for the agreement, it will not be the fact that the promises when made are enforceable, but the making of them which will constitute the consideration ; though it follows that the promises when made will be binding, because founded on a valid consideration. The question, then, will be, in any given instance, was the consideration of the promise of A. the making of the promises by B., C, D., etc., or the performance of their promises by the latter. In the former case the agreement is as clearly binding as in the latter case it is, in itself considered, worthless-; because, until the promises of B., C, D., etc., have been performed, there is no consideration for the promise of A., which, therefore, until such performance, is in legal contemplation nothing more than an offer, which may be withdrawn at any moment. Through performance, however, on the part of B., C, D., etc., the promise of A. may become binding. For instance, the cor- poration having been formed, and A., not having in the mean time withdrawn from the agreement, if B., C, D., etc., take and pay for their shares as agreed, they (or the corporation, if it shall appear to have been the intention that the corporation should have the right to enforce the promise^) can then force A. to take and pay for his shares as well ; for if relying on ' It is, of course, quite possible for parties hereto, that each of the said an agreement of this kind to be drawn parties will take five shares in the stock so as to be little more than worthless ; of the X. Co. when organized, in con- e. g., the promise of each might be sideration of each of the other parties made conditional on the actual taking hereto taking five shares," etc. This of the shares by the others. Here, form might be binding were it not for plainly, there is no binding contract, the words "in consideration," etc. Such an invalid instrument would be ' See Eastern Plank Road Co. v. the following: "It is mutually cove- Vaughan, 14 N. Y. 546. nanted and agreed by and between the «6 CHAP. VI.] AGREEMENTS TO TAKE STOCK. [§ 94. A.'s promise or, more strictly speaking, unwithdrawh offer,* to take shares, B., C, D., etc., have actually taken shares them- selves, they have thereby accepted A.'s unwithclrawn offer, by performing that act, which was intended to be, when performed, a valid consideration, which should convert A.'s unwithdrawn offer into a binding promise ; and in truth, therefore, they have thus transformed A.'s unwithdrawn offer into a binding promise, the performance of which may be enforced by the parties who have themselves performed, or by the corporation if such was the intention.' § 94. The foregoing discussion has proceeded on the assump- tion that the agreement to take shares was entered into by all the parties thereto at the same time; that it was, properly speaking, one agreement. Where, however, as is frequently the case, a subscription agreement is signed by different persons at different times, or where "books are opened for subscribers," who subscribe at different times, the foregoing remarks will be hardly applicable. Por instance, in the case above conceived, where the making of the respective promises was plainly in- tended to be the consideration of the agreement, if we suppose that A., B., and C. sign together, and that some days after- wards D. signs, while A., B., and C. may be bound, as yet to D,, if the consideration of his promise was the making of the promise of A., B., and C, it will be but a past consideration. It might be said that all parties are to be presumed to sign at the same time ; but when several days intervene between the times of actual signing, and especially where dates are an- nexed to the different signatures, such a presumption becomes too glaringly contrary to fact to exist even in legal con templar- tion. In such a case further consideration should be found for D.'s promise. Here, as we must presume all the parties to act ' This unwithdrawn ofier is not even ' If the paper were so drawn that a conditional promise, because it may the consideration of each promise was be withdrawn at any time before the the performance of all the other pro- performance of the consideration ; and raises, the paper would practically a true conditional promise may not be amount to very little ; as it would not withdrawn, because founded on a con- become enforceable against any one sideration when made ; although it subscriber until all the rest had volun- may not be enforced until the condi- tarily taken their shares, tion has been performed. 67 §96.] THE LAW OF PKIVATB COKPORATIONS. [CHAP. VI. in good faith and to wish to join in a valid agreement, the ques- tion would be merely as to the form of the same. Therefore, some consideration should be expressed to pass to D. from the other parties to the instrument at the time of his executing it. To this end, each promise could be expressed to be made in consideration of the making of the other promises, made or to be , made, and of one dollar paid by some party on behalf of all present and future parties to the agreement, to the promisor at the time of his executing the same ; which, for greater security, should be under seal.' § 95. It may be added in passipg, that if any of the parties to the instrument are infants, their promises will not be bind- ing on them, unless ratified by them after coming of age ;" and that if the object of incorporation, as expressed in the agree- ment, is illegal, >the agreement to take shares will bind no one. § 96. When there are conditions in an agreement to take shares in a corporation to be formed, the instrument agree- is to be construed with reference to them, so as to take'sVares. S^^^ them due effect.^ Moreover, in construing such conditional agreements, it must be noticed closely whether the condition relates to the promise or to the perform- ance of the promise. If the promise of one party is made con- ditional upon the making of the promises by the other parties, such promise becomes absolute as soon as the other promises are made. But if a promise is made conditional upon the per- formance of the other promises, such a condition, as before pointed out, would go far towards making the whole agree- ment nugatory.* The usual condition in an agreement to take shares in a cor- ' It will be noticed that cases like subscriptions made to further some Methodist Episcopal Church u. Ken- private money-making business scheme dall, 121 Mass. 528, and other cases of the subscribers. Compare Haskell cited in the same note with it to § 92, v. Sells 14 Mo. App. 91 vere mostly cases of "gratuitous" sub- s See Lumsden's Case, L. R. 4 Ch. scriptions, made to promote some ob- 31 ; and Keaveley's Case, 1 De Gex ject in which the subscribers had no & Sm. 550. direct pecuniary interest. Such cases, 3 See North Stafford Steel, etc., therefore, are of questionable applica- Co. m. Ward, L. R. 3 Ex. 172 ' tion in discussing the binding force of * See § 98 68 CHAP. VI.] AGREEMENTS TO TAKE STOCK. [§ 97. poration to be formed is that the promises shall not be enforced until all or a certain amount of the stock of the future com- pany is agreed to be taken.* Such a condition would be more apt to be present where the parties to the agreement sign at different times; in which case, as before pointed out, a con- sideration should be expressed to move from the representatives of all other parties to each party upon his signing the instru- ment. If this were done the promises would be binding con- ditionally as soon as made ; and upon the fulfilment of the con- dition, that is, upon promises to take the requisite number ot shares being made, they would become absolute. Should this condition, however, relate to the performance of the promises, the promises might amount to no more than offers, which could be withdrawn at any time before the fulfilment of the condition, for it maybe said that until then they never had any even con- ditionally binding quality, except as above pointed out.^ § 97. If the condition be one to be performed by the corpora- tion when organized, then generally the agreement to subscribe made prior to its organization cannot be enforced before the ' When the amount of the capital stock is inserted in the subscription agreement, subscribers may refuse to pay any part of their subscriptions un- til the full amount is subscribed for. Cabot & West Springfield Bridge v. Chapin, 6 Cush. 50 ; Salem Mill Dam Co. V. Ropes, 6 Pick. 23. See Nor- wich, etc., Navigation Co. v. Theo- bald, 1 Moo. & M. 151 ; Waterford, etc., R. Co. V. Dalbiac, 6 Ex. 443 ; Penobscot R. R. Co. v. Dummer, 40 Me. 172; Penobscot, etc., R. R. Co. V. Bartlett 12 Gray, 244; Burt v. Farrar, 24 Barb. 518 ; Hughes v. M'f'g Co., 34 Md. 316; Boston, Barre, etc. R. R. Co. v. Wellington, 113 Mass. 79 ; Erie, etc. R. R. v. Owen, 32 Barb. 616; Pierce v. Jer- sey Water Works Co., L. R. 6 Ex. 209 ; Elder v. New Zealand Land Improvement Co., 30 L. T. N. S. 285; but see Renssellaer, etc., Plank Road Co. V. Wetzel, 21 Barb. 66 ; McDougall V. Jersey Imperial Hotel Co., 10 Jur. N. S. 1043. See§§517- 521. The prospectus of a company to be formed stated that the proposed capi- tal stock was to consist of ten thou- sand shares of twenty-five pounds each. Only fourteen hundred of these shares were taken. Held, that the agreement of a person subscribing for shares was conditional on the fulfil- ment of the terms of the prospectus. Pitchford v. Davis, 5 Mees. & W. 2. This case may give rise to the quaere whether it is proper to construe all the terms of the prospectus as conditions in the agreement to take shares. Still, Fox V. Clifton, 6 Bing. 779, accords; but see Hutt v. Giles, 12 Mees. & W. 492. ' See § 93. 69 §98.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VI. performance of the condition,' unless it is the promisors them- selves who, as a matter of fact, prevent the fulfilment of the condition in order to invalidate their own promises.'^ In the last case the promisor who is concerned in preventing the ful- filment of the condition may take no advantage of its non-ful- filment ; and this on general principles of good faith and equity, and in accordance with the law relating to the performance of conditions generally.^ § 98. It may be said, as incidental to the preceding discussion, that where a number of persons intending to form a corpora- ' Effect should be given to condi- tions in a letter accepting a position as provisional committee-man, and agree-: ing to take shares. Roberts's Case, 3 De Gex & S. 205 ; affirmed, 2 Mac. & G. 192 ; see Wood's Case, 8 De G. & J. 85 I Burrows v. Smith, 10 N. Y. 550; Union Hotel Co. o. Hersee, 15 Hun, 371. It has been held, where persons acting as agents for a contem- plated turnpike company, obtain sub- scriptions on certain conditions as to the location of the road, that the cor- poration cannot afterwards recover on those subscriptions, without complying with the conditions ; and that on the definite failure of the corporation to comply with them, payments already made may be recovered back. Frank- fort and Shelbyville Turnpike Co. v. Churchill, 6 T. B. Monroe (Ky.), 427. The agreement in this case was sepa- rate from the subscription, but was formally drawn in writing, and con- tained a covenant to return the moneys received, unless the road was run as agreed. On the other hand, it has also been held, where a general turnpike act conferred no power on the commis- sioners to accept conditional subscrip- tions, that a subscription conditioned on the laying of the road through a 70 specified place is contrary to public policy and void. Butternuts, etc., Turnpike Co. v. North, 1 Hill, 518 ; Fort Edward, etc., Plank Road Co. v. Payne, 15 N. Y. 583. Parol decla- rations made by officers of the com- pany can only avail a subscriber seek- ing to invalidate his subscription for shares where they amount to fraud. Vicksburg, etc., R. R. Co. v. McKean, 12 La. Ann. 638; Martin v. Pensa- cola, etc., R. R. Co., 8 Fla. 370; Mississippi, etc., R. R. Co. v. Cross, 20 Ark. 443. So parol declarations made by promoters as to route, will not, unless they amount to fraud, avail the subscriber. Braddock- v. Phila- delphia M. & M. R. R. Co., 45 N. J. L. 363. And parol agreements made at the time of subscribing for shares, and inconsistent with the writ- ten terms of the subscription, are void. Connecticut and Passumsic Rivers R. R. Co. V. Bailey, 24 Vt. 465 ; White- hall, etc. R. R. Co. V. Myers, 16 Abb. Pr. (N. S.) 34; Haskell v. Sells, 14 Mo. App. 91 ; Galena & S. W. R. R. Co. V. Ennor, 116 111. 55. See § 521. ^ See Upton v. Hansbrough, 3 Bis- sell, 417, 423. ' See Raynay v. Alexander, Yelv. 66 ; Hotham v. East India Co., 1 T. R. 638. CHAP. VI.] AGREEMENTS TO TAKE STOCK. [§100. tion, and through that means carry on some business, raise a common fund, eventually to be increased, but begin- ning with deposits placed in the hands of a committee posits may with authority to do certain acts, it is not competent ^raw'*" for any one of such subscribers to withdraw his funds so deposited, until it has become evjdent that the carrying out of the scheme is impracticable.* § 99. If a person agrees to pay a deposit, and the considera- tion of that ao;reement fails, he need not perform f - 1 1 , 1 T 1 1-1 Certain but, nevertheless; should he agree to pay deposits by defences. a certain day, he cannot plead to an action for not paying them on or before that day that the projected company has become abortive since that day; for that might not have happened had he paid his deposits as agreed, and circum- stances intervening after he broke his promise are no excuse for such breach.' "Where, however, a person subscribes for stock in a future corporation, as the contract does not purport to be with an existing corporation, the subscriber is not estop- ped, in a* suit to enforce his subscription, from denying that the corporation ever came into existence.^ § 100. Having considered the general question of the valid- ity and construction of an agreement to take shares Legaj reia- in the stock of a future corporation, there remain -n^fro^a for consideration the legal relations arising from such vaiidagree- ° T ■ 1 nient to. an agreeinent. Prima facie these relations are such take as may be inferred from the terms of the instru- ment ; for the courts ordinarily, as among the parties to the instrument, will enforce its provisions according to their tenor and import. Such agreements differ much from each other. One might readily be drawn so as to constitute the parties thereto partners, at least in regard to the scheme of incorpora- 1 Baird v. Ross, 2 Macqueen, 51 ; v. Brown, 7 Ellis & B. 163 ; S. C, 2 compare Kent v. Jackson, 14 Beav. Ellis & E. 398. 367 ; Kidwelly Canal Co. v. Kaby, 2 * RikhotF v. Brown's Sewing Ma- Price 93. chine Co., 68 Ind. 388; Indianapolis ' See Duke v. Andrews, 2 Ex. Furnace, etc. Co. v. Herkimer, 46 290. Ind. 142; see Reed v. Richmond ' Duke V. Dire, 1 Ex. 36 ; Oldham Street R. R. Co., 50 Ind. 342 ; §§ 537, 538. 71 § 101.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. VI. tion ; as, for example, if the instrument should provide that the parties thereto should act as each other's agents in the fur- therance of the scheme, and share any profits or losses arising before the incorporation of the company. Such provision, however, vfould ordinarily be absent, and by merely entering into a binding agreement to take shares in a corporation to be formed, persons do not become partners, nor liable as principals for each other's acts as agents.^ To be sure, after the agreement is executed, supposing it to be a mere agreement to take shares, the parties thereto may so act that outsiders are justified in concluding that the relation- ship of principal and agent or of partners exists among them ; and this on principles before discussed in relation to promoters.^ Therefore, while in fact, as among themselves, no relationship of agency or partnership exists, they may be held responsible to outsiders for the acts of each other, either as principals or as partners, according to the circumstances. § 101. To what extent a party to an agreement to take shares Assien- '^^ *^'® stock of a Corporation to be formed may, by ment of assigning his interest in the agreement, relieve him- er'sinte- Self from future liability, will depend on a proper ^^^^' construction of the instrument itself, qualified by the general maxim, that while a man may assign or waive any rights accruing to him under an agreement, he cannot divest himself of his liabilities arising therefrom.' It would be most unjust to hold, where responsible persons have joined in an agreement to furnish funds for the advancement of a scheme of incorporation, and to take shares in the stock of the future company, that under such circumstances any one of them mav avoid fulfilling his contract, by assigning his interest to some irresponsible person. It must be admitted, however, that under somewhat analogous circumstances the English cases hold that a shareholder, even in a company of unlimited liabil- ity, may free himself from any future liability by transferring ' Shibley v. Angle, 37 N. Y. 626. " See § 77. See Fay v. Noble, 7 Cush. 188. ' Graff v. Pittsburgh and Steuben- Thrasher v. Pike Connty R. Co., 25 ville R. Co., 31 Pa. St. 489. 111. 393; and compare Garnett v. Richardson, 35 Ark. 144. 72 CHAP. VI.] AGREEMENTS TO TAKE STOCK. [§ 103. his shares to a man of straw for that very purpose, provided the transfer be absolute.^ The, American law is different on this point.^ § 102. Moreover, by assigning his interest in a contract to take shares in the stock of a future corporation, a person may in- cur liability to his assignee, at least if he purports to sell shares in the stock of a future corporation,' for, should such a corporation never be organized, he might have to refund any money paid him by his vendee. Still, in the absence of fraud, the vendor would incur no liability to his vendee by selling him merely his right to shares in the stock of the corporation when formed ; for here there is no failure of consideration even though the corporation be never formed, because the vendor sold only his right to shares in the stock of a cei:tain corporation should it thereafter be organized. § 103. Persons agreeing to take shares in the stock of a cor- poration to be formed necessarily come in contact with the promoters of the scheme of incorporation ; they tionsb?-*" usually subscribe on the faith of the acts and repre- g^j.^^g^"''' sentations of the latter, and judge as to the ultimate and promo- t6rs. success of the undertaking from the opinion they have formed of its promoters. The promoters of the plan are in a better position to judge of the feasibility and desirableness of the scheme than are persons who merely agree to take shares in the concern when it shall have started. Because of these and similar considerations a fiduciary relationship arises be- tween the promoters and persons who agree to subscribe for shares in the stock of the future corporation ;^ and the latter are in consequence entitled to fair and open treatment from the former. It follows that promoters are liable to persons who subscribe for shares in the stock of the future company for damages caused by any fraudulent misrepresentation or conceal- ment on their part, where the subscribers have relied on their 1 Jessop's Case, 2 De G. & J. 638; 152; Marcy i-. Clark, 17 Mass. 330. DePass's Case, 4 De G. & J. 544 ; See §§ 586, 749. Harrison's Case, L. R. 6 Ch. 286; ^ Kempson v. Saunders, 4 Bing. 5. Williams's Case, 1 Ch. D. 546. See See Street u. Bailis, 2 P. Wms. 217. 8S 586, 749. ' Williams v. Page, 24 Beav. 654, " Nathan v. Whitlock, 9 Paige, 661. 73 § 104.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. VI. tepresentations,' and to recover such damages the subscriber can bring an action in law for deceit,"* and may have a right in equity to have his subscription cancelled,^ provided by such cancellation the rights of other and innocent persons are not infringed. Promoters may also be responsible to subscribers for the misrepresentations of their fellow-promoters, if the relationship of agency or partnership existed between the pro- moters ; or if they had acted in a way to justify subscribers in inferring the existence between them of either of these relation- ships.* § 104. That, upon the failure of the scheme of incorporation. When ro Subscribers may recover back from the promoters de- motersiia- posits paid On Subscribing; for shares in the contem- We to sub- , ^ . . ... , . 1 . ecribers for plated corporation, is a proposition which is not depoBits. always true. In such a case the rights of the sub- scriber who has paid the deposit depend on the intention and meaning of the parties to the scheme, as expressed in the sub- scription agreement and viewed in the light of surrounding circumstances.* If, judging of the matter in this way, it ap- pears to have been the intention that the deposits should be applied to. the furtherance of the scheme, then, although the scheme proved abortive, the moneys will have been applied to the purpose for which they were presumably destined ;* and the subscribers can recover back only such moneys as either have not been expended and so remain in the hands of the promoters) or such as have been spent by> the promoters after all reasonable hope for the success of the undertaking had passed away, and under such circumstances as to imply wilful mismanagement or fraud on their part.' But fraud on the part of the promoters ' Hornblower v. Crandall, 7 Mo. * Hornblower v. Crandall, 7 Mo. App. 220; afF'd 78 Mo. 581. 220; aff'd 78 Mo. 581. « Paddock «. Fletcher, 42 Vt. 389 ; ' See Moore v. Garwood, 4 Ex. 681. Gerhard u. Bates, 2 El. &B. 476. See « Garwood . Ede, 1 Ex. 264; Twycross v. Grant, 2 C. P. Div. 469. Clements v. Todd, 1 Ex. 286 ; Jones v. » Kent V. Freehold Land Co., h. R. Harrison, 2 Ex. 52 ; Willey v. Parratt, 4 Eq. 588. An innocent misrepresen- 3 Ex. 209. tation, in order to release the subscriber, ' Watte u. Salter, 10 C. B. 477. See must extend to the fundamental nature Ship v. Crosskill, L; R. 10 Eq. 73 ; and of the enterprise. Kennedy v. Panama, compare Vane v. Cobbold, 1 Ex. 798 ; etc. Mail Co., L. R. 2 Q. B. 580. Watson v. Charlemont, 10 Q. B 856. 74 CHAP. VI.] AGREEMENTS TQ TAKE STOCK. [§ 106. in procuring the deposits would change the situation and entitle the depositors to recover back the whole amount, at least as between them and the fraudulent promoters.^ If, however, the deposits were made merely in order to com- ply with some resolution or statutory requirement, and without any intention on the part of the subscribers, or right on the part of the promoters, to apply the money in furthering the organi- zation of the company, then the subscribers would be entitled to have their entire deposits returned.^ Under such circum-' stances, whether the promoters would be accountable for de- posits received by others of their number must be decided ac- cording to principles already often referred to f generally they would not be.^ § 105. It goes without saying that whoever agrees to take shares in the stock of a future corporation, merely in j-rauduient order that others may be induced to agree as well, subscrip- having a secret understanding with the promoters oi the scheme that no liabilities shall attach themselves to him by reason of his contract, will be bound to fulfil the letter of his agreement, at least in so far as the non-fulfilment thereof would injure innocent persons who have acted on the faith of it.' And, moreover, in so far as the promoters carry out this fraud- ulent secret understanding will they render themselves person- ally liable to persons defrauded and injured thereby.* , § 106. One thing further as to the relationship between the ' See Colt w. Woolaston, 2 P. Wms. act of parliament, they will be liable 153 ; Twycross v. Grant, 2 C. P. Div. personally. Ward v. Londesborough, 469. But one subscriber, whose sub- 12 C. B. 252. scription has been obtained through 'See Walstab v. Spotteswood, 15 the fraudulent representations of a pro- M. & W. 501. moter, cannot maintain an action for ■• See Burnside v. Dayrell, 3 Ex. money had and received against other 224, commented on in Thompson on subscribers who are not implicated in the " Liabilities of Agents of Corpora- the fraud. Perry ii. Hale, 143 Mass. tion," p. 215. 540. ' White Mountains E. R. Co. v. » Nockels V. Crosby, 3 Barn. & Cr. Eastman, 34 N. H. 134; Custar v. 814 ; Ashpitel v. Sercombe, 5 Ex. 147. Titusville Gas Co., 63 Pa. St. 381. So if directors (promoters) undertake See Litchfield Bank v. Church, 29 to return deposits without deduction in Conn. 137. case the scheme proves abortive, as for ^ See Hall's Case, L. R. 5'Ch. 707 ; instance, through failure to obtain an Getty v. Devlin, 70 N. Y. 504. 75 § 108.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VI. promoters, and persons agreeing to take shares and making' Misappiica- ^eposits. Such persous enter into such an agreement tioD of and paj' their preliminary deposits, expecting that a corporation, with the nature and general pur- poses of which they have been made acquainted by the pros- pectus and representations of the promoters, will be organized ; and they have contracted and paid their money with this spe- cial scheme in view. Clearly, if the promoters apply the funds so deposited in any other way than that which the subscribers were justified in contemplating, the subscribers' moneys have been misapplied, and each of them has a plain claim to recover back such funds from any promoter responsible for their mis- application. Such a misapplication would be a conversion of the funds of the subscribers, for which wrong an appropriate action would lie. It would seem, morebver, that any depositor should have a remedy, not only to obtain damages from the promoters for any misapplication of deposits, but, in cases where justice could not otherwise be done, that a depositor might compel the promoters to apply such funds to the fur- therance of the scheme for which they were subscribed, at least so far as it would be practicable for a court of equity to enforce such application. § 107. We come now to the relations between a person who has agreed to take shares in the stock of the future Subecnp- . tions gene- Corporation, and that corporation itself when organ- rally en- • j , forceable IZCa. llrMon'' § 1^^- ^i''^*' i" regard to enforcing the agreement when or- to Subscribe for shares. This was an agreement be- ganized. . i ■ , , tween the parties thereto to do a certain thing, to wit, to subscribe for shares in the stock of a certain corporation when organized ; that is, it was an agreement to invest a certain amount of capital in a certain manner, to be used for a certain purpose. If we regard the corporation when formed as a dis- tinct person, a legal difficulty will at once arise. This " per- son" was not a party to the agreement, did not even exist at the time when the agreement was made, what standing has it in court to compel the performance of the agreement ? ' • " A subscription to take shares in enures to the benefit of that corpora- the stock of a corporation to be formed tion when formed." Griswold u Peo- 76 CHAP. VI.] AGREEMENTS TO TAKE STOCK. [§ 109. But this diflBculty is entirely gratuitous, and arises only from^ tlje conception of a company as an entity, which at the very moment of the completion of its organization and thereby becomes a " person" distinct from all persons interested in the corporate enterprise. If we regard the company at the time of its incorporation merely as the aggregate of its members acting and bound to act ifi a certain way, and to employ cer- tain funds in a certain manner for a certain purpose,' all diffi- culty will be avoided ; and we shall then have the contract enforced by the parties thereto, acting in precisely the manner contemplated, to wit, as a corporation, through the medium of corporate machinery and organization. By means of this natu- ral conception all difficulty is avoided, and no violence is done to the strictest requirements of logical or legal thought. § 109. Accordingly, the proposition may be regarded as law throughout the United States, that when several persons mutu- ally agree to subscribe for shares in a corporation to be formed by the subscribers for the advancement of their interests, the ria University, 26 111. 41 ; Cross v. Pinckneyville Mill Co., 17 111. 57 ; see Eastern Flank Road Co. v. Vaughan, 20 Barb. 155 ; S. C, 14 N. Y. 546 ; and Angelland Ames on Corp., § 523. The insolvency of the corporation is no ground to restrain the collection of subscriptions to its stock. Dill v. AVabash Valley E. R. Co., 21 111. 91. Penobscot, etc., R. R. Co. v. Dum- mer, 40 Me. 172, seems to hold an agreement to take shares in the stock of a future corporation, to be as to the corporation a proposal, which is bind- ingly accepted by the corporation when organized recognizing the shares so subscribed for as shares of its stock. See Thompson v. Page, 1 Mete. 565 ; Stanton v. Wilson, 2 Hill, 153; Ken- nebec, etc., K. R. Co. V. Palmer, 34 Me. 366 ; Gleaves v. Brick Church Turnpike Co., 1 Sneed (Tenn.), 491 ; Buffalo and Jamestown R. R. Co. v. Gifford, 87 N. Y. 294. Perhaps the trouble with' some of these cases is that the right of the corporation to sue is not well thought out. To say that the agreement enures to the benefit of the corporation when formed raises the question of the competency of a per- son not party to a contract^ from whom no consideration moves, to sue thereon ; which is greatly in dispute. To be sure the doctrines of ratification may be re- sorted to where the agreement to sub- scribe was entered into with persons authorized or purporting to act on be- half of the future company. See § 87. ' Persons may agree with each other as to the terms on which they will take stock in a corporation to be formed by them. Under our system the corpora- tion following such an agreement would be the mere agency of the associates created for the sake of convenience in carrying out the bargain. Chater v. San Francisco Sugar Refining Co., 19 Cal. 219, 246. 77 § 110:]: THE LAW OF PRIVATE CORPORATIONS. [CHAP. VI. corporatioti when organized may recognize the subscribers as shareholders, and enforce the subscriptions;* and especially is this true when the subscription-agreement is made with persons who by statute represent the future corporation for the purpose of receiving subscriptions.' If, however, the parties to the' subscription agreement are not themselves the organizers of the corporation, and in no sense represent the future com- pany, and are a diflerent body of men from those composing the corporation when formed, then is certainly raised the diffi- cult question of the right of a third person to sue on a con- tract.' § 110. It remains to consider the rights of the parties to the Ri hts of original agreement as against the corporation. If subscribere the corporation when organized is composed of the' cOTpora- * subscribers, or if the agreement to subscribe is made *''°°" with persons who by statute represent the corpora- tion while it is being organized, a subscriber acquires* by his agreement the right to have the shares subscribed for by him allotted to him, unless his subscription is made after the full ' Buffalo and Jamestown R. R. Co. V. Clark, 22 Hun, 3.19 ; aff'd 87 N. y. 632; Twin Creek, etc., Turnpike Co. V. Lancaster, 79 Ky. 552; Boot& Shoe Co. V. Hoit, 56 N. H. 548; Tonica, etc., R. R. Co. v. McNeely, 21 111. 71 ; Johnston v. Ewing Female University, 35 111. 518; Red Wing Hotel Co. V. Friedrich, 26 Minn. 112; Whitsitt u. Presbyterian Church, 110 111. 125; Haskell v. Sells, 14 Mo. App. 91. See Peninsular Ry, Co. v. Duncan, 28 Mich. 130, 134, and au- thorities cited in note 1 to § 91. Com- pare Burt V. Farrer, 24 Barb. 518; Howe V. Flagg, 72 111. 397 ; Marseilles Land Co. v. Aldrich, 86 111. 504, and the cases cited in notes to § 91. 2 Delaware and Atlantic R. R. Co. V. Irick, 28 N. J. L. 321 ; Hughes v. M'f g Co., 34 Md. 316. ' See Lake Ontario Shore R. R. Co. V. Curtiss, 80 N. Y. 219, where 78 defendant and others signed the follow- ing instrument: "We, the under- signed, citizens of Unionville and vi- cinity, pledge ourselves to subscribe for and take stock in and for the con- struction of the Lake Ontario Shore R. R. Co., to the amount set opposite our names respectively, on condition said road be located and built through or north of the village of Unionville." The railroad was built so that it ful- filled the condition above, but it was held that this agreement did not amount to a subscription to plaintiff's stock, and that, being no party to the agreement, the plaintiff could main- tain no action on it. See also Cali- fornia Sugar M'f'g Co. v. Schafer, 57 Cal. 396 ; Strasburg R. R. Co. v. Echternacht, 21 Pa. St. 220. Cora- pare Eastern Plank Road Co. v. Vaughan, 14 N. Y. 646, S55. CHAP. VI.J AGREEMENTS TO TAKE STOCK. f§ 110. amount of the capital stock authorized by the charter of the corporation is subscribed for.' It will be remembered that all the parties to the subscription agreement have agreed to invest certain funds for the accom- plishment of a certain object, and that these funds should be managed and applied for the furtherance of that object through the medium of corporate organization ; suppose that this agree- ment is violated, either through the managers of the scheme procuring a charter different from the one contemplated, or by their actually misapplying funds already contributed ; that is, applying them in a manner and for purposes other than those contemplated by the original agreement. In other words, it becomes apparent that the purposes for which the corporation is actually being organized differ from those justifiably contem- plated ; that another scheme, differing from the original plan, is being gone into. It is plain that any one of the original partie J ^ \ -t -n 4. Excep- bearer secured by a mortgage oi its property. ■' ±5ut *'°°^" a corporation that receives from the state special or extraordinary franchises in order that it may the better serve the public in some employment in which the public has a pro- nounced interest, cannot without express authority mortgage its franchises.* As Justice Gray said in Richardson v. Sibley,* to it. Auerbaoh v. La Seur Mill Co., 28 Minn. 291 ; Rockwell v. Elkhorn B'k, 13 Wis. 653; Lucas v. Pitney, 27 N. J. L. 221 ; Hamilton v. New Castle, etc. E. R. Co., 9 Ind. 359; Hardy v. Merriweather, 14 Ind. 203 ; Frye v. Tucker, 24 HI. 181. But see James v. Rogers, 23 Ind. 451 ; Bacon V. Miss. Ins. Co., 31 Miss. 116. The note of a corporation signed by its treasurer may be negotiable although the corporate seal is attached. Bank V. Railroad Co., 6 S. C. 156. ' Savannah and Memphis R. R. Co. I'. Lancaster, 62 Ala. 555; Kelly v. Alabama and Cincinnati R. R. Co., 58 Ala. 489 ; Thompson v. Lambert, 44 Iowa, 239 ; Susquehanna Bridge Co. V. General Ins. Co., 3 Md. 805 ; Le- high Valley Coal Co. v. Agricultural Works, 63 Wis. 45. The power to mortgage, when not expressly given or denied, may be re- garded as incidental to the power to take and hold real estate, and make contracts. Aurora Agricultural Soc. V. Paddock, 80 111. 263 ; West v. Madi- son County Agricultural Board, 82 111. 205 ; Taylor v. Agricultural, etc. Asso., 68 Ala. 229 ; Jackson v. Brown, 5 Wend. 590 ; Central Gold Mining Co. V. Piatt, 3 Daly, 263 ; Watts's Ap- peal, 78 Pa. St. 370, 391. Authority in the charter of a railroad company "to acquire, alien, transfer, and dis- pose of property of every kind," in- 92 eludes the power to mortgage. Mc- Allister V. Plant, 54 Miss. 106. A corporation having authority to mortgage its property for the purpose of carrying on its business, may exe- cute a mortgage to secure the payment of future advances. Jones v. Guaranty and Indemnity Co., 101 U. S. 622. But a corporation formed under the "New York Manufacturing Companies Act of 1 848 has authority to mortgage its property only to secure the payment of a debt ; not to raise money. Car- penter V. Black Hawk Gold Mg. Co., 65 N. Y. 43 ; see Davidson v. West Chester Gaslight Co., 99 N. Y. 559. The scope of Carpenter v. Black Hawk Gold Mg. Co. is narrowed down to very little by Lord v. Yorker Fuel Gas Co., 99 N. Y. 547. ' See Commissioners of __Craven u. Atlantic and N. C. R. R. Co., 77 N. C. 289. " Coe V. Columbus, etc. R. R. Co., 10 Ohio St. 372 ; Atkinson v. Marietta, etc. R. R. Co., 15 Ohio St. 21 ; State V. Morgan, 28 La. Ann. 482 ; Pullan V. Cindinnati, etc. R. R. Co., 4 Biss. 85; Daniels v. Hart, 118 Mass. 548; Palmer 0. Forbes, 23 111. 301. See Carpenter v. Black Hawk Gold Mg. Co., 65 N. Y. 43, 50. But see Kenne- bec, etc. R. R. Co. V. Portland, etc. R. R. Co., 59 Me. 9, 23; Shepley b. Atlantic, etc. R. R. Co., 55 Me. 895, 407. * 11 Allen, 66, 67. PART I,] CONSTRUCTION OP CORPORATE POWERS. [§ 127. a case which held that a horse-railroad could not mortgage its road and franchises : " A corporation created for the very pur- pose of constructing, owning, and managing a railroad, for the accommodation anid benefit of the public, cannot, without dis- tinct legislative authority, make any alienation, absolute or conditional, either of the general franchise to be a corporation, or of the subordinate franchise to manage and carry on its cor- porate business, without which its franchise to be a corporation can Kave little more than a nominal existence."' "When, how- ever, authority to pledge the franchises of a corporation exists, there is implied, as incidental thereto, the power to pledge everything necessary to their enjoyment, including property not yet acquired by the corporation.^ § 126. Sometimes a corporation, as for instance a railroad company, issues securities of a peculiar nature, like " deferred income bonds ;" which may be irredeem- income able, and entitled to interest only after a certain °° ^' percentage of dividends has been paid on the stock. In a recent Pennsylvania case, a railroad corporation was held to have the implied power to issue such securities.* § 127. Finally, in order to raise money, a corporation is not restricted to borrowing on its own securities ; for it has been held that a railroad corporation, having power guaranty to raise money on its own bonds, may guaranty the bonds of cities and counties which have been lawfully issued to aid the company to build its road;* and also that a railroad cor- ' See Commonwealth v. Smith, 10 Stichter, 21 Am. Law Reg. N. S. 713. Allen, 448. Power to sell ita property But in Taylor v. Phila. and Reading conferred on a corporation in strong R. R. Co., 7 Fed. Rep. 386 (U. S. and general terms, includes the power Cir. Ct.), it was decided to be beyond to mortgage, Willamette Mg. Co. v. the power of the same corporation to Bank of British Columbia, 119 U. S. issue these very bonds ; the court tak- 191. Compare East Boston R. R. Co. ing the view that the transaction was V. Eastern R. R. Co., 13 Allen, 422, not a loan, properly speaking, there where it was said that the right to being no promise to return the princi- mortgage might be inferred from the pal. See Kent v. Quicksilver Mining terms of a statute not expressly au- Co., 78 N. Y. 159, 177. thorizing it. See §§ 304, 305. " Railroad Co. u. Howard, 7 Wall. " Phillips V. Winslow, 18 B. Mon. 892 ; see Bonner v. City of New (Ky.) 431 ; see §§ 676, 817. Orleans, 2 Woods, 135. ' Phila. and Reading R. R. Co. v. 93 § 128.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. poration may guaranty the bonds of another railroad company whose road it competently leases.* With respect to the amount of money that a corporation may borrow, no more definite rule can be laid down than this general proposition : in the absence of express restriction,* it is legally competent for a corporation to borrow whatever moneys may be required for its business.* § 128. At common law every corporation aggregate had in- cidentally the power to purchase, hold, and alienate homand ^^^^ *'^^^ estate as the purposes of its incorporation statutes of required.* But this common law capacity was an- nulled as far back as the time of Henry III., by the beginning of the series of statutes of mortmain, of which the latest was passed in the ninth j'ear of George II. These statutes were at first intended merely to prevent the accumulation of real estate in the hands of the Church ; but by later enactments," civil or lay corporations as well. as ecclesiastical were forbidden to purchase lands.* In this country the statutes of mortmain have not been re-enacted nor generally assumed to be in force.'' Accordingly, the law would seem to be that a stock corporation may purchase such real estate as is essential or reasonably necessary in its business for carrying out the purposes of its incorporation ; and this proposition applies especially to cor- porations formed under general enabling statutes.' Further, a ' Low V. California Pacific R. R. statutes of mortmain, see 1 Kyd, 78- Co., 52 Cal. 53. Compare Bank v. 104. Flour Co., 41 O. St. 552. ' 2 Kent's Com., 282 ; see also Page ' See Ossipee H. and W. Co. v. v. Heineberg, 40 Vt. 81 ; Odell v. Canney, 54 N. H. 295 ; Auerbach v. Odell, 10 Allen, 1, 6 ; Perin v. Carey, Le Seur Mill Co., 28 Minn. 291; 24 How. 465, 507 ; Potter u. Thornton, also § 286. 7 R. I. 252. These statutes are in ' Barry v. Merchants' Exchange force in Pennsylvania, 3 Binney, 626. Co., 1 Sandf. Ch. 280, 308. But how far they would be applied to * See Chap. II. ; Angell and Ames business or stock corporations is ques- on Corp., § 145 ; 1 Kyd on Corp., 69 ; tionable ; see Miller v. Porter, 53 Pa. 2 Kent's Com., 277 ; McCartee v. bt 292. Orphan Asylum, 9 Cow. 437, 462; ' State v. Mansfield, 23 N. J. L. People V. La Rue, 67 Cal. 526. 510 ; State v. Newark, 1 Dutch. 315 ; » 15 R. II., c. 5. 2 Kent's Com., 282; see Riley v. ^ For a history and discussion, of the Rochester, 9 N. Y. 64, Bostock v. 94 PART I.] CONSTKUCTION OF CORPORATE POWERS. [§ 130. corporation authorized to hold land, may take a fee, although its own term of existence is limited to a period of years : i. e., for purposes of alienation it takes the fee, while for the purposes of enjoyment of the land, in the nature of things its estate must be limited in time to the term of its own existence.' § 129. The power of a corporation to acquire per- sonal property is unlimited, unless there are special restrictions in its constitution.^ § 130. In the course of its business, and for the furtherance of the ends of its incorporation, a cor- poration may alienate,* or lease,^ a portion or even Power to acquire personal property. Power to alienate. North Staffordshire R'y, 4 El. & Bl. 798 ; compare Page v. Heineberg, 40 Vt. 81 ; Coleman v. San Rafael Turn- pike Co., 49 Cal. 517. A turnpike company may hold under lease premises necessary for storing implements used in road re- pairs, and sheltering its servants. Crawford v. Longstreet, 43 N. J.« L. 325. When a corporation is authorized to hold land for some specified purpose, the presumption is that land acquired by it was acquired for that purpose. Mallet u. Simpson, 94 N. C. 37. holding the title to real estate, the power to do so is implied. ' ' Thirdly, those corporations whose charter, etc. authorizes them in some cases, or for some purposes, to take and hold the title to real estate. In these cases, as the corporation may for some purposes acquire and hold title, it cannot be questioned by any party, except the state, whether the real estate has been acquired for the authorized purposes or not. "Fourthly, those whose charter, etc. confer a general power to acquire and hold real estate. Such corporations ' Corporations when considered with may take and hold real estate as freely reference to their powers to take and hold real estate may be classified as follows : — " First, those whose charter or law of creation forbids that they should acquire or hold real estate. In which case a corporation cannot take or hold real estate; and a deed or devise to it passes no title. and as fully as natural persons." Hayward v. Davidson, 41 Ind. 212. For the effect of a conveyance to a corporation of property which it is un- authorized to take, see § 303. ■ Nicoll V. New York and Erie R. R., 12 N. Y. 121 ; Rives v. Dudley, 3 Jones Eq-. (N. C.) 126. ' 1 Kyd, 104; Barry u. Merchants' ' Secondly, those whose charter or Exchange Co., 1 Sandf. Ch. 280. law of creation is silent on the subject. Statutes of mortmain do not apply to In such case, as a. general rule, there personal property. 1 Kyd, 104. is no power to acquire and hold such property. But if the objects for which the corporation was formed cannot be accomplished without acquiring and Wilson V. Miers, 10 C. B. N. S. 348 ; Hancock v. Holbrook, 9 Fed. Rep. 353. * See Featherstonhaugh v. Lee Moor Porcelain Clay Co., L. R. 1 Eq. 318. 95 § 131.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. VII. the whole of its property ; and may assign its property in trust for the benefit of its creditors.' But the proposition, that to accomplish the ends of its incorporation, a corpora- tion may deal with its property just as an individual, is too broad." And the preceding statements regarding the power of a corporation to alienate its property are subject to the following qualifications : a corporation cannot alienate or assign its prop- erty regardless of the rights of its creditors, or of a dissenting minority of shareholders f and a corporation owing duties to the public cannot, without special authority, alienate, lease, or mortgage its franchises, or do any act that may disable it from performing its public duties in the manner indicated by its constitution.^ § 131. The general statement is often- made, that a corpora- tion cannot transfer its franchises to another corpora- transfer" tion, or to an individual* Especially, it is said, a franchises, corporation caunot transfer its franchise to be a cor- ' State V. Bank of Maryland, 6 Gill of, shares in another corporation is & J. (Md.) 205 ; Union Bank v. EUi- ultra vires or not depends on the pur- cott, ib. 363; ArdescoOil Co. I'. North pose for which- it was made, and Am. Oil Co., 66 Pa. St. 375 ; Fouche whether, under the circumstances, it V. Brower, 74 Ga. 251. was a reasonable or necessary means ^ For instance, it is held that a cor- of carrying out corporate objects, poration cannot form a partnership Hill v. Nisbet, 100 Ind. 341. In with another corporation or with an Nassau Bank v. Jones, 95 N. Y. 115, individual. Marine Bank v. Ogden, it was held to be beyond^ the powers 29 111. 248 ; Whitteftton Mills v. Up- of a state bank to purchase stock in a ton, 10 Gray, 582 ; compare Allen v. railroad corporation. See also § 309. Woonsooket Co., 11 R. I. 288 ; French » See §§ 608, 609 for a discussion of V. Donohue, 29 Minn. 111. This the right of a majority to dispose of proposition certainly holds true when the corporate assets, and close the the business for which the partnership business of the corporation. And, is formed is ultra vires the corporation ; for a discussion of assignments by cor- thus a railroad corporation has no porations for the benefit of its credi- power to form a partnership with an tors, with or without preferences, see individual to run a line of boats. §668. Gunn V. Central Railroad, 74 Ga. 509. * See §§ 304, 305, 125. But one manufacturing company can ^ See Carpenter v. Black Hawk take shares in another in payment of Gold Mg. Co., 65 N. Y. 43, 50 ; a debt. Howe v. Boston Carpet Co., Branch v. Jessup, 106 U. S. 468, ■ 16 Gray, 493. Whether the purchase 484. 96 PART I.] CONSTRUCTION OF CORPORATE POWERS, [§ 132. poration.* And this on the ground that a grant of franchises or privileges from the legislature to a body of men gives to that body no authority to transfer these franchises and privileges to Others- In efl'ect, such a transfer would be a conferring of the power to act as a corporation f a power which, it is needless to say, only the legislature can confer. If a corporation is ex- pressly authorized to transfer its franchises, then its grantee receives them indirectly from the legislature by virtue of ex- press power conferred on the corporation to authorize another body of men to exercise its franchises or similar ones.* § 132. These statements are all correct enough. The trouble with them is, that, except in regard to a single class of corpora- tions, they have little practical import. The class of corpora- tions referred to are railroad and other corporations charged with the performance of public duties, who receive special franchises the better to enable them to fulfill these duties. And in regard to such, corporations there is a further reason why it is incompetent for them to transfer their franchises, i. e., the general rule forbidding them to do any act that may put it out of their power to serve the public as they were intended to serve it.* But what do the franchises of an ordinary business or manufacturing corporation amount to ? To nothing but a legal competency to act in a certain manner, wjiich they have acquired by complying with certain formalities. There is nothing special or extraordinary about their franchises. In ' Meyer v. Johnston, 53 Ala. 237, K. E. Co. v. Railroad Commissioners, 325; Coe v. Columbus, etc. R. R- 112 U. S. 609, 622. Co., 10 Ohio St. 372; Eldridge v. ' How far the first corporation could Smith, 34 Vt. 484 ; Willamette M'fg exercise its franchises after a transfer Co. V. Bank of British Columbia, 119 of them would depend on the construc- U. S. 191. Franchises to build, own, tion of its constitution, and especially and manage a railroad are not neces- on the construction of the power there- sary corporate rights, but are capable in contained to transfer the corporate of being enjoyed by natural persons ; franchises. and may be assigned by the corpora- ■• See §§ 304, 305, 125, and §§ 490, tion possessing them. Not so as to 491, as to transferring special imrauni- the franchise to be a corporation. Ra- ties. As a matter of fact, questions gan V. Aiken. 9 Lea (Tenn.), 609. regarding the validity of a transfer or 2 State of Ohio v. Sherman, 22 mortgage of franchises almost always Ohio St. 411, 428 ; Memphis & L. R. arise in relation to corporations of this class. 7 97 § 133.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. truth, their franchises are hardly worth transferring. Persons acquiring their property by purchase or under foreclosure may readily form themselves also into a corporation, if corporate organization is desired. Unquestionably the particular com- petency which a body of men by complying with certain statutory provisions have acquired is not transferable to another body who have not complied with those provisions ; any more than may be transferred the competency to act as a limited partnership, which persons may have acquired through compliance with the statute authorizing limited partnerships. Just as in regard to limited partnerships, so in regard to corporations, the general intention of enabling statutes is that persons who have complied with certain formalities may act as a corporation; that others may not.^ It will simplify matters here as elsewhere, to view them as they practically are ; and not to talk vaguely about the incompetency of corporations to transfer their franchises." § 138. When the capital stock is fixed in amount by the con- p J stitution of the corporation, as is ordinarily the case, increase or the corporation has no power to increase or diminish the capital its stock, unless expressly authorized so to do;* nor stock. j^^g ^j. ^jjg power to increase or decrease the number ' "The franchise of becoming and franchise to be a corporation remained being a corporation, in its nature, is in and was exercised by the old cor- incommunicable by the act of the poration, notwithstanding the mortgage parties and incapable of passing by as- of its charter, until the new corporation signment." Memphis & L. R. K. R. was formed and organized; it was Co. V. Railroad Commissioners, 112 then surrendered to the state, and by U. S. 609, 619, Opin. of Court per a new grant then made, passed to the Matthews, J. See § 131. Validly corporators of the new corporation, it mortgaging the charter, property, and was held and exercised by them under franchises of a railroad corporation, the constitutional restrictions then in does not transfer the right or capacity to being." lb. p. 623. See with above, be that identical corporation ; though Eldridge v. Smith, 54 Vt. 484. it would transfer such franchises as are ' Indirectly a transfer of the fran- more appropriate to the construction, chises of a corporation can be accom- maintenance, and operation of the rail- plished by a purchase of all the stock road as a public highway and the right by the would-be transferrees. to make profit therefrom. The only ' In New York and N. H. R. R. right of corporate existence that could Co. v. Schuyler, 34 N. Y. 30 ; Suther- pass would be the right to organize land v. Olcott, 95 N. Y. 93 ; Gran- under the then laws of the state. "The gers' Life, etc. Ins. Co. v. Kamper, 98 PART I,] COKSTRDCTION OF CORPOKATE POWERS. [§ 134. of shares into which the capital stock is divided.' And when power is given to increase or decrease the capital stock or the number of shares into which it is divided, the mode of pro- ceeding indicated by the statute or articles of association must be substantially adhered to.' § 134. In regard to the power of a corporation to purchase shares of its own stock, there is a difference of opin- ion. The English decisions seem unanimously to cT^ra^* negative the possession of this power by corpora- t'o° "> Por- tions; and Mr. Brice's proposition — "Corporations shares of cannot, whatever the nature of their business, with- stock!" out an express and very clear power in that behalf, deal in their own shares" — may be regarded as expressing, though somewhat vaguely, from his use of the word " deal," the English law on this subject." 73 Ala. 325 ; Smith v. Goldsworthy, 4 Q. B. 430; see Railway Co. v. AUer- ton, 18 Wall. 233, 235; Droitwich Patent Salt Co. v. Curson, L. R. 3 Ex. 35 ; and compare In- re Financial Corporation, Holmes's Case, L. R. 2 Ch. 714. ^ Oldtown R. R. Co. v. Veazie, 39 Me. 571 ; Salem Mill Dam Co. v. Ropes, 6 Pick. 23, 32. 2 Spring Co. v. Knowlton, 103 U. S. 49 ; Knowlton v. Congress Spring Co., 57 N. Y. 518. See State v. McGrath, 86 Mo. 239, and compare Columbia National Bank's Appeal, 16 Weekly Notes of Cases (Pa.) 357. See, also, cases cited in the two pre- ceding notes. However, a corporation having earned a dividend, and possessing the power to increase its capital stock, may declare a stock dividend. Howell v. Chicago and N. W. R'yCo., 51 Barb. 378. When an increase of stock is contemplated by the articles of associa- tion, and made in the exercise of a power given by statute, and in the manner prescribed by statute, if the new stock is properly disposed of, so that in the disposition plaintiff's rights are observed, the motives leading the majority of shareholders (and direc- tors) to vote for it are immaterial. Jones V. Morrison, 31 Minn. 140. See, also, § 568. » " Ultra Vires," 2d Am. ed., 94. Zulueta's Claim, L. R. 5 Ch. 444; Jn re Marseilles Extension R'y Co., ex parte Credit Foncier of England, L. R. 7 Ch. 161; see Evans v._ Co- ventry, 26 L. J. Ch. 489 ; Hall's Case, , L. R. 5 Ch. 707. Compare Hope v. International Financial Soc'y, L. R. 4 Ch. D. 327 ; Teasdale's Case, L. R. 9 Ch. 54. Even though the corpora- tion has power to purchase shares in other corporations. Same cases. Cop- pin V. Greenless & Co., 38 Ohio St. 275, follows the English rule, and holds that an executory contract between a corporation and a shareholder for the purchase of its own stock by the former cannot be enforced, and will not sus- tain an action for damages against the 99 § 135.J THE LAW OF PKIVATE CORPORATIONS. [CHAP. VII. § 135. In America, On the other hand, the weight of au- thority dearly indicates that there is nothing in itself illegal or ultra vires in the purchase of its own shares by a corporation ; and that whether the purchase is valid depends on the condi^ tion of the corporate afiairs, the purpose for which the pur- chase was made (or the shares received by the corporation), and on the relation to the corporation of the persons questioning the validity of the transaction.^ Thus a solvent corporation may receive fully paid-up shares of its own stock in payment of or as security for a debt owing the corporation.^ But an insolvent corporation can neither purchase, nor receive in pay- ment of debts owing it, shares of its own stock ; especially when the shares are not fully paid up or when individual lia- bility exists respecting them ; for, under such circumstances, the effect would be to impair the corporate assets to the detri- ment of creditors and holders of other shares.' In general, no purchase by a corporation of its stock can relieve the prior holder from his statutory individual liability to creditors.* corporation. Forthepower of a corpo- Jones v. Morrison, 31 Minn. 140. ration to purchase shares in the stock The statutory provisions of the differ- of another corporation see § 130, note, ent states regarding the purchase by a ' Vail V. Hamilton, 85 N. Y. 453, corporation of its stock are collected, 457 ; Dupee v. Boston Water-power with many authorities on the subject, Co., 1 14 Mass. 37, 43 ; Clapp v. Peter- in an article by Mr. E. C. Moore, Jr., son, 104 111. 26 ; Chicago, Pekin, etc. 8 Southern Law Rev. N. S. 369. K. E. Co. V. Marseilles, 84 111. 145 ; " Taylor v. Miami Exporting Co., S. C, 84 111. 643; Fraser v. Kitchie, 6 Ohio, 177; State Bank u. Fox, 3 8 111. App. 554; Hartridge v. Rock- Blatchf. 431 ; City Bank v. Bruce, 17 well, R. M. Charton (Ga.), 260 ; Iowa N. Y. 507 ; Ex parte Holmes, 5 Cow. Lumber Co. v. Foster, 49 Iowa, 25 ; 426. See Cooper v. Frederick, 9 Ala. Verplanck v. Mercantile Ins. Co., 1 738 ; Barton v. Port Jackson, etc. Edw. Ch. (N. Y.) 84, 94 ; City Bank Plank Road Co., 17 Barb. 397. Com- V. Bruce, 17 N. Y. 507 ; Coleman v. pare First Nat. Bk. v. Nat. Exchange Columbia Oil Co., 51 Pa. St. 74. Bk., 92 U. S. 122. So it is said a Unissued stock of a corporation was by corporation may receive its shares in an agreement of all the shareholders exchange for property owned by it. (who were also directors), there being Clapp v. Peterson, 104 111. 26. no creditors, paid for with the funds " Currier v, Lebanon Slate Co., 56 of the corporation and issued to one of N. H. 262 ; Savings Bank v. Wulfe- their number in trust for them all. kuhler, 19 Kans. 60; Crandall w. Lin- Held, the issue was valid, or at least coin, 52 Conn. 73. See §§ 552, 747. could be impeached by no person. * See § 747. 100 PART I.] CONSTRUCTION OF CORPORATE POWERS. [§ 137. § 136. "When a corporation has competently purchased shares of its own stock, it may hold them unextinguished a corpora- and reissue them ;• but while the corporation holds **°° ""^y the shares, it Cannot exercise in regard to them privi- shares leges which pertain to an ordinary shareholder. by^t;*but Especially it cannot vote on them ; and this last pro- vote" on position is not affected by the fact that the shares 'hem. stand in the name of some trustee for the corporation, or in the names of the directors.'' § 137. In the enforcement of its rights, a corporation has equal capacity with an individual to bring actions,^ compromise them,* and refer matters to arbitration.'' a corpora-" A corporation may sue to recover damages for a libel g*^° ^ against it in its business f to restrain a nuisance on its property ;'' to enjoin others from using its corporate name to the injury of its trade;* or, in admiralty, to recover for services ' State V. Smith, 48 Vt. 266 ; City Bank v. Bruce, 17 N. Y. 507 ; Wil- liams V. Savage M'f g Co., 3 Md. Ch. 418 ; Rivanna Navigation Co. v. Daw- son, 3 Gratt. (Va.) 19, 25; Clapp v. Peterson, 104 111. 26 ; Commonwealth V. Boston and A. K. R. Co., 142 Mass. 146. 2 Vail V. Hamilton, 85 N. Y. 453 ; Ex parte Holmes, 5 Cow. 426 ; Brews- ter V. Hartley, 37 Cal. 15 ; Monsseaux V. Urquliart, 19 La. Ann. 482 ; Ameri- can Railway Frog Co. v. Haven, 101 Mass. 398. The corporation cannot as represent- ing shares held by it give its assent to a mortgage of corporate property, in order to make up the assent of two- thirds of the shareholders as required by statute. Vail v. Hamilton, supra. See §185. ' A corporation has the right to sue at common law, see §§ 12, 14 ; and has power to execute a bond in a judicial proceeding. Collins v. Hammock, 59 Ala. 448. * See First Nat. Bk. v. Nat. Ex- change Bk., 92 U. S. 122; Stewart v. Hoyt, 111 U. S. 373. ' Alexandria Canal Co. v. Swann, 5 How. 83 ; see Day v. Essex County Bank, 13 Vt. 97 ; Boston & L. R. R. Co. V. Nashua, etc. R. R. Co., 139 Mass. 463 ; compare Sawyer v. Win- negance Mill Co., 26 Me. 122. ' ^ Trenton Mut. Life Ins. Co. v. Per- rine, 23 N. J. L. (3 Zab.) 402 ; Hahne- mannian Life Ins. Co. v. Beebe, 48 111. 87 ; Shoe and Leather Bk. v. Thompson, 23 How. Pr. (N. Y.) 253 ; Knickerbocker Life Ins. Co. v. Ecclesine, 42 How. Pr. (N. Y.) 201 ; Same v. Same, 2 J. & S. (N. Y. Su- per. Ct.) 76; Metropolitan Omnibus Co. V. Hawkins, 4 H. & N. 87. ' Central Bridge Co. v. Lowell, 4 Gray, 474. ' Newby v. Oregon Cent. R. Co. V. Deady, 609 ; Holmes v. Holmes, M'fg Co., 37 Conn. 278. 101 138.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. rendered as a salvor." Pleading the general issue admits the capacity of a corporation plaintiff to sue, and relieves it from proving its corporate existence ■? and going to trial on the merits has a similar effect.^ In some states it is not necessary for a corporation plaintiff to allege its incorporation.* § 138. When in order to enforce corporate rights or avert wrongs threatening the corporate interests it is neces- sary to sue, the rule is that the suit must be brought by the corporate management in the name of the cor- poration. This rule applies to suits both at law and in equity." Individual shareholders are not the proper parties to sue or defend on behalf of corporate, interests.' If, Suits must in geoeral be brought in the name of the cor- poration. ' The Camanche, 8 Wall. 448 ; The Blackwell, 10 Wall. 1. A corpora- tion may acquire a lien for materials furnished. &s an individual. Fagan v. Boyle Ice Machine Co., 65 Tex. 324. ' Morse Arms M'f g Co. v. United States, 16 Ct. of Claims, 296 ; Mcln- tire V. Preston, 10 111. 48; Phoenix Bank v. Curtis, 14 Conn. 437 ; Prince V. Commercial Bank, 1 Ala. 241 ; Mississippi, etc. R. R. Co. u. Cross, 20 Ark. 443 ; Rockland, etc. Steam- boat Co. V. Sewall, 78 Me. 167. But this was not the English rnle, nor has it been so held in all the States. See Williams v. Bank of Michigan, 7 Wend. 540, and, generally, Angell . and Ames on Corp., §§ 632 et seq. ' United States v. Insurance Cos., 22 Wall. 99 ; Conard v. Atlantic Ins. Co., 1 Pet. 886, 450 ; Lehigh Bridge Co. V. Lehigh Coal Co., 4 Rawle, 9 ; First Parish v. Cole, 3 Pick. 232, 245. * German Reformed Church v. Von Puechelstein, 27 N;. J. Eq. 30; Phoenix Bank v. Donnell, 40 N. Y. 410; compare Baltimore & O. R. R. Co. V. Sherman, 30 Grat. (Va.) 602. But see §§ 1775-6 of the New York Code of Civil Procedure, and Concor- dia Savings Ass'n v. Reed,. 93 N. Y. 102 474., Where the name used by the plaintiff in pleading ' ' argues a corpo- ration," corporate organization need not be averred. Sayers v. First Nat. B'k., 89 Ind. 230. ' Bradley v. Richardson, 2 Blatchf. 343 ; Mauney v. High Shoals M'f g Co., 4 Ired. Eq. {N. C.) 195; see Insane Hospital v. Higgins, 15 111. 185; Campbell v. Brunk, 25 111. 225. « Silk M'f g Co. !).■ Campbell, 27 N. J. L. 539 ; Blackman v. Central R. R. Co., 58 Ga. 189 ; Henry v. Elder, 63 Ga. 347 ; see Bronson v. LiS, Crosse, etc. R. R. Co., 2 Wall. 283; Park V. Petroleum Co., 25 W. Va. 108. Shareholders who have been allowed to put in answers in the name of the corporation cannot be regarded as an- swering fjor the corporation itself. In a special case, where there is an alle- gation that the directors fraudulently refused to attend to the interests of the corporation, a court of equity will in its discretion allow a shareholder to become a party defendant in order to protect from unfounded claims against the corporation his own interests and those of such other shareholders as choose to join him in the defence. Bronson v. La Crosse, etc. R. E. Co., PART I.] CONSTRUCTION OF CORPORATE POWERS. [§ 139. however, the corporate management refuses or fails to enforce corporate rights, and an irreparable injury to the corporate interests is threatened, a shareholder, in a case where the cor- poration itself would be entitled to an injunction, may bring suit on behalf of himself and others interested who may join, to enjoin the threatened injury.' In such case the shareholder should set forth in his complaint or bill the efforts that he has made to induce the corporation to act in the matter, should allege its refusal or failure to sue, and should make it a party defendant in the action. § 139. The first leading case on the right of a shareholder to sue under such circumstances is Dodge v. Woolsey,^ where the Supreme Court of the United States held ^ar"-* that a shareholder in a bank could maintain a bill to Voider may enjoin the collection of an unlawful state tax on the half of the bank, the directors having declined to sue under cir- ticm.'"^^ cumstauces that rendered their refusal a breach of trust.* It is to be noted that this case was decided before the 2 Wall. 283. A sharebolder cannot prosecute an appeal from a judgment against the corporation. State of Florida v. Florida Central R. E. Co., 15 Fla. 690. ^ A bill may be filed by shareholders to enjoin the setting up of a claim for purchase-money against the lands of a company, the ground of the bill being that the party setting up the claim in- duced the complainants to buy shares by fraudulently representing that the property sold to the company was un- incumbered, and that he had no inte- rest in it ; the agents of the company joining in such misrepresentations. The company should be made a party defendant, although the relief prayed is really in its favor. Jones v. BoUes, 9 Wall. 364. ' 18 How. 331. The present discus- sion relates to actions by shareholders against outsiders ; and has but inciden- tal reference to the right of sharehold- ers to sue the corporation and restrain it by legal process (for which see §§ 553-557) ; or to their right to sue the officers for a breach of duties owing primarily to the corporation (for which see §§683-691). ' "The judgment of the court in Dodge V. Woolsey authorizes the stockholder of a company to institute a suit in equity in his own name against a wrong-doer, whose acts ope- rate to the prejudice of the interests of stockholders, such as diminishing their dividends and lessening the value of their stock, in a case where application has first been made to the directors of the company to institute a suit in its own name, and they have refused. This refusal of the board of directors is essential in order to give to the stock- holder any standing in court, as the charter confers upon the directors rep- resenting the body of shareholders the general management of the business of 103 § 140.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. act of congress of March 3d, 1875, which permits all suits arising under the constitution or laws of the United States to be brought originally in the Federal circuit courts, without regard to the citizenship of the parties. The bank had been incorporated by the state of which Dodge, tbe tax-collector, was a citizen. Consequently, as the law stood at the time, a writ of error to the state court from the Supreme Court of the United States, was the only means by which the bank could have carried into a Federal court the right it possessed under the United States constitution to be relieved from the tax in question, which impaired the obligation of a contract.' § 140. Unless the facts stated in the complaint clearly show the corporation to be in no position to protect itself, hower ^^ ^^^^ ^^J attempt of the shareholder to procure it mastaiiesre to act for its own protection would be utterlv useless,' demand on '■ ./ j thecorpo- the shareholder must allege a demand by him on the sue. corporate management to bring suit ;' and should set forth in his complaint facts showing to the court that his endeavors have been real and earnest, and that he has left undone nothing which in reason he might have done to pre- the company. There must be a clear default on their part, involving; a breach of duty, within the rule established in equity, to authorize a stockholder to institute the suit in his own behalf, or for himself and other stockholders who may choose to join." Opinion of the court per Nelson, J., in Memphis City V. Dean, 8 Wall. 64, 73 ; see also People V. State Treasurer, 24 Mich. 468. ' See Ha-wes v. Oakland, 104 U. S. 450, 459. ' Barr v. New York L. E. & W. K. E. Co., 96 N. Y. 444. Where the corporation is practically dissolved, and all its officers have absconded, a shareholder may sue a person to whom the officers have fraudulently and with- out consideration conveyed the cor- 104 porate property ; and under such circumstances need not allege a pre- vious application to the corporation. Wilcox V. Bickel, 11 Neb. 154. See also People v. Hektograph Co., 10 Abb. N. C. (N. Y.) 358; Davis v. Railroad Co., 1 Woods, 661 ; Crura- lish V. Railroad Co., 28 W. Va. 623. ' Detroit v. Dean, 106 U. S. 537; Hawes v. Oakland, 104 U. S. 450; Shawhan v. Zinn, 79 Ky. 300; Morgan V. Railroad Co., 1 Woods, 15 ; M^are V. Bazemore, 58 Ga. 316. Compare Kennedy v. Gibson, 8 Wall. 498. This proposition, it is said, does not apply to a bill filed by a creditor of the corporation against a wrong-doer. Lothrop V. Stedman, 42 Conn. 583 (U. S. Cir. Ct.). PART I.J CONSTRUCTION OF CORPORATE POWERS. [§ 141. vail on the corporate management to bring the action.* More- over, it must be shown in the complaint that the refusal of the directors to sue is a breach of trust on their part, and not a mere error of judgment in a matter properly within their dis- cretion.* Finally, it is always essential that the corporation itself should be made a party defendant.* § 141. In Hawes v. Oakland,* where the rules, under discus- sion received the most careful consideration, the following state- ment was made by Justice Miller, giving the opinion of the court : — " We understand [the doctrine of the English and Americati cases, including Dodge v. Woolsey] to be that to enable a stock- holder in a corporation to sustain in a court of equity in his own name a suit founded on a right of action existing in the corporation itself, and in which the corporation itself is the ap- propriate plaintiff", there must exist as the foundation of the suit — " Some action or threatened action of the managing board of directors or trustees of the corporation which is beyond the au- • Hawesu. Oakland, 104 U. S. 450, 461 ; Dimpfell v. Ohio, etc. R. Co., 110 U. S. 209; Bacon v. Irvine, 70 Cal. 221; Damimeyer w. Coleman, 11 Fed. Rep. 97 ; Pacific Railroad v. Missouri Pacific R. R. Co., 2McCrary, 227. See also the cases in the pre- ceding note. To give a small minority of shareholders a standing in equity to contest and set aside an ultra vires act of directors to which a large majority of shareholders make no objection, it must appear that complainants were shareholders at the time of the trans- actions complained of, or that the shares have devolved on them since by operation of law. Dimpfell v. Ohio &Miss. R. Co., 110 U. S. 209. * See the cases in last note but one ; also Memphis Gas Co. v. Williamson, 9 Heisk. (Tenn.) 314, 337 ; Dodge v. Woolsey, supra; Memphis City v. Dean, supra (§ 139, note). ' See cases in preceding notes. It has even been said that the failure to make the corporation a party is not a mere defect of parties to be taken ad- vantage of by special demurrer, but leaves the shareholder without a cause of action ; the party entitled to the relief, i. e., the corporation, not being before the court. Shawhan v. Zinn, 79 Ky. 300. * 104 U. S. 450, 460. It will be borne in mind that the Federal courts, in thus strictly limiting the right of shareholders to sue for the corporation, have an eye to the protection of their own dockets from the overburthen of a mass of cases, in which the request and refusal are collusive, and the farce is gone through with in order that the suit may be brought in a Federal court ; see, for instance, expressions used in the opinion in Hawes v. Oakland. 105 § 141,] THE LAW OF PKIVATE CORPORAT^pNS. [CHAP. VII. thority conferred on them by their charter or other source of organization ; ' " Or such a fraudulent transaction completed or contemplated by the acting managers, in connection with some other party, or among themselves, or with other shareholders, as will result in serious injury to the corporation, or the interests of the other shareholders ; " Or where the board of directors, or a majority of them, are acting for their own interest in a manner destructive of the corporation itself, or the rights of other shareholders ; "Or where the majority of shareholders themselves are op- pressively and illegally pursuing a course in the name of the corporation which is in violation of the rights of the other shareholders, and which can only be restrained by the aid of a court of equity.' " Possibly other cases may arise in which, to prevent irreme- diable injury or a total failure of justice, the court would be justified in exercising its powers, but the foregoing may be regarded as an outline of the principles which govern this class of cases. " But, in addition to the existence of the grievances which call for this kind of relief, it is equally important that before the shareholder is permitted in his own name to institute and conduct a litigation which usually belongs to the corporation, he should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain within the corporation itself the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated, effort with the managing body of the corporation, to induce remedial action on their part, and this must be made apparent to the court. If time permits, or has permitted, he must show, if he fails with the directors, that he has made an honest effort to obtain action by the stockholders as a body, in the matter of which he complains. And he must show a case, 1 That stockholders may sue under Y. 444 ; Slatterly v. St. Louis, etc. the conditions stated in these last two News Co., 91 Mo. 217. See Sheridan paragraphs was held in Barr v. New v. Sheridan Electric Light Co., 38 York, L. E. & W. R. K. Co., 96 N. Hun (N. Y.) 396. 106 PART I.] CONSTRUCTION OF CORPORATE POWERS. [§ 143. if this is not done, where it could not be done, or it was not reasonable to require it."' § 142. The cases hitherto cited are scarcely authority for the proposition that a shareholder, on the improper refusal ^,1 . , . ''. ^ . Right of oi the corporation to act, may bring a suit against an share- outsider on any ordinary right of action pertaining gue'^" *" to the corporation, to recover damages for iniuries respect of ^ ' m injuries which have already been suffered.* The shareholder already must show that he would suffer irremediable loss were he not allowed to bring suit ;' and this will be more diffi- cult to show when the right of action results from past injuries. § 143. Regarding service of process on corporations, little may be said of general applicability, as this is largely , a matter of local practice, regulated in nearly all the process on states by statutes which designate the mode of ser- tSns!'^^ ' The doctrines of Hawes v. Oak- land were approved and reitejated in Detroit v. Dean, 106 U. S. 537. Rule 94 of the Rules of Practice for Courts of Equity of the United States expresses the Federal doctrine. It is as follows : — " Every bill brought by one or more stockholders in a corporation against the corporation and other parties, founded on rights which may prop- erly be asserted by the corporation, must be verified by oath, and must contain an allegation that the plaintiff was a shareholder at the time of the transaction of which he complains, or that his share had devolved on him since by operation of law ; and that the suit is not a collusive one to con- fer on a court of the United States jur- isdiction of a case of which it would not otherwise have cognizance. It must also set forth with particularity the efforts of the plaintiff to secure such action as he desires on the part of the managing directors or trustees and, if necessary, of the shareholders, and the causes of his failure to obtain such action." 104 U. S., IX. See Quincy v. Steel, 120 D. S. 241. ^ Samuels v. Central Overland Ex- press Co., McCahon (Kans.) 214 ; S. C, under name of Samuel v. Holla- day, 1 Woolw. 400. Compare Carter V. Ford Plate Glass Co., 85 Ind. 180. Yet this distinction seems questionable. It is disapproved in City of Chicago V. Cameron, 120 111. 447, 458, in which case the lapse of eleven years was held, under the circumstances, not to constitute laches on the part of the shareholders. ' See Detroit v. Dean, 106 U. S. 537, 542. In general, the English authorities accord with what has been stated in the text : see Russel v. Wakefield Waterworks Co., L. R. 20 Eq. 474 ; Gray v. Lewis, L. R. 8 Ch. 1035; Foss V. Harbottle, 2 Hare, 461 ; Mozley v. Alston, 1 Phill. 790. They are more fully discussed in §§ 553- 557.. 107 § 145.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. vice and the officer on whom it may be made.* A corporation may appear voluntarily by attorney, and such appeai'ance gives jurisdiction to the same extent as actual service of process.* And a corporation maybe punished for contempt in disobeying an injunction.' § 144. So long as a corporation is not dissolved, the appoint- ment of a receiver of its assets does not prevent Effect of bringing suit against it on a cause of action arising from transactions which took place prior to the ap- pointment of the receiver.* § 145. The following is a rule of wide application. When a body of men are acting as a corporation under color of apparent organization in pursuance of some charter or enabling act, their legal authority to act as a cor- poration cannot be questioned collaterally, but only in a direct proceeding in the nature of a quo warranto. Under such circumstances, if their organization is irregular, they constitute a corporation . Peoria Marine Ins. Co., 55 111. 311 ; Stoutmore v. Clark, 70 Mo. 471 ; Studebaker v. Montgomery, 74 Mo. 101 ; Ryan v. Vanlandingham, 7 Ind. 416 ; Beatty v. Bartholomew County Agricultural Soc, 76 Ind. 91 ; Jones V. Kokoma B'ld'g Ass'n, 77 Ind. 340; Smelser v. Wayne Turn- 109 § 147.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. Supreme Court of fhe United States :* " One who deals with a corporation as existing in fact, is estopped to deny as against the corporation that it has been legally organized." Or as Judge Cooley expressed the same principle more at length in Swartwout V. Michigan Air Line Railroad Co. :' " 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 of justice and of public policy, that in controversies between the de facto cor- poration and those who have entered into contract relations with it, as corporators or otherwise, such questions should not be suffered to be raised."' § 147. Consequently, fraud in obtaining the charter of a cor- poration cannot be interposed as a defence by one of its debtors.* pike Co., 82 Ind. 417; Jones v. Cin- cinnati Type Foundry Co., 14 Ind. 89 ; Butchers and Drovers' Bank v. McDonald, 130 Mass. 264; Spahr o. Farmers' Bank, 94 Pa. St.'429 ; Jones V. Bank of Tennessee, 8 B. Mon. (Ky.) 122; Cahill v. Citizens Mut. B'ld'g Ass'n, 61 Ala. 232; Imboden v. . Etowah, etci M'g Co., 70 Ga. 86. Compare Brown v. Mortgage Co., 110 111. 235 ; Hudson v. Green Hill Semi- nary, 113 111. 618; Town of Searcy B. Yarnell, 47 Ark. 269. A person who has conveyed land to a corporation is estopped from suing to recover it on the ground that at the time of his con- veyance the corporation had not been duly organized, and so was incapable of taking. Baker v. Nefi, 73 Ind. 68. These principles are embodied in a statute in Iowa Code, § 1089; see Carrotners v. Newton Spring Co., 61 Iowa, 681. ' Close V. Glenwood Cemetery, 107 U. S. 466. 110 ' 24 Mich., 389, 393. ' See also City of St. Louis v. Shields, 62 Mo. 247 ; Boise City , Canal Co. v. Pinkham, 1 Idaho, 790 ; Goodrich v. Reynolds, 31 111. 490; German Ins. Co. v. Strahl, 13 Phila. 51 2 ; Merchants & Planters' Line v. Waganer, 71 Ala. 581. Contracting with a corporation under its amended charter, by the name which the amended charter authorized it to take, estops a person from deny- ing the acceptance of the amendment. Eppes V. Miss., Gainesville, etc. R. R. Co., 85 Ala. 83. A person claim- ing title under a deed which recites that it is subject to a mortgage to a cor- poration, is estopped from questioning the legal organization of such corpora^ tion. Hasenritter v. Kirchhofl'er, 79 Mo. 239. ■■ Pattisonu. Albany Building Ass'n, 63 Ga. 373; Kishacoquillas, etc. Trun- pike Co. V. McConaby, 16 S. & R. (Penn.) 140; Kayser i: Trustees, of PART I.] CONSTRUCTION OF CORPORATE POWERS. [§ 148. Nor can a subscriber when sued on his subscription for stock in a de facto corporation deny its legal incorporation, or allege that it has done acts forfeiting its franchises.' § 148. Further, persons who have contracted with a corpora- tion as such, and have thus acquired claims against it, are estopped from denying its corporate existence for the purpose of holding its shareholders liable as partners.^ This last proposi- tion, however, does not hold where the enabling act under which the corporation is formed expressly provides, or by the general tenor of its terms clearly indicates that the shareholders shall re- ceive no protection from their organization unless the require- ments of the act are fully complied with.* Nor does it hold where the authority under which the would-be shareholders have attempted to form themselves into a corporation is no au- thority at all, so that their organization never had even the appearance of validity : as if, for instance, a body of men in New Jersey should attempt to form themselves into a corpora- tion under the laws of New York.^ Such a body would not constitute a de facto corporation. Bremen, 16 Mo. 88. But only on quo warranto. Charles River Bridge v. Warren Bridge, 7 Pick. 344 ; see Au- rora, etc. R. R. Co. V. Lawrence- burgh, 56 Ind. 80. 1 Chubb V. Upton, 96 U. S. 665; Slocum V. Providence Steam & Gas Pipe Co., 10 R. I. 112; Freeland v. Pennsylvania Central Ins. Co., 94 Pa. St. 504 ; compare Swartwout v. Michi- gan Air Line Co., 24 Mich. 389 ; To- ledo and Ann Arbor K. R. Co. v. Johnson, 49 Mich. 148; and see in detail with full authorities, §§ 537- 639, 738, 789. 2 Ydiyv. Noble, 7 Cush. 188 ; Trow- bridge V. Scudder, 1 1 Cush. 83 ; First Nat. Bk. V. Almy, 117 Mass. 476; Humphreys v. Mooney, 5 Colorado, 282; Merchants and Manufacturers' Bk. V. Stone, 38 Mich. 779; Second Nat. Bk. V. Hall, 35 Ohio St. 158; Planters, etc. Bank v. Padgett, 69 Ga. 159 ; Stout ». Zulich, 48 N.J. L. 599. See New York Iron Mine v. First Nat. Bk., 39 Mich. 644 ; Staf- ford Nat. Bk. V. Palmer, 47 Conn. 443. See § 739. ^ See Singer u. Given, 61 Iowa, 93 ; Marshall v. Harris, 55 Iowa, 182 ; Eisfeld V. Kenworth, 50 Iowa, 389; Kaiser v. Lawrence Savings Bk., 56 Iowa, 104 ; Garnett v. Richardson, 35 Ark. 146; Ferris v. Thaw, 72 Mo. 446. See Smith v. Colorado Fire Ins. Co., 14 Fed. Rep. 399. < Hill V. Beach, 12 N. J. Eq. 81. Compare Methodist Episcopal Church V. Pickett, 19 N. Y. 488, 485 ; Lewis V. Tilton, 64 Iowa, 220. A corpora- tion organized under a void law can- not enforce a mortgage made to it. But, if not organized for an unlawful purpose, its receiver can demand an 111 § 150.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 149. The foregoing rules as resting on principles of estoppel, are subject to still further qualifications.' The principle of es- toppel cannot be carried so far as to bar the plea that the con* tract on which suit is brought is illegal ; malum prohibitum or malum in se; for, from motives of public policy the law will i?ot lend itself to enforce such a contract.' Likewise the law will not aid an illegal enterprise by enforcing a contract at the suit of a corporation incorporated for an illegal purpose.' If, however, there is nothing illegal in the purposes for which a corporation has been formed, the illegal nature of the de facto legislature that incorporated or purported to incorporate it will not 80 infect it with illegality as to render it incapable of suing in its corporate name.* § 150. As a final and obvious limitation on these rules as resting on estoppel, it must appear that there is an estoppel affecting the party who would deny the corporate existence. As was said in Doyle v. Mizner :° " There are certainly many cases in which a recognition of corporate existence by dealing with the corporation will estop from questioning it. But this doctrine rests on the ground that such action creates relations and encourages conduct which there may be difficulty in un- aecounting for the debt in a court of App. 555 ; see also Chicora Co. v. equity. Burton v. Schildbach, 45 Crews, 6 S. C. 243, and, semJie conJra, Mich. 504. Importing and Exporting Co. v. Locke, ' An estoppel cannot be relied on in 50 Ala. 332. the face of a statute. Thus where the 'United States v. Insurance Cos., civil code prescribes that an unauthor- 22 Wall. 99. ized corporation cannot appear in ' 42 Mich. 332, 336. See also court, a defendant may plead that Mansfield, etc. R. R. Co. v. Drinker, the corporation cannot sue. Working- 30 Mich. 124. After the charter has men's Bank v. Converse, 29 La. Ann. expired a person is not estopped from 369 ; see Nat. B'k v. Phoenix Ware- pleading nul tiel corporation to a suit housing Co., 6 Hun, 71. brought by the defunct corporation. 2 See §§ 297 et seq. The action must be brought in some ' Detroit Schuetzen Bund v. Detroit other manner." Krutz v. Paola Town Agitations Verein, 44 Mich. 313. A Co., 20 Kans. 297 ; contra St. Louis shareholder is not estopped by his sub- Gas- Light Co. v. St. Louis, 11 Mo. scription from denying the lawful ex- App. 55; aff'd84Mo. 202. Compare istence of a corporation prohibited by Brooklyn Steam Transit Co. v. Brook- the state constitution. St. Louis Col- lyn, 78 N. Y. 524 ; Newton M'f'g Co. onization Ass'n v. Hennes.sy, 11 Mo. v. White, 42 Ga. 148. 112 PART I.]- CONSTRUCTION OP CORPORATE POWERS. [§ 151. doing. In ordinary cases such recognitions have been con- sidered as binding. But this rule is one originating in equi- table principles, and cannot be applied universally. There would be no sense in applying it where no new rights have ■ intervened, and where such recognition has itself been brought about by fraudulent dealing carried on for the very purpose of entrapping a party into the action on which such recognition is rested. If there was no corporation in fact, and if there are no facts which make it legally uryust to permit its denial, it is difficult to understand what room there is for an estoppel." § 151. The application of the general rule against collateral attacks on corporate franchises to cases where there g ^ ^^ is no estoppel aflecting the person seeking to impugn the rule them, may now be considered. Under such circum- estoppel stances the rule applies whenever one or both of the ®^'^ *' following reasons hold good. The first reason lies in the ob- vious principle that a person to be entitled to maintain a legal proceeding questioning the rights, immunities, or privileges of others, must himself have some title or legal or equitable interest in the subject in regard to which the rights, privileges, or immunities exist. Otherwise he has no standing in court.^ When one man is exercising a right of way over another's land, a third person with no interest in the land cannot maintain an action to try the validity of the right of way, for in plain Eng- lish it is none of his business. Likewise, the question whether a body of men acting as a corporation are legally incorporated, is not the aflair of a person whose rights are in no way aifected. That a body of men shall not without due incorporation act as a body corporate is undoubtedly public policy. Accordingly, any one may bring the matter to the attention of the attorney- general, who, on receiving the information, may institute, on behalf of the state, a proceeding in the nature of a quo warranto. But a private person cannot do this in his own name.' ' A junior mortgagee cannot defeat ' The charter of a corporation can V the rights of a senior mortgagee, a cor- be forfeited only at the suit of the poration, by setting up defects in the state. Louisiana Savings Bank, Mat- latter's organization. Williamson v. ter of, 35 La. Ann. 196 ; North v. Kokomo B'ldg Ass'n, 89 Ind. 389. State, 107 Ind. 356. See § 146 and note. 8 IIJ} § 152.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. A case well illustrating the hardship and injustice which might result could any one at his will impugn the legality of corporate organization, is that of the Cincinnati, Lafayette, etc. Railroad Co. v., Danville and Vincennes Eailway Co.' The defendant corporation, relying on technical defects in the' organization of the plaintiff, had instituted proceedings to acquire, by virtue of defendant's delegated right of eminent domain, the land on which the plaintiff's road was built, and in these proceedings had entirely ignored the plaintiff and its right of way, acquired by purchase over this land, the defendant's hope being thus to avoid making compensation to the plaintiff for the plaintiff's right of way. The plaintiff" brought suit to restrain these proceedings, and the court sus- tained the action, holding that, notwithstanding the p]aintiff''s defective organization, the defendant could not appropriate its property without making compensation. § 152. Accordingly, where two railroad companies have each authority to build and run a railroad between the same termini, neither can take exceptions to any irregularity in the exercise of the other's franchises, unless it can show a particular injury to itself.'' If, however, a railroad company is chartered with the exclusive right to build a railroad between two given points, it may enjoin another company, possessing no adequate and constitutional authority, from building a road between the same points.* Likewise, where a street railway company has the right that no other parallel railway shall be built within '75 111. 113. Compare Union verting its custom. Washington, etc. Branch R. R. Co. v. East Tenn., T. Road u. Baltimore & O. R. R. Co., etc. R. R. Co., 14 Ga. 327. 10 G. & J. (Md.) 392; White River " Erie R'y Co. v. Delaware, L. & T. Co. v. Vermont Central R. R. Co., W. R. R. Co., 21 N. J. Eq. 283. 21 Vt. 590 ; Th cirpe v. Rutland & B. See West Jersey R. R. Co. v. Cape R. R. Co., 27 Vt. 140, 152. See May, etc. R. R. Co., 34 N. J. Kq. § 453. 164; Market St. R'y Co. v. Central = Raritan & D. B. R. R. Co. v. R'y Co., 51 Cal. 583. Delaware, etc. Canal Co., 18 N. J. A chartered turnpike company has Eq. 546 ; Boston & L. R. R. Co. v. no right of action against a railroad Salem, etc. R. R. Co., 2 Gray (Mass.), company subsequently chartered to 1 ; Pontchartrain R. R. Cp. v. New run between the same termini and Orleans, etc. R. R. Co., 11 La. Ann. along the same line of travel for di- 253. 114 PART I.] CONSTKUCTION OF CORPORATE POWERS. [§ 153. three blocks, it may enjoin an invasion of its rights without further proof of damage than that its right is invaded.' § 153. The second reason why a person, although affected by no estoppel, may not collaterally question the validity of cor- porate franchises lies in the great hardship to which corpora-; tious would be subject if they could be forced in any proceeding, in order to enforce their rights, to prove the absolute legal regularity of their organization. And thus it is, that only in a direct proceeding brought in proper form to test the validity of its franchises, or in a proceeding where the corporation is itself seeking to exercise a special franchise, which the other party denies to exist, or which the corporation is entitled to exercise only by virtue of its regular and complete organiza- tion, can the corporation be compelled to prove anything more than a de facto organization. Mackall v. Chesapeake, etc. Canal Co.* is an instructive case in point. There the property of the canal company, by its charter exempted from taxation, had been sold under a tax sale, and the purchaser, to sustain the validity of the sale, pleaded that the company had forfeited its privileges. But the court held, that the question of the company's forfeiture of its rights to hold, free from taxation, property no longer in use for canal purposes, could be judicially determined only in a direct proceeding by the public authorities, and could not be made an issue for the first time in the trial of a question of private right between the company and a purchaser under a tax sale.^ ' St. Louis R. R. Co. V. Northwest- Branch Commissioners, 39 N. J. L. em St. L. R'y Co., 69 Mo. 65. Such 28 ; Truckeo, etc. Turnpike Co. v. exclusive franchises are of course to Campbell, 44 Cal. 89; Freeland v. be construed strictlj- against the gran- Pennsylvania Central Ins. Co., 94 Pa. tee; see Louisville & P. R. R. Co. St. 504, 513; Keeneu. Van Reuth, V. Louisville City R'y Co., 2 Duv. 48 Md. 184; Denver and Swansea (Ky.) 175, and § 463"; and may be R'y Co. v. Denver City R'y Co., 2 taken by eminent domain. See §470. Col. 673 ; Montgomery v. Merrill, 18 1 94 U. S. 308. Mich. 339, 343 ; Hackensack Water 3 See also Toledo and Ann Arbor Co. v. De Kay, 36 N. J. Eq. 548 ; R. R. Co. V. Johnson, 49 Mich. 148; Association v. Fennor, 13 Phila. 107 ; Osborn v. People, 103111. 224; New Pixley v. Roanoke Nav. Co., 75 Va. Jersey Southern R. R. Co. v. Long 320 ; Lagrange, etc. R. R. Co. v. 115 § 155.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 154. It is evident that no reason heretofore stated for the rule against allowing collateral attacks on corporate franchises, applies where the corporation is seeking to enforce against a person affected by no estoppel some right which the corpora- tion possesses only by virtue of its regular and legal organiza- tion ; for in such cases the legal, not the de faelo, organization of the corporation forms the basis of its rights, and there is no hardship in putting the corporation to the proof of the validity of its franchises, when it is itself in the same proceeding basing its right directly on them. Thus, in a Michigan case, a subscription had been made to the stock of a certain railroad company, and subsequently from this company and others a consolidated company was formed. The consolidated company then brought suit to recover the subscription, basing its action on its succession, under the stat- ute authorizing the consolidation, to the rights of the former companies; and the court allowed the plea, that. the consoli- dated company had not complied with the terhis of the statute under which it had been formed.* § 155. Again, on the regular incorporation and continuing validity of the franchise of a railroad company depends its right by the delegated power of eminent domain to take prop- erty for its use. Accordingly, if by non-fulfilment of conditions in its charter, the corporation has forfeited its franchises, this may be pleaded by any one whose property the corporation is seeking to condemn.* And in a proceeding to condemn land for a railroad, a landowner may deny, and thus force the cor- poration to prove, its due legal incorporation.^ Rainey, 7 Coldw. (Tenn.) 420; and ' Mansfield, etc. K. R. Co. v. compare Schulenberg v. Harriman, 21 Drinker, 30 Mich. 124. The subscri- Wall. 44 ; Van Wyck v. Knevals, 106 ber had done no acts recognizing the U. S. 360. consolidated company, and so was af- A plea to an action brought by a fected by no estoppel. See also New corporation, that it has forfeited its Orleans Gas Light Co. v. Louisiana charter, is demurrable, unless a judi- Light., etc. Co., 11 Fed. Rep. 277. cial declaration of the forfeiture is Compare Deaderick v. Wilson, 8 Bax. alleged. West v. Carolina Life Ins. (Tenn.) 108, 128. Co., 31 Ark. 476; Logan v. Vernon, ^ Matter of Brooklyn, W. and N. etc. R. R. Co., 90 Ind. 552; see Railway Co., 72 N. Y. 245; see § 166. § 432. ' Powers v. Hazleton, etc. E'y Co., 116 PART I.] CONSTRUCTION OF CORPORATE POWERS. [§ 158. § 156. Likewise a person, affected by no estoppel, against whom a special separately granted franchise is sought to be exercised, may, without questioning the general validity of the corporate organization, deny the right of the company to exer- cise that particular franchise. Thus, a corporation was organ- ized to construct a bridge over a navigable stream, and by distinct action on the part of the county supervisors received the franchise to take tolls for twenty years. It was held that a person sued for tolls, could plead that its right to demand them had expired by the lapse of the twenty years.' § 157. If a corporation is defectively organized at the begin- ning, legislative recognition of it as a corporation defective will cure the defects ■? which often may be cured by organiza- proper measures taken on the part of the corporation.' mediabie. § 158. It may be mentioned here that even where there is no statute forbidding the formation of cor- corporate porations with names similar to those of corpora- °^""'" tions already in existence,^ a corporation will be protected in 33 Ohio St. 429 ; Atkinson v. Marietta, etc. K. R. Co., 15 O. St. 21. Contra, McAuley v. Columbus, Chicago, etc. R'y Co., 83 111. .S48 ; Peoria & P. W. R'y Co. V. Peoria & F. R'y Co., 105 111. 110; Reisner v. Strong, 24 Kan. 410 ; Schroeder v. Detroit, etc. R'y Co., 44 Mich. 387. Compare Bun- combe Turnpike Co. v. McCarson, 1 Dev. & Bat. (N. C.) Law, 306 ; Far- ham V. Delaware and Hudson Canal Co., ei Pa. St. 265 ; National Docks R. R. Co. V. Central R. R. Co., 32 N. J. Eq. 765. A court of equity will enjoin a railroad company improperly and fraudulently organized from con- demning land. Niemeyer v. Little Rock, etc. R'y Co., 43 Ark. 111. Compare East & West R. R. Co. v. East Tennessee, etc. R. R. Co., 75 Ala. 275. 1 Grand Rapids Bridge Co. v. Prange, 35 Mich. 400. See Denver and Swancy R'y Co. v. Denver City R'y Co., 2 Col. 673. Compare Truc- kee, etc. Turnpike Co. v. Campbell, 44 Cal. 89 ; Pixley v. Roanoke Navi- gation Co., 76 Va. 320 ; Attorney- General M. Utica Ins. Co. ; 2 Johns. Ch. 371. ^ Kanawha Coal Co. v. Kanawha and Ohio Coal Co., 7 Blatchf. 391; Basshor v. Dressel, 34 Md. 503 ; Peo- ple V. Perrin, 56 Cal. 345 ; White v. Coventry, 29 Barb. 305 ; Cochran v. Arnold, 58 Pa. St. 399. A statute curing the defects in the organization of a de facto corporation is not repug- nant to a constitutional provision pro- hibiting the creation of corporations by special act. Central Agricultural Ass'n V. Alabama Gold Life Ins. Co., 70 Ala. 120. ^ See Augur Steel Axle, etc. Co. V. Whittier, 117 Mass. 451. * See, e. g., New York Laws of 1875, chap. 611, §4. 117 § 160.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. the exclusive use of its name ;* especially, when its name desig- nates the nature of the goods which it manufactures.* A cor- poration has no implied power to change its name f though it would seem that a corporation may acquire a name by usage or reputation,^ and may even have more names than one.' § 159. The misnomer of a corporation in contracting or pleading has an effect similar to the misnomer of an individual. If, from the body of a written contract in which a corporation is misnamed, the corporation intended can be ascertained, the misnomer is immaterial.^ Where this cannot be done, parol evidence may be introduced under proper averments in the pleadings.' § 160. The powers more especially incident or usual with certain important classes of corporations may now be spoken of. Effect of a misnomer. ' In Tennessee a petition to chan- cery for incorporation may be opposed if the proposed name for the corpora- tion is similar to that of an existing corporation; and the court may re- quire the name to be modified. Ex parte Walker, 1 Tenn. Ch. 97. Cora- pare Drummond Tobacco Co. v. Ran- dle, 114 111. 412; In re First Presby- terian Church, 111 Pa. St. 156. 2 Holmes v. Holmes M'f'g Co., 37 Conn. 278 ; compare Newby v. Ore- gon Cent. K. R. Co., Deady, 609 ; see § 137. " See Reg. v. Registrar, etc., 10 Q. B. 839. But where the name of a corporation is changed by the legisla- ture, and by its new name it is made the successor of all the rights and lia- bilities of its former self, it may under the new name sue on a note made to it under the old name; although the note is not indorsed. Trustees of Northwestern College v. Schwagler, 87 Iowa, 577. ' Smith V. Plank Road Co., 30 Ala. 660; Dutch West India Co. v. Van 118 Moses, 1 Stra. 612, 614; South School District v. Blakeslee, 13 Conn. 227. ^ Minot V. Curtis, 7 Mass. 441 ; Knight V. Mayor of Wells, 1 Ld. Raym. 80. ^ Ryan v. Martin, 91 N. C. 464; Asheville Division v. Aston, 92 N. C. 578. See Hoboken Building Associa- tion V. Martin, 13 N. J. Eq. 427; Boisgerard v. New York Banking Co. , 2 Sandf. Ch. 23; Mott v. Hicks, 1 Cowen, 513; Brockway v. Allen, 17 Wend. 40. When a deed is made to a corporation under a name varying froni its true one, the corporation may sue in its true name, averring that the defendant made the deed to it under the name mentioned in the deed. Northwestern Distilling Co. v. Brant, 69 111. 658. ' Medway Cotton M'Pg Co. v. Adams, 10 Mass. 360; Melledge v. Boston Iron Co., 5 Cush. 158 ; Berks, etc. Turnpike Co. v. Myers, 6 S. & R. 12; Milford, etc. Tnrnpike Co. v. Brush, 10 Ohio, 111. PART I.] CONSTRUCTION OF CORPORATK POWERS. [§ 161. § 161. To banking corporations' the powers to loan money and take security therefor,'' to deal in exchange, pur- chase, discount* and collect* notes and bills, and to banking" receive deposits are incidental.' An ordinary bank yons"^*" has incidentally the power as gratuitous bailee to receive a special deposit for safe keeping ; and, as the enumera- tion of banking powers in the N"ational Banking Act is not an enumeration of incidental powers, and places no special re- striction on national banks in this respect, a national balnk may receive a special deposit, and will be liable fo r its loss occurring through gross negligence attributable to the bank.' It has ' The right of banking is a common law right; but in New York, since the restraining act of 1804, it has become a franchise exercisable only by persons authorized by the legislature. People V. Utica Ins. Co., 15 Johns. 358. ^ A national bank may loan on ne- gotiable notes secured by collateral. Shoemaker v. National Mechanics' Bank; 1 Hughes, 101. It may take a chattel mortgage to secure a previously contracted debt. Spafford v. First Nat. Bank, 37 Iowa, 181. It may receive stocks and bonds as collateral to secure present as well as future in- debtedness ; and will be liable when such collateral is stolen through its lack of reasonable care; even where . the collateral remains in its custody after the debt is discharged. Third Nat. Bk. V. Boyd, 44 Md. 47. As to the liability of a bank on the certifica- tions and accommodation indorsements of its officers, see §§ 242-245. A bank has implied power to borrow money. Donnell v. Lewis County S'v'gs Bk., 80 Mo. 165. * Smith V. Exchange Bank, 26 Ohio St. 141 ; Atlantic State Bank v. Savery, 18 Hun, 36. * As to the liability of banks in making collections for the misfeasance of notaries and correspondent banks, see Exchange Nat. Bk. v. Third Nat. Bk., 112 U. S. 276; Davey v. Jones, 42 N. J. L. 28; Ayrault v. Pacific Bank, 47 N. Y. 570 ; Bank of New Hanover v. Kenan, 76 N. C. 340; Angell and Ames on Corp., §§ 249 et seq. ; Morse on Banking, second ed., ch. 6. ^ In regard to the relations between a bank and its depositors, see §§ 672, 673. ^ National Bank v. Graham, 100 U. S. 699 ; Wylie v. Northampton Bank, 119 U. S. 361; Pattison v. Syracuse Nat. Bank, 80 N. Y. 82. But only if the loss occur through jrross negligence. First Nat.. Bank v. Rex, 89 Pa. St. 308 ; Lloyd V. West Branch Bank, 1 5 Pa. St. 172. In Bank V. Gent, 39 O. St. 105, it was held that a national bank is liable for the loss of a special deposit ' ' occurring through the want of that degree of care which good business men would exercise in keep- ing property of such value." That the safe of a national bank is broken and bonds stolen by burglars is not evidence of negligence. Wylie v. Northampton Bank, 119 U. S. 361 ; First Nat. Bank v. Graham, 79 Pa. St. 106. But see Wiley v. First Nat. 119 § 162.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. further been held within the powers of a bank to receive a deposit under an agreement to hold it as collateral security for the performance of a contract between the depositor and a third person.' A national bank may lawfully engage in the business of ex- changing and dealing in government securities ;'' but not in that of dealing in stocks,* or selling railroad bonds on commission.* iNor is it within the powers of a state bank to subscribe for the stock of a railroad corporation.* Any bank may assign or convey property owned by it, and enter into the common covenants of warranty.^ And a national bank in selling real estate competently acquired by it, may take back a purchase- money mortgage.' § 162. In regard to railroad companies, the only capacities requiring mention here,' are their powers to locate and construct their roads, and the power ordinarily granted to them to take property by compulsory process, there being delegated to them for this pur- pose a limited special right of eminent domain. Powers of railroad corpora- tions. Eminent domain. Bank, 47 Vt. 546 ; Whitney v. Same, 50 Vt. 388; S. C, 55 Vt. 154; First Nat. Bank v. Ocean Nat. Bank, 60 N. Y. 278 ; and compare Foster o. Essex Bank, 17 Mass. 479; Comp v. Car- lisle Deposit Bank, 94 Pa. St. 409. In Greeley v. Nashua Savings Bank, 63 N. H. 145, the (savings) bank was held not to be liable for bonds received by its clerk on its behalf, there being no further proof that the bonds or their proceeds had come into its pos- session. ,See also § 837. ' Bushnell v. Chautauqua County Nat. Bank, 74 N. Y. 290. 2 Van Leuven v. First Nat. Bank, 54 N. Y. 671 ; Yerkes v. Nat. Bank, 69 N. Y. 382. " First Nat. Bank v. Nat. Exchange Bank, 92 U. S. 122. ' Weckler ». First Nat. Bank, 42 Md. 581 ; First Nat. Bank v. Hoch, 89 Pa. St. 324. 120 ^ Nassau Bank v. Jones, 95 N. Y. 115; see § 130, note. * Talman v. Rochester City Bank, 18 Barb. 123. ' New Orleans Nat. Bank v. Ray- mond, 29 La. Ann. 355. Unauthorized conveyances and mortgages to a na- tional bank are valid for all pui-poses until questioned by the United States. National Bank v. Matthews, 98 U. S. 621; Mapes v. Scott, 94 111. 379; Winton V. Little, 94 Pa. St. 64 ; Old- ham V. First Nat. Bank, 85 N. C. ^40 ; see § 303. * As to the power of railroad compa- nies to enter into traffic arrangements, or give special facilities to certain cus- tomers, see §§ 308, 309. For their lia- bility as carriers, see §§ 347 et seq. In the ordinary course of its busi- ness, a railroad company may take and negotiate a promissory note. Good- rich V. Reynolds, 31 111. 490. PART I.] CONSTllUCTION OP CORPORATE POWERS. [§ 162; When, witliin certain limits, the course and manner of con- structing a railroad are entrusted to the railroad company, or to railroad commissioners, their discretion will not be controlled or i-evised by a court so long as they act in good faith and with- in their powers.^ A court of equity will not interfere to con- trol the location of a railroad where the corporation has exer- cised within the prescribed termini of its route its accorded discretion f the court will not interfere, for instance, on the ground that another site would better subserve public interests/ But a railroad company is not justified in sacrificing the public interest to its own advantage, and must regard the interests of the public in locating its route and stations. Failing in this, it cannot be regarded as acting in good faith. Accordingly, on grounds of public policy, contracts to locate a station at a cer- tain spot, coupled with an agreement to establish no other stations in the same vicinity, are void.* Ordinarily, however, a railroad company may use its discretion in locating its- sta- tions, as it may in selecting its route, and, for instance, is not bound to stop at the junction of a connecting road, and there interchange business, although it may have established joint depot accommodations with another company elsewhere.' > Fall River Iron Works Co. v. Old Bestor w. Wathen, 60 111. 138 ; Lin- Colony, etc. R. R. Co., 5 Allen der !>. Carpenter, 62 111. 809 ; Marsh (Mass.), 221 ; Mayor, etc. of Wor- v. Fairbury, etc., R. R. Co., 64 111. cester u. Railroad Commissioners, 113 414 ; Holladay v. Patterson, 5 Oreg. Mass. 161, 171; New York H. & N. 177; compare Harris v. Roberts, 12 R. R. Co. V. Boston H. & E. R. R. Neb. 631 ; Wooters v. International Co., 36 Conn. 196, 201. & G. N. R. R. Co., 54 Tex. 294; * Southern Minnesota R. R. Co. v. Cleveland C. C. & I. Ry. Co. v. Co- Stoddard, 6 Minn. 150; Walker v. burn, 91 Ind. 557; Workman «. Mad River & L. E. R. R. Co., 8 Campbell, 46 Mo. 305; Berryman w. Ohio, 38. Cincinnati Southern R. R. Co., 14 ^ Parke's Appeal, 64 Pa. St. 137; Bush (Ky.), 755. But see Cedar Anspach v. Mahanoy, etc. R. R. Co., Rapids, etc. Ry. Co. v. Spofford, 41 5 Phila. (Penn.) 491. Iowa, 292; First Nat. Bank u. Hen- * Texas & St. L. R. R. Co. i-. Ro- drie, 49 Iowa, 402. bards, 60 Tex. 545 ; St. Louis J. & C. ^ Atchinson T. & S. F. R. R. Co. R. R. Co. V. Mathers, 104 111. 257 ; S. v. Denver & N. O. R R. Co., 110 U. C, 71 111 592; St. Joseph & D. R. S. 667. See also Martindale v. Kan- R. Co. V. Ryan, 11 Kan. 602; Pa- sas City, St. Jo. & C. B. R. R. Co., cific R. R. Co. V. Seely, 45 Mo. 212; 60 Mo. 508; Kinealy v. St. Louis K. FuIIerw. Doane, 18 Pick. (Mass.) 472 ; C. & N. Ry. Co., 69 Mo. 658. 121 § 162 a.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. VII. § 162 a. After a railroad company has once located and built its track, it has no power to change the location materially,* unless a statute give it special authority," It can never be pre- sumed that a legislature will pass a law to the detriment of the public ; but it does not follow that from oversight or ignorance of the full circumstances a law may not have been passed which might be improved by amendment. Consequently a contract by a railroad company, conditioned on its receiving power from the legislature to change the location of its road, is not invalid as against public policy.' When a railroad company has located its road, and obtained title to the land, either the fee or the requisite easement, the mode of occupation and degree of exclusiveuess necessary and proper for the convenient use of its functions are within its dis- cretion.* ISTevertheless, when it takes but an easement, sufficient interest remains in the owner of the fee to prevent the railroad company from extending its use beyond the reasonable terms of its easement, since that would be an encroachment on his resi- duary rights.* An unrestricted grant to a railroad company of power to con- struct a road between two points, carries with it the right to cross navigable waters, if they intervene in a course or route which is otherwise proper, and the road can be constructed over ' Little Miami R. B,. Co. v. Naylor, ' Supervisors v. Wisconsin Central 2 O. St. 235; Wirth v. Philadelphia R. R. Co., 121 Mass. 460;' New Ha- City Pass'r Ry. Co., 2 Weekly Notes ven & Northampton Co. v. Hayden, of Oases (Penn.), 650; Brigham v. 107 Mass. 525; see § 305, last note. Agricultural Branch R. R. Co., 1 * Brainard v. Clapp, 10 Cush. Allen (Mass.), 316; State v. New (Mass.) 6 ; Hagen u. Boston & M. R. Haven & N. Co., 45 Conn. 331. But R. Co., 2 Gray (Mass.), 577, 580 ; see compare Mahaska County R. R. Co. Prather v. Western Un. Tel. Co., 89 V. Des Moines Valley R. R. Co., 28 Ind. 501. See § 165. Iowa, 437 ; Gear v. Dubuque & S. C. = See Proprietors of Locks and Ca- R. R. Co., 20 Iowa, 523; Heston- nals u. Nashua & L. R. R. Co., 104 ville, etc. R. R. Co. v. Philadelphia, Mass. 1 ; Aldrich v. Drury, 8 R. I. 89 Pa. St. 210. 554; Blake v. Rich, 34 N. H. 282; 2 See Toledo & U. Ry. Co. v. Dan- Chapin o. Sullivan R. R. Co., 39 N. iels, 16 O. St. 890 ; Atkinson v. Ma- H. 564 ; Jessup v. Loucks, 55 Pa. St. rietta & C. R. R. Co., 15 O. St. 21 ; 850. Matter of New York L. & W. Ry. Co., 88 N. Y. 279. 122 PART I.] CONSTRUCTION OF CORPORATE POWERS. [§ 163. them without destroying the public easement or seriously im- pairing it.^ § 163. The legislature cannot authorize the taking of private property for private use, even on just compensation." More- over, the determination by the legislature that a purpose for which it directs private property to be taken/ is a public purpose is not conclusive, but open for determination ' by the courts ; although if the use be public, legislative decision is conclusive as to the public exigency requiring the property to be taken.* The following uses have been held public purposes for which the legislature may delegate to a private corporation the power to take private property : to supply a village with wholesome water ;* build a bridge which by the same statute is declared a public highway ;* develop the mineral resources of the state ;* build (public) telegrajph lines ;^ build and operate a railroad as a common carrier.' l^o matter how apparently necessary to a ' Miller v. Prairie du Chien, etc. Ey. Co., 34 Wis. 533; Fall River Iron Works Co. v. Old Colony, etc. K. R. Co., 5 Allen (Mass.), 221 ; Hamilton v. Vicksburg S. & P. R. R. Co., 34 La. Ann. 970. See § 163a for the t^ing by a railroad company of land already devoted to a public use, as a street or another railroad. 2 Matter of Eureka Basin, etc. Co., 96 N. Y. 42; Lorenz v. Jacob, 63 Cal. 73 ; Scudder v. Trenton Dela- ware Falls Co., Saxton (N. J.), 695. Contra, Costa Coal Mines R. R. Co. V. Moss, 23 Cal. 323 ; Consolidated Channel Co. v. Central Pacific R. R. Co., 51 Cal. 269 ; Sadler v. Langham, 34 Ala. 311 ; County Court v. Gris- wold, 58 Mo. 175; Palairet's Appeal, 67 Pa. St. 479. Contra, Harvey v. Thomas, 10 Watts (Pa.), 63. 3 Talbotc. Hudson, 1 6 Gray (Mass.), 417 ; Chicago R. I. & P. R. R. Co. v. Town of Lake, 71 111. 333 ; Sadler v. Langham, 34 Ala. 311 ; County Court V. Griswold, 58 Mo. 175 ; Concord R. R. V. Greely, 17 N. H. 47 ; Baltimore & O. R. R. Co. V. Pittsburgh W. & K. R. R. Co., 17 W. Va. 812. See Boston Water Power Co. v. Boston & W. R. R. Co., 23 Pick. (Mass.) 360 ; Riche v. Bar Harbor Water Co., 75 Me. 91 ; Tidewater Co. V. Coster, 18 N. J. Eq. 518; National Docks R. R. Co. V. Central R. R. Co., 32 N. J. Eq. 755. But see Prather v. Jeffersonville M. & I. R. R. Co., 52 Ind. 16 ; Mims v. Macon & W. R. R. Co., 3 Ga. 333, 338. * Riche V. Bar Harbor Water Co., 75 Me» 91. ' Arnold v. Covington Bridge Co., 1 Duv. (Ky.) 372. s Hand Gold M'g Co. v. Parker, 59 Ga. 419 (perhaps extreme). ' New Orleans, etc. R. R. Co. V. Southern, etc. Telegraph Co., 53 Ala. 211. ' National Docks R. R. Co. v. Cen- tral R. R. Co., 32 N. J. Eq., 755 ; Bloodgood V. Mohawk & H. R. R. Co., 128 § 163.] THE LAW OF PRIVATE COKPORATIONS. [CSAP. VII. corporation the right of eminent domain may be to, enable it to fulfil its corporate purposes, the possession of this right can never be implied or presumed; and express authority for its ex- ercise must always be shown.' The right of eminent domain of a railroad company, moreover, extends only to property reasonably necessary to enable it to fulfil the purposes of its in- corporation.^ When the legislature has not declared that the property sought to be condemned is necessary for the company, such necessity, if contested, is a question for the court ; for the de- termination of the company in this matter is not conclusive f and the scope of the right is always to be construed strictly against the corporation, so as carefully to protect the property 18 Wend. (N. Y.) 9; Beekman v. Saratoga, etc. R. R. Co., 3 Paige (N. Y.), 45 ; Buffalo & N. Y. C. R. R. Co. V. Brainard, 9 N. Y. 100 ; Aldridge v. Tuscumbia R. R. Co., 2 Stew. & Port. (Ala.) 199; Davis v. Tuscumbia R. R. Co., 4 Stew. & Port. (Ala.) 421 ; Sadler v. Langham, 34 Ala. 311 ; O'Hara v. Lexington & O. R. R. Co., 1 Dana (Ky.), 232; Concord R. B. Co. v. Greely, 1 7 N. H. 47 ; San Francisco, etc. R. R. Co. V. Caldwell, 31 Cal. 367; Raleigh & G. R. R. Co. V. Davis, 2 Dev. & Bat. L. (N. C.) 451 ; Walther v Warner, 25 Mo. 277 ; Swan v. Williams, 2 Mich. 427. The power of eminent domain, together with large discretion as to route, may be given railroad cor- porations by a general enabling act. Buffalo & N. Y. C. R. R. Co. v. Brainard, 9 N. Y. 100; Weir u. St. Paul, etc. R. R. Co., 18 Minn. 155; National Docks R. R. Co. v. Central R. R. Co., 32 N. J. Eq. 755; see Chicago B. & Q. R. R. Co. v. Cham- berlain, 84 111. 333 ; Boston Water Power Co, u. Boston &W. R. R. Co., 23 Pick. (Mass.) 360. ' Thacher v. Dartmouth Bridge ' 124 Co., 18 Pick. 501 ; Phillips v. Dun- kirk, etc. R. R. Co., 78 Pa. St. 177. See Allen v. Jones, 47 Ind. 438; Rensselaer, etc. R. R. Co. v. Davis, 43 N. Y. 137. And the right always remains conditioned on the legality of the corporate organization. See § 155. " Tracy v. Elizabethtown, etc. R. R. Co., 80 Ky. 259; Chicago and Western Indiana R. R. Co. v. Dunbar, 100 111. 110. Railroad comjjanies can- not thus acquire lands for speculative purposes. Rensselaer, etc. R. R. Co. V. Davis, 43 N. Y. 137. See N. Y. and Canada R. R, Co. v. Gunnison, 1 Hun, 496. But they may take more than is necessary for their present needs, provided it be no more than reasonably anticipated future business willrequire. Lodge t). Phila., Wilm., and Balto. R. R. Co., 8 Phila. 345. Compare Proprietors of • Locks and Canals v. Nashua and Lowell R. R. Co., 104 Mass. 1. ' Matter of New York Central R. R. Co., 66 N. Y, 407 ; S. C, 77 N. Y. 248 ; Rensselaer and S. R. Co. v. Davis, 43 N. Y. 137 ; Tracy v. Eliza- bethtown, etc. R. R. Co., 80 Ky. 259. PART I.] CONSTRUCTION OF CORPORATE POWERS. [§ 163 a. of individuals from its exercise except for a public use.* iN'ever- theless, statutes conferring the rights of eminent domain are not to be construed so literally as to frustrate the evident in- tent of the legislature.^ In accordance with these principles it is held that a railroad company may condemn land for proper places to keep cars and locomotives when not in use, and for places to store merchan- dise between the time of its receipt and dispatch, and after its arrival till called for ;' and generally for proper terminal facili- ties,* for necessary depots and workshops." § 163 a. An individual, by devoting property to a public use, acquires no higher rights in that property than he had before. On the contrary, his rights as private oi^er become more pal- pably subservient to the rights of the public and to the police power of the state.* Accordingly, as far as concerns the rights of the owners of property devoted to a public use, there is no reason why the legislature should not authorize it to be taken by compulsory process, and as for the rights of the people, the compulsory proceedings are authorized by themselves acting. 1 Alexandria and F. Ry. Co. v. Alexandria and W. R. R. Co., 75 Va. 780; Doughty v. Somerville, etc. R. R. Co., 21 N. J. L. 442 ; Moorhead V. Little Miami R. R. Co., 19 Ohio, 340; Merritt v. Portchester, 71 N. Y. 309 ; Pueblo, etc. R. R. Co. v. Rudd, 5 Cal. 270 ; Spofford v. Bueksport, etc. R. R. Co. 66 Me. 26 ; East and West R. R. Co. V. East Tennessee, etc. R. R. Co., 75 Ala. 275; Alabama Gt. Southern R. R. v. Gilbert, 71 Ga. 691. See § 122. ' In re New York and Harlem R. R. Co. V. Kip, 46 N. Y. 546. When for some reason a railroad company has no authority to condemn a certain right of way, it may cause another com- pany to be formed of its own share- holders, and to be so organized as to have the requisite power ; and after the subsidiary company has condemned the right of way, it may lease the same to the other company. Lower v. C. B. and Q. R. Co., 59 Iowa, 563. But one railroad company cannot condemn land for another. Swinney v. Ft. Wayne, etc. R. R. Co., 59 Ind. 205. ' In re New York and H. R. R. R. Co. V. Kip, .46 N. Y. 546. * New York Central and H . R. R. R. Co. V. Metropolitan Gas Light Co., 63 N. Y. 326 ; Matter of New York Central and H. R. R. R. Co., 77 N. Y. 248. = Nashville and C. R. R. Co. v. Corvardin, 11 Humph. (Tenn.) 348 ; Gilsy V. Cincinnati U. & S. R. R. Co., 4 O. St. 308 ; Hamilton v. Annapolis and E. R. R. Co., 1 M'd, 560 ; Han- nibal and St. Jo. R. R. Co. v. Muder, 49 Mo. 165 ; Chicago, B. & Q. K. R. Co. V. Wilson, 17 111. 123 ; Southern Pacific R. R. Co. V. Raymond, 53 Cal. 223. « See § 475, post. 125 § 163 a.] THE LAW OF PKIVATB CORPORATIONS. [CHAP. VII. through their plenary political agent, the legislature.^ Conse- quently, the legislature can authorize property already devoted to a public use to be taken for another public use by compul- sory proceedings f it can for instance authorize one railroad company to take the property of another, although the same be used by the latter for railroad purposes.* But the power to take property actually devoted to a public use, is not implied by a simple grant to a railroad company of the power of emi- nent domain.^ Power to take such property arises only by a grant in express terms or by such necessary implication as exists where the powers expressly granted cannot otherwise be exercised ; an implication which must have been unavoidable and necessary ab origj^,e and not 'made so by any act of the cor- poration.* All grants of eminent domain are to be construed 1 See Lake Shore and M. S. E'y Co. V. Chicago and W. I. R. E. Co., 97 111. 506. ^ Boston Water Power Co. v. Bos- ton and N. R. R. Co., 23 Pick. (Mass.) 360; Chicago R. 1. and P. R. R. Co. V. Town of Lake, 11 111. 333; Ala- bama and F. R. R. Co. v. Kenney, 39 Ala. 307 ; Lafayette Plank Road Co. V. New Albany, etc. R. R. Co., 13 Ind. 90; New York H. and N. E. R. Co. V. Boston H. .and E. E. R. Co., 36 Conn. 196 ; Northern R. R. v. Concord and C. R. R., 27 N. H. 183 ; White Eiver T. Co. v. Vermont Cen- tral R. R. Co., 21 Vt. 590 ; Thorpe V. Rutland and B. R. R. Co., 27 Vt. 140; Wood V. Macon, etc. R. R. Co., 68 Ga. 539 ; Matter of Prospect Park and C. I. R. R. Co., 67 N. Y. 371. See Iron R. R. Co. «. Ironton, 19 O. St. 299; Commonwealth v. Essex Co., 13 Gray (Mass.), 239, 247. Compare Lake Shore and M. S. Ey. Co. V. Chicago and N. I. R. R. Co., 97 III. 506. ' Eastern R. E. Co. v. Boston and M. E. E. Co., Ill Mass. 125; Lake Shore and, M. S. Ey. Co. v. Chicago 126 and W. I. E. E. Co., 97 111. 506; Oregon Ey. Co. v. Portland, 9 Oregon, 231 ; Sixth Avenue E. E. Co. v. Kerr, 72 N. S. 330 ; Kinsman Street E. E. Co. V. Broadway E. R. Co., 36 O. St. 239 ; and cases in preceding note. * Contra, Costa Coal Mines E. E. Co V. Moss, 23 Cal. 323 ; State i). Montolaire Ey. Co., 35 N. J. L. 328. ' Pennsylvania E. E. Co.'s Appeal, 93 Pa. St. 150; Matter of Boston and Albany E. R. Co., 53 N. Y. 574; Matter of City of Buffalo, 68 N.' Y. 167; Prospect Park and C. I. R. E. Co. V. Williilmson, 91 N. Y. 552'; Oregon Ey. Co. v. Portland, 9 Oregon, 231 ; Inhabitants of Springfield v. Con- necticut River R. E. Co., 4 Cush. (Mass.) 63 ;■ Housatouic E. E. Co. v. Lee, etc. E. E. Co., 118 Mass. 391 ; Boston and M. E. E. Co. v. Lowell, etc. E, E. Co., 124 Mass. 368. But these strict rules dp not apply where the property sought to be taken though owned by a railroad company is not used f»r railroad purposes. Boston Water Power Co. v. Boston and N. E. R. Co., 23 Pick. (Mass.) 360; North PART I.] CONSTRUCTION OF CORPORATE POWERS. [§ 164. strictly agaijist the grantee, especially when it is attempted to construe the grant so as to interfere with the exercise of a pre- vious grant of the same kind.' It is competent for a state to compel a railroad company to allow another railroad company to connect with it,^ or to cross its track.' And if a company is chartered to build a railroad between two termini in a line that will cross the tracks of prior railroads, the right to cross those ,tracks will arise by impli- cation.* But no more than the property of other owners can the property of a railroad company be taken or injured without just compensation ; nor without just compensation can a rail- road company be forced to allow its tracks to be used or even crossed by another railroad company. And it is not competent for the legislature to fix the compensation." § 164. As to whether and in what respect a single exercise of the power of eminent domain by a railroad corporation exhausts its right there is a conflict of authorities. Un- doubtedly a railroad company chartered with power to build Carolina, etc. R. R. Co. v. Carolina Central Ry. Co., 83 N. C. 489; Peoria P. and I. R. R. Co. v. Peoria and S. R. R. Co., 66 111. 174; Haiti- more and O. R. R. Co. v. Pittsburgh W. and K. R. R. Co., 17 W. Va. 812. 1 Pennsylvania R. R. Co.'s Appeal, 93 Pa. St. 150. See §§ 470-473. 2 See Louisville & N. R. R. Co. v. State, 9 Bax. (Tenn.) 522. Compare North Branqh Passenger R'y Co. v. City Passenger R'y Co., 38 Pa. St. 361 ; Branson p. City of Philadelphia, 47 Pa. St. 329. 3 Lake Shore & M. S. R'y Co. v. Cincinnati, S. & C. R'y Co., 30 O. St. 604 ; Pittsburgh & C. R. R. Co. V. Southwest Pennsylvania R. R. Co., 77 Pa. St. 173; Baltimore, etc. T. Co. V. Union R'y Co., 35 Md. 224 : M'^estern Pennsylvania R. R. Co.'s Appeal, 99 Pa. St. 155. * Morris & E. R. R. Co. v. Central R. R. Co., 31 N. J. L. 205 ; State v. Eastern & A. R. R. Co., 36 N. J. L. 181. Contra, Costa Coal Mines v. Moss, 23 Cal. 323. ' Pennsylvania R. R. Co. v. Balti- more & O. R. R. Co., 60 Md. 263; Southwestern R. R. Co. v. Southern, etc. Tel. Co., 46 Ga. 43. Compare with last case New Orleans, etc. R. R. Co. V. Southern, etc. Tel. Co., 53 Ala. 211 ; Baltimore, etc. T. Co. v. Union R'y Co., 35 Md. 224 ; Northern Central R'y Co. v. Mayor, etc. of Baltimore, 46 Md. 425 ; Metropolitan R. R. Co. V. Highland St. R'y Co., 118 Mass. 290. It is held in Massa- chusetts that a railroad company is en- titled to compensation for a public highway laid out across its track/ Old Colony, etc. R. R. Co. o. County of Plymouth, 14 Gray, 155. Contra, Albany Northern R. R. Co. v. Brown- ell, 24 N. Y. 345 ; Boston & A. R. B. Co. V. Greenbush, 52 N. Y. 510. 127 § 165.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. VII. its road on a certain route, has no authority to lay its road elsewhere; nor has a company that has actually selected its route and built its road, authority to change its route subse- quently.' It has also been said that a railroad corporation by laying out to its satisfaction its road with the appendages, entirely exhausts all the powers conferred on it to take land.^ But, it is submitted, it is the right of the railroad company to re-locate its road that is wanting,* and not its right of eminent domain that is exhausted.* And there is ample authority sus- taining the rule, that notwithstanding a railroad corporation has already exercised its right of eminent domain, it may make whatever further appropriations are necessary for its road or stations, provided the making of any given appropriation is not in itself an act unauthorized by the constitution of the corporation.* § 165. In the exercise of its right of eminent domain a cor- poration may take the fee or whatever interest in the land may be necessary to accomplish its purpose.* If it takes the fee it ' Mason v. Brooklyn City, etc. R. Hartford and Erie R. R. Co., 36 Conn. R. Co., 35 Barb. 373 ; Brooklyn Oen- 196, 198. tral R. R. Co. v. Brooklyn City R. R. ' Dietrichs v. Lincoln, etc. R. Co., Co., 32 Barb. 358; Hudson and Del. 13 Neb. 361 ; Central Branch U. P. Canal Co. v. New York and Erie R. R. R. Co. v. Atchison T. and S. F. R. Co., 9 Paige, 323 ; Kenton County R. R. Co., 26 Kans. 669 ; Chicago, B. Court V. Bank Lick Turnpike Co., 10 and Q. R. R. Co. v. Wilson, 17 111. Bush (Ky.), 529; Brigham v, Agri- 123; Fisher v. Chicago and Spring- cultural Branch R. R. Co., 1 Allen, field R. R. Co., 104 111. 323 ; Miss. 316. See Moorhead v. Little Miami and Tenn. R. R. Co. v. Devaney, 42 R. R. Co., 17 Ohio, 340. But see Miss. 555; Virginia and Truckee R. Mississippi and Tenn. R. R. Co. v. R. Co. v. Lovejoy, 8 Nev. 100; Devaney, 42 Miss. 555 ; Ex parte Prather v. JefFersonville, etc. R. R. South Carolina R. R. Co., 2 Rich. L. Co., 52 Ind. 16 ; Toledo and Wabash (S. C.) 434. , R'y Co. V. Daniels, 16 Ohio St. 390 ; 2 Morris and Essex R. R. Co. v. Hamilton v. Annapolis, etc. R. R. Central R. R. Co., 31 N. J. L. 205, Co., 1 Md. 553; Ex parte South 210. Carolina R. R. Co., 2 Rich. L. (S. C.) » See §1620. 434. See Western Pennsylvania R. ■• " Strictly speaking there is no such R. Co. 's Appeal, 99 Pa. St. 155. thing as an extinction of the right of ' Sixth Ave. R. R. Co. v. Kerr, 72 eminent domain." New York, Hous- N. Y. 330. See Challiss v. Atchin- atonic, etc. R. R. Co. v. Boston, son, etc. R. R. Co., 16 Kan. 117. 128 PART. I.] CONSTRUCTION OF CORPORATE POWERS. [§ 166. acquires an exclusive right to the property.' And whatever interest it may take, it may have rights, privileges, g. ^^^ ^^ or immunities in regard thereto not ordinarily pos- the corpo- ,, .,..,,-— . , ,1 ration as to sessed by individuals, l or instance, real estate thus land ac- acquired by a railroad company, which is necessary emYnent^ for uses in which the public is interested, cannot be domain, sold on execution apart from the franchises of the corporation.^ § 166. The right of eminent domain is not transferable.* After the time has expired within which a railroad corporation is required to complete its road, it can- not exercise the right of eminent domain ;* nor can it do so after the expiration of the time to which the exercise of the right is expressly limited.® In condemning laud the statute authorizing the proceedings must be strictly complied with, and this compliance must appear by the record of the proceedings.' EmiDent domain not transfer- able. ' See Isabel v. Hannibal and St. Jo. R. R. Co., 60 Mo. 475 ; Cauley v. Pittsburgh, etc. R. R. Co., 95 Pa. St. 398 ; Jersey City and Bergen R. R. Co. V. Jersey City and Hoboken R. R. Co., 20 N. J. Eq. 61 ; reversed in part, 21 N. J. Eq. 550; Camden Horse R. R. Co. ii. Citizens' Coach Co., 31 N. J. Eq. 525. ' Gooch V. McGee, 83 N. C. 59. ' Mahoney v. Spring Valley Water Co., 52 Cal. 159. A lease for one hundred years of a railroad does not vest in the lessee the right of eminent domain of the lessor. Mayor, etc. of Worcester v. Norwich, etc. R. R. Co., 109 Mass. 103. But the person whose property has been taken cannot question the right of the railroad com- pany to transfer that. CroUey v. Min- neapolis & St. L. Ry. Co., 30 Minn. 541. And the fact that a railroad company has leased its road for the full period of its corporate life, does not affect its right to take land by eminent domain : and that the lessee is a for- 9 eign corporation is immaterial. Mat- ter of Petition of New York, Lacka- wanna, etc. R. R. Co., 99 N. Y. 12. * Peavy v. Calais R. R. Co.' SO Me. 498 ; New York, Housatonic, etc. R. R. Co. V. Boston, Hartford, and Erie R. R. Co., 36 Conn. 196; Atlantic & P. R. R. Co. V. St. Louis, 66 Mo. 228 ; see § 155. 5 Morris and Essex R. R. Co. v. Central R. R. Co., 31 N. J. L. 205. See ante, § 155. « Nichols V. Bridgeport, 23 Conn. 189 ; Pueblo, etc. R. R. Co. v. Rudd, 5 Col. 270; Mobly v. Breed, 48 Ga. 44; Ellis V. Pacific R. R. Co., 51 Mo. 200 ; Cunningham v. Pacific R. R. Co., 61 Mo. 33 ; Kansas City, St. Jo., etc. R, R. Co. V. Campbell, 62 Mo. 585; Hyslop «. Finch, 99 111. 171; Southern Pacific R. R. Co. v. Wilson, 49 Cal. 396 ; Mitchell v. Illi- nois & St. L. R. R. Co., 68 111. 286 J Oregonian Ry. Co. v. Hill, 9 Oregon,. 877. 129 THE LAW OF PRIVATE CORPORATIONS. fCHAP. VII. PAET II. ACTS WITHIN THE CORPORATE POWERS. When a corporation is not liable for loss occurring by reason of its acts, §167. Corporate franchises not to be ques- tioned collaterally, § 168. But for their improper use the corpo- ration liable to injured individuals, §169. Continuation of liability after a delega- tion of franchises, § 170. Corporation always liable when its acts amount to a taking of private property, § 171. Meanings of the term "property," § 172. What constitutes a taking, § 173. When the person injured is not the full owner, § 174. Railroad tracks in streets, §§ 175, 176. Distinction between private and public corporations, §H77. Measure of compensation, § 178. What benefits may be set otT, § 179. Acts of the body corporate ; when binding, § 180. Acts of the body corporate ; when held invalid, §§ 181-183. Manner in which the body corporate should act, § 184. Formalities required by statute. Con- sent of shareholders, § 185. Certification of the performance of for- malities, § 186. Individual shareholders cannot act for the corporation, § 187. "Validity of the acts of de facto ofiicers, ' §188. 130 Principles on which rests the validity of the acts of de facto ofiicers, § 189. Limitations, § 190. General rules regulating the responsi- bility of corporations for the acts of their agents, §§ 191, 192. Rules of the law of agency applicable. Acts within the ordinary scope of the agent's authority valid, § 193. Effective limitations on the authority of corporate agents, § 194. Class I., § 195. Effect of by-laws, §§ 196, 197. Class II., §§ 198, 199. Class III., §§ 200, 201. Authority of agent depends on his actual functions rather than on the name of his office, § 202. Validity of agent's acts ; when not affected by extrinsic facts, § 203. Presumptions in favor of *he validity of the acts of corporate agents, § 204. Negotiable paper. Money borrowed in excess of statutory limit, § 205. Assumption of unusual facts unwar- ranted, § 206. Certification by agent of facts on which his authority is conditioned! §§ 207, 208. Not binding on the corporation when the other party knows its falsity, § 209. Admissions of corporate agents. No- tice to them, § 210. Ratification of unauthorized acts, § 211. PART II.J ACTS WITHIN THE CORPORATE POWERS. [§ 167. Formal ratification not necessary, §§ 212, 213. Katification through accepting benefit of unauthorized act. Knowledge or implied notice essential, §§ 214-216. Lapse of time no ratification, § 217. Authority of special classes of corporate agents, § 218. Powers of the board of directors, § 219. Statement of general rule, § 220. Statement of first general limitation, §221. Statement of second general limita- tion, § 222. Scope of the general rule, §§ 223, 224. Power oi" directors to borrow, § 226. First general limitation, §§ 226-230. Second general limitation, § 231. Qualification to it, § 232. Delegation of authority by directors, § 233. Delegation of powers by the board to a committee, § 234. Authority of agents does not expire with that of the directors who ap- point them, § 235. Authority of a president, § 236, Enlarged by custom, §§ 237, 238. Authority of a cashier, §§ 239, 240. Cashier's powers restricted to the trans- action of ordinary business, § 241. Certification of checks, §§ 242, 243. Certifications by teller. Accommoda- tion certifications, § 244. Effect of a certification. " Kaised checks," §§ 245, 246. Validity of the acts of corporate agents as dependent on formalities, 247. Use of corporate seal, § 248. Implied contracts, § 249. Non-observance of prescribed formali- ties, § 250. Formalities imperative or directory, §251. Approval by other officers, § 252. When contracting party has notice of, the formalities required, §§ 253, 254. When corporate agent and contracting party do not stand on equal terms, §255. Ratification, § 256. Party contracting with corporate agent cannot plead non-observance of for- malities by the latter. Sureties on official bonds, § 257. Formalities to be observed by directors. They should act as a board, § 258. Exceptions, § 259. Directors' meetings. Quorums, § 260. Presumptions, § 261. Special provisions, § 262. Rules of evidence applicable to corpo- rations. Corporate books, § 263. ^ 167. So long as a corporation neglects no duty owes the public, acts within the scope of its compe- tently conferred powers, and in so acting uses due care not to injure others, it will not be liable for the in- convenience or even damage which its actions may cause, provided they do not constitute a taking of pri- vate property.' This proposition requires elucidation.^ ercise of a right, conferred the benefit of the public. which it When is, corpora- tion is not liable for loss occur- ring by reason of its acts. ' See Gilbert v. Savannah, etc. R. R., 69 Ga. 396. " Whenever the ex- by law for is attended ^ It is well to remember that grants of special franchises and privileges are always to be construed strictly against the grantee, and in favor of the pub- lic. Turnpike Co. v. Illinois, 96 U. S. 63. See ante, § 122. 131 § 168.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. VII. § 168. The manner in which a corporation may be compelled to discharge the duties it owes the public is discus- Corporate ° ^t-,^-.- , -rn , • • t ± ^ franchises sed in Chapter VIII.* If a corporation is chartered quLtU)ned to subserve a public convenience, and receives special collaterally, privileges and powers to be used by it in fulfilling the purposes of its incorporation, it would seem but logical that those powers and privileges should cease to constitute a protection to the corporation as soon as the corporation itself ceases to fulfil its purposes. Such would undoubtedly be the law, were it not for the rule that the franchises of a corporation caiuiot be questioned collaterally.'' Consequently, franchises ordinarily subsist as valid and afford protection until they are declared forfeited in a proceeding instituted for that purpose.' with temporary inconvenience to pri- vate parties, in common with the pub- lic in general, they are not entitled to any damages therefor." Hamilton v. "Vicksburg, etc. R. K. Co., 119 U. S. 280, 285. Opinion of the court, per Field, J. Compare Cogswell v. New York N. H. & H. K. K. Co., 103 N". Y. 10. Thus a telegraph company, which has the right to place its line in the streets of a city, is not liable for a personal injury resulting from the breaking of a telegraph pole, save upon proof of culpable negligence on its part. The company is bound to use reasonable care in the construction and maintenance of its line, but is not bound so to erect and manage its line as to guard against storms, which, on account of their extraordinary severity, could not reasonably have been an- ticipated. The company is no insurer of travellers against injuries from its poles lawfully placed in the streets. Ward V. Atlantic and Pac. Tel. Co., 71 N. Y. 81. See Borchardt v. Wau- sau Boom Co., 54 Wis. 107; Sumner V. Richardson Lake Dam Co., 71 Me. 106 ; City of Georgetown v. Alexan- dria Canal Co., 12 Pet. 91. Compare 132 Smith V. Corporation of Washington, 20 How. 135. By making a negligent or improper use of its franchises, a corporation may become a public nuisance. Thus it is an indictable public nuisance for a railroad company to run its trains across a turnpike at the rate of fifteen or twenty miles an hour, without giving sufficient warnings. Lou., Cin., and Lex. R. R. Co. v. Commonwealth, 80 Ky. 143. Likewise it constitutes a public nuisance for a railroad company to raise its tracks so high at a public crossing that it is dangerous to drive over them. Paducah, etc. R. R. Co. V. Commonwealth, ib. 147. A corpo- ration may be indicted for a nuisance. State V. Western, etc. R. R. Co., 95 N. C. 602. ' §§ 454 et seq. ' See ante, §§ 145-157. Compare Newell V. Minneapolis, etc. Ry. Co., 35 Minn. 112. ' Logan V. Vernon, etc. R. R. Co., 90 Ind. 552 ; see Atlantic and P. R. R. Co. V. St. Louis, 66 Mo. 228; New York Cable Co. v. Mayor, etc. of New York, 104 N. Y. 1, 43. PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 170. § 169. On the other hand, the fact that a corporation is vio- lating a duty owed by it primarily to the public, for a violation of which the state might forfeit its frau- their im- chises ; or the fact that a corporation is exceeding its the corpo^ corporate powers, and is thereby rendering itself lia- ^1"°° in°" ble to a forfeiture of its franchises, does not prevent jured Indi- an individual who has suffered special damage through its wrongful acts or omissions, from maintaining an action against it on his own behalf.' Indeed, a corporation will be liable in damages to any person who suffers injury peculiar to himself from the negligent or improper use of its franchises.^ For instance, the right of a railroad company to lay its tracks in a street or highway imposes on it the obligation to lay them properly and keep them in repair, and if an injury by reason of its neglect in either of these respects is occasioned to any one, the company will be liable.' § 170. Furthermore, a corporation that has received special franchises ordinarily continues liable for injuries oc- curring through the negligent exercise of powers tiop^offfal originally conferred on it, although it may have dele- ^*l,'*y '^^'"^ ° , , . a delega- gated or assigned a portion or the whole of its powers tiou of to another corporation or to an individual. Thus, a railroad corporation that has granted the use of its road to another company will be liable for accidents to passengers car- ried by itself, caused by the negligent management of the trains of the other company.^ And a railroad company is not ex- ' Kiddle u. Proprietors of Locks and ' Worcester!). Forty-second Street Canals, 7 Mass. 169. See Mayor of R. E. Co., 50 N. Y. 203. See also Lynn v. Turner, Cowper, 86 ; Mersey Baltimore, etc. Turnpike Co. v. Cas- Docks u. Gibbs, llH. L. C. 686; S. C, sell, 66 Md. 419. No notice to the com- L, K. 1 H. L. 93 ; Winch v. Conser- pany of a patent defect is necessary, vators of the Thames, L. K. 7 C. P. The presumption of negligence is com- 458 ; Conrad v. Trustees of Ithaca, 16 plete when it appears that the defect N. Y. 158. existed and caused an injury. lb. As ^ A railroad company is liable in to ;;Hma /acte evidence of negligence, damages for establishing its engine compare Stokes v. Saltonstall, 13 Pet. houses so near an incorporated church 181 ; Railroad Co. v. Pollard, 22 Wall, as to constitute a nuisance by reason 341. of the noise and smoke. Baltimore * Railroad Company v. Baron, 5 and P. R. Co. v. Fifth Baptist Church, Wall. 90 ; see Abbott v. Johnstown 108 U. S. 317. Horse R. R. Co., 80 N. Y. 27 ; Feital 133 § 170.] THE LAW OF PRIVATE ^CORPORATIONS. [CHAP. VII. empted from liability for the loss of goods delivered to it to be carried over a part of its road by the fact that it had previously leased that part to another corporation ; for, as the court said, to have allowed this exemption "would be to authorize them by their own act to divest themselves of the duties and liabilities imposed upon them by law, and the performance of which was the consideration upon which their charter was granted, and- which thus entered into their contract with the common- wealth.'" The weight of authority sustains the proposition that by leas- ing its road a railroad company does not escape liability for injury to goods transported by its lessee,^ nor for injuries to the lessee's passengers occasioned by the lessee's negligence.' On the other hand, when one railroad company competently takes a lease of the road of another, its liabilities springing from the operation of the leased road are determined, not by its own charter, but by the, charter of the lessor company.^ V. Middlesex E. E. Co., 109 Mass. 398 ; Lakin v. Eailroad Co., 13 Oreg. 436. ' Langley v. Boston and Maine E. E. Co., 10 Gray, 103 ; see McCluer v. Manchester and Lawrence E. E., 13 Gray, 124 ; Quested v. Newburyport Horse Eailroad, 127 Mass. 204 ; Bower V. B. & S. W. E. Co., 42 Iowa, 546. See State v. Eailroad Commissioners, 41 N. J. L. 235. In the absence of statutory provisions, a j'ailroad com- pany after leasing its road remains liable for injuries caused by defects in its tracks at a highway crossing. Free- man V. Minneapolis and St. Louis B'y Co., 28 Minn. 443 ; bu't see Ditchett v. Spuyten Duyvjl, etc. E. E. Co., 67 N. Y. 425. So, where the railroad is operated by persons who are trustees for the corporation as well as. for its bondholders, the corporation may be sued. Grand Tower M'f'g, etc. Co. V. Ullman, 89 111. 244. Otherwise if the road is in the. hands ol a receiver. 134 Turner v. Hannibal and St. Jo. E. E. Co., 74 Mo. 602 ; Heath v. Missouri, etc. E'y Co., 83 Mo. 617; Metz v. Buffalo, etc. E. E. Co., 58 N. Y. 61 ; Hicks V. International, etc. E. E. Co., 62 Tex. 38. But see Ohio & M. E'y Co. V. Eussell, 115 111. 52. As to the power of a railroad corporation to lease or otherwise transffi- its fran- chises, see §§ 125, 132, 304, 305. ' Ohio & M. E. E. Co. V. Dunbar, 20 111. 623 ; Peoria & E. I. E. E. Co. V. Lane, 83 111. 448. ^ Singleton v. Southwestern E. E., 70 Ga. 464. To the contrary, Mis- souri Pac. Ey. Co. v. Watts, 63 Tex. 549, holds, that after an authorized lease of its road, the lessor is not liable for the torts of the lessee. See § 805 and note * McMillan v. Michigan Southern, etc. E. E. Co., 16 Mich. 79. See Stone V. Illinois Central E. E. Co., 116 U. S. 347. A railroad company cannot dispute its liability for goods PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 171. As a corporation cannot escape responsibility for the perform- ance of its duties by leasing its property or franchises,' so it cannot, by delegating matters to a contractor, escape from the fulfilment of its undertakings or from responsibility for the observance of due care in the exercise of its franchises.' Ac- cordingly, where a corporation contracted to lay water-pipes in a city, agreeing to "protect all persons against damages by reason of excavations made by them in laying pipes, and to be responsible for all damages which might occur by reason of the neglect of their employes on the premises," it was held, although the corporation had let the work but to a contractor, that it was liable for injuries incurred by a person passing over the street caused by the negligence of the contractor's servants.* So a railroad company may be responsible to adjacent land-owners for the trespasses of its contractors in constructing its road,^ and will ordinarily be liable for the acts of its contractors, as if they were its servants, where the contractors in their work are under the direction of the company," or where the company itself is the real cause of the inj uries occasioned by the acts or omissions of the contractor.* § 171. If the acts of a corporation within the Corpora- scope of its powers amount to a taking of private Habie when property, then that the corporation is acting within amount to its powers has the eifect of preventing its action * taking of „ . ,,. ... ,, private pro- from amounting to a public or private nuisance,' but perty. carried by it over a leased road on the ^ Railroad Co. v. Hanning, 15 Wall, ground that the lease is void. McCluer 649. V. Manchester, etc. R. R., 13 Gray ^ See Philadelphia, etc. R. R. Co. (Mass.), 124. See § 416. v. Phila., etc. Towboat Co., 23 How. > See Chicago & N. W. Ry. Co. v. 209. Crane, 113 U. S. 424. ' See City of Georgetown v. Alex- ^ Lakin v. Railroad Co., 13 Oreg. andria Canal Co., 12 Pet. 91 ; Grand 4.S6. Rapids, etc. R. R. Co. v. Heisel, » Water Co. j(. Ware, 16 Wall. 566. 38 Mich. 62. Compare the Clinton * Rockford, etc.'R. R. Co. v. Wells, Bridge, 10 Wall. 454; State of Penn- 66 111. 321 ; Chicago & R. I. R. R. sylvania v. Wheeling, etc. Bridge Co., Co. V. Whipple, 22 111. 105. But see 18 How. 421 ; Danville, etc. R. R. Hittew. Republican Valley R. R. Co., Co. v. Commonwealth, 73 Pa. St. 29 ; 19 Neb. 620, which holds that a rail- Ingram v. C. D. & M. R. R. Co., 38 roaji company is not liable for the acts Iowa, 669. of an independent contractor in build- ins its road. 135 § 172.] THE LAW OF PRIVATE COKPOKATIONS. [CHAP. VII. does not exempt it from the duty to compensate the owner for his property.' In the first place regarding the force of the word private. If i a railroad company, or other corporation with public duties, is authorized to use or take property belonging to the public, that is property which is vested in some political body or depart- ment, the question whether compensation is to be made depends on the terms of the authority ; it is merely a question of legis- lative intention.^ It is always competent for the legislature to change property from one public use to another without com- pensating any public {e. g., municipal) body.^ It has even been held that authority from the state to a corporation or an indi- vidual to ,build roads or bridges upon public property, implies the right to proceed without compensation, since the function to be performed is that of the sovereign, though delegated to a citizen.^ If, however, private rights exist in property held by the public, compensation for them must be provided on a change of its use. Thus, when land is conveyed' to a city in trust for a pyblic park, the legislature cannot authorize a railroad com- pany to build its road across it without providing compensation for the right of the original proprietors that the land should continue to be used according to the trust on which they con- veyed it." § 172. But what is property? and what constitutes a taking of it? "Property" means a thing owned, and, also,' ^^th"tfrm something entirely different, i. e., the rights of the pert" " owner respecting the thing owned, or the rights of a person respecting a thing in any way subject to his ' " This power to take private pro- son v. Johnson, 17 N. J. Law (2 Har- perty reaches back of all constitutional rison), 129, 145. «See§473. provisions ; and it seems to have been " Commonwealth v. Boston & M. considered a settled principle of univer- Railroad, 3 Cush. (Mass.) 25. sal law, that the right to compensation » People v. Kerr, 27 N. Y. 188. is an incident to the exercise of that * Pennsylvania R. R. Co. v. New power ; that the one is so inseparably York & L. B. R. R. Co., 23 N. J. Eq. connected with the other, that they 157. But see County of Blue Earth may be said to exist, not as separate v. St. Paul, etc. R. R. Co., 28 Minn, and distinct principles, but as parts of 503. one and the same principle." Sinnick- ^ city of Jacksonville v. Jackson- ville Ry. Co., 67 111. 540. 136 PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 173, control. In this latter sense the term embraces rights in action as well as rights in possession.' § 173. To constitute a taking of property, it is not necessary that any material thing be actually taken; it is enough if any right of the owner respecting the stitutes a' thing owned be impaired, so that he cannot apply *'''^'°^- the thing to all the uses of which it was formerly capable.* The legislature cannot authorize either a direct or a conse- quential taking or injury to property without compensation ; and if a corporation voluntarily, for its own benefit, so con- structs a work as necessarily to injure the property {i. e., the thing owned) of an individual, or deprive him of any right he niay possess regarding a thing which he owns or has rights in, it will be bound to compensate him for his damages, even though the work be properly and lawfully constructed.' Thus it is the better opinion that a railroad company is liable for throwing back surface water by the erection of an embank- ment on its land ;* and also is liable if it collects surface water in one channel, and in this manner discharges it upon plain- tiff's land, although the total volume of the flow is not thereby increased.* Likewise railroad companies are liable for damages 1 United States v. Eeynes, 9 How. Story v. New York Elevated R. R. 127, 151. A common law right of ac- Co., 90 N. Y. 122. tion (not based on a penalty) is pro- * Shane v. Kansas City, St. Jo. & perty. Dunlap w. Toledo, A. A., etc. C. B. R. R. Co., 71 Mo. 237; Car- R'y Co., 50 Mich. 470. riger v. East Tennessee V. & G. R. R. ' Pumpelly v. Green Bay Co., 13 Co., 7 Lea (Tenn.), 388; Indianapo- Wall. 166 ; which held the backing of lis B. & W. R. R. Co. v. Smith, 52 water so as to overflow the lands of Ind. 428 ; Toledo W. & W. Ry. Co. individuals to be such a takin. Milwaukee, 10 Wall, has purchased the right to use the 497 ; Delaplaine v. Chicago & N, W. water, of which the flow is diminished Ry. Co., 42 Wis. 214; Chapman u, by the action of the water company, Oshkosh & M. R. R. Co., 33 Wis. has an incorporeal right for which he 629; Union Depot, etc. Co. v. Bruns- is entitled to compensation. Lycom- wick, 31 Minn. 297; see Drury v. ing Gas and Water Co. v. Moyer, 99 Midland R. R. Co., 127 Mass. 571; Pa. St. 615. Alexandria & F. Ry. Co. v. Faunce, » See St. Louis R. R Co. t. North- 31 Grat. (Va.) 761; Brisbine v. St. western St. Louis Ry. Co., 69 Mo. 65. Paul& S. E. R. R. Co., 23 Minn. 114 ; * Hamilton «. Vicksburg, etc. R. and compare Thayer v. New Bedford R. Co., 119 U. S. 280. R. R. Co., 125 Mass. 253 ; and RaU- 138 PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 175. § 175. One of the most important classes of cases where per- sons have claimed compensation for the taking of property over which they have not unqualified owner- tracks in ship, or in which they have only an easement, are ^'''^®*^- cases where railroad companies have been authorized to lay tracks in public streets or highways. The building of a horse railroad is held not to be an appropriation of the street to a new use, for which adjoining lot owners are entitled to com- pensation, even though they own the fee of the street.* This seems correct, and on the principles stated by Chief Justice Shaw : " Where under the authority of the legislature, in virtue of the sovereign power of eminent domain, private pro- perty has been taken for a public use, and a full compensation for a perpetual easement in land has been paid to the owner therefor, and afterwards the land is appropriated to a public use of a like kind, as where a turnpike has by law been converted into a common highway, no new claim for compensation can be sustained by the owner of the land over which it passes."^ ■way Co. V. Eenwick, 102 U. S. 180. ^ Chase v. Sutton M'f'g Co., 4 But, semble contra, Stevens v. Pater- Cusli. (Mass.) 152, 157. But it ac- son & N. R. R. Co., 34 N. J. L. 532 ; cords with these principles, and has Boston & W. R. R. Co. V. Old Colony been held, that the owner is entitled R. R. Co., 12 Cush. (Mass.) 605. to compensation when the horse rail- ' Attorney-General v. Metropolitan road company changes the grade of the R. R. Co., 125 Mass. 515; Hobart v. street and obstructs its use. Cincin- Milwaukee City R. R. Co., 27 Wis. nati and S. G. Ave. Ry. Co. v. Cum- 194; Hodges v. Baltimore Passenger minsville, 14 O. St. 523. The owner Ry. Co., 58 Md. 603 ; Mahady v. of the fee of a highway is entitled to Bushwick R. R. Co., 91 N. Y. 148 ; compensation for laying gas pipes un- Railway Co. v. Lawrence, 38 O. St. der a highway, and parallel with it. 41; Faust v. Passenger Ry. Co., "3 Sterling's Appeal, 111 Pa. St. 35. Phila. (Pa.) 164; Cincinnati and S. The use of a highway by a telegraph G. Ave. Ry. Co. v. Cumminsville, 14 company, as authorised by law and O. St. 523 ; Hinchman v. Paterson subject to the supervision of the local Horse R. R. Co., 17 N. J. Eq. 75 ; municipal authorities, is a public use see People v. Kerr, 27 N. Y. 188; similar to that for which the highway Killinger v. Forty-Second St. R. R. was originally taken, or to >vhich it Co., 50 N. Y. 206. Compare Carliu. was originally devoted, and the owner Stillwater Street Ry. Co., 28 Minn, of the fee is entitled to no further 373 ; Carson v. Central R. R. Co., 35 compensation. Pierce v. Drew, 136 Cal. 325; Roberts v. Easton, 19 0. Mass. 75; two judges dissenting. St 78. Contra, Board of Trade Telegraph 139 § 175a.] THE LAW OF PRIVATE CORPORATIONS.' [CHAP. VII. § 175 a. Obviously an ordinary steam railway is very different from street cars. The track cannot be used at all for wagons, and driving by the side of it is dangerous. Unquestionably such a railway obstructs the use of a street as a street. Many of the cases adjudicating the right of abutting owners to com- pensation for the use of a street by a steam railroad have turned on the ownership of the fee of the street. It has been held that an adjoining owner who owns the fee of the street has a right of action for the consequential injury to his abutting freehold, resulting for instance from the decrease of its selling or rental value ; but that to entitle the adjoining owner who does not own the fee of the street to compensation, some mis- conduct on the part of the railroad company must be shown, such for instance as leaving cars for an unreasonable time in front of his premises or running locomotives at a dangerous rate of speed.' Many cases support the proposition that an abutting owner owning the fee of the street is entitled to com- pensation for a steam railroad built thereon,' though there are opposing decisions.* On the other hand, cases hold that when Co. V. Barnett, 107 111. 507, in which case it was held that trespass would lie at suit of the owner of the fee. It is to be noticed that the Illinois Constitu- tion provides that " private property shalj not be taken or damaged without just compensation." ' Grand Rapids and I. R. R. Co. b. Heisel, 38 Mich. 62 ; S. C, 47 Mich. 393. ' Williams v. New York Central R. R. Co., 16 N. Y. 97 ; Wager v. Troy Union R. R. Co., 25 N. Y. 626; Presbyterian Society v. Auburn and R. R. R. Co., 3 Hill (N. Y.) 567 ; Schurneier v. St. Paul and P. R. R. Co., 10 Minn. 82; Harrington v. St. Paul and S. C. R. R. Co., 17 Minn. 215; Hastings and G. I. R. R. Co. v. Ingalls, 15 Neb. 123; Kucheman v. C. C. and D. Ry. Co., 46 Iowa, 366 ; Terre Haute and S. E. R. R. Co. t>. Rodel, 89 Iiid. 128; Imlay ». Union Branch R. R. 140 ■ Co., 26 Conn. 249 ; Southern Pacific R. R. Co. V. Reed, 41 Cal. 256; Mumma v. Harrisburg, etc. R. R; Co., 1 Pearson (Pa.) 24 ; Mining v. New York C. and St. L. R. R. Co., 11 Weekly Notes Cases (,Pa.), 297 ; Phillips V. Dunkirk, W. and P. R. R. Co., 78 Pa. St. 177; Indianapolis B. and W. R. R. Co. v. Hartley, 67 111. 439 ; Chicago and W. I. R. R. Co. v. Ayres, 106 111. 511 ; Cox v. Louisville N. A., and C. R. R. Co., 48 Ind. 178; Sherman v. Milwaukee L. S. and W. R. R. Co., 40 Wis. 645 ; see Starr v. Camden and A. R. R. Co., 24 N. J. L. 572. ' See Brainard v. Missisquoi R. R. Co., 48 Vt. 107; Morris and E. R. R. Co. V. Newark, 10 N. J. Eq. 352; and some of the older Penn. cases, e.g., Snyder v. Pennsylvania R. R.Co., 55 Pa. St. 340. PART II.] ACTS WITHIN THE COKPORATB POWERS. [§ 175 a. a railway is built properly on a street, the abutting owner who does not own the fee of the street is not entitled to compensa- tion for the injury resulting to his property.* After all, this question of the ownership of the fee of the street is barren. Even if the abutting owner owns the fee of the street, the use of the street by the public absorbs and con- stitutes the whole value of it, and the possibility of reverter in case of the cessation of such use is remote.* The substantial rights of the abutting owner are no gi;eater when he owns the fee of the street than when he does not. In whomsoever may be vested the fee of the street, the abutting owner is damaged, if at all, with respect to his abutting premises. Accordingly, a number of recent cases ignore the question of ownership of the fee of the street, and award the abutting owner whatever special damages he has suffered by reason of the building of the rail- road in front of his premises.^ ' Grand Rapids and I. R. R. Co. v. Heisel, 38 Mich. 62 ; S. C, 47 Mich, ag.-! ; Davis v. C. and N. W. R. Co., 46 Iowa, 389 ; Houston and T. C. R. R. Go. V. Odwin, 53 Tex. 343 ; 8te1> son V. Chicago and E. R. R. Co., TH JU. 74 ; Moses v. Pittsburgh, Ft. W. and C. R. R. Co., 21 111. 516; Mil- burn V. City of Cedar Rapids, 12 Iowa, 246 ; Atchison and N. R. R. Co. V. Garside, 10 Kan. 552 ; Not- tingham V. Baltimore and P. R. R. Co., 3 Mac Arthur (Dist. of Col.) 517 ; Koelmel v. New Orleans M. and C. R. R. Co., 27 La. Ann. 442. But see Central Branch W. P. R. R. Co. V. Andrews, 30 Kan. 690 ; but the abutting owner, though not owning the fee of the street, is entitled to damages if the railroad company is unlawfully or improperly constructed or. operated. Stange v. Hill, etc. Street Ry. Co., 54 Iowa, 669; Burlington and M. R. R. R. Co. V. Reinpackle, 15 Neb. 279 ; Cain v. C. R. I. and P. R. Co., 54 Iowa, 255 ; Atchison and N. R. R. Co. V. Garside, 10 Kan. 552 ; Cadle V. Muscatine W. R. R. Co., 44 Iowa, 11. Compare Buchner w. Chicago M. and N. W. Ry. Co., 69 Wis. 264; aff'g S. C, 56 Wis. 403; Bradley y. New York and N. H. R: R. Co., 21 Conn. 294. • " See Peoples. Kerr, 27 N. Y. 188, 211. ' Railway Co. v. Lawrence, 38 O. St. 41 ; Railroad Co. v. Hambleton, 40 O. St. 496; G. C. & S. F. R. B. Co. V. Eddins, 60 Tex. 656; Gotts- chalk V. Chicago B. & Q. R. R. Co., 14 Neb. 560 ; Jeffersonville M. & I. R. R. Co. V. Bsterle, 13 Bush (Ky.), 667; Elizabethtown, etc. R. R. Co. V. Combs, 10 Bush (Ky.), 382. See also (eases in which the railroad company acted improperly) Central Branch W. P. R. R. Co. v. Twine, 23 Kan. 586 ; Indianapolis B. & W. R. R. Co. V. Smith, 52 Ind. 428 ; Cross V. St. Louis K. C. & N. Ry. Co., 77 Mo. 318; compare Porter w. Northern Missouri R. R. Co., 33 Mo. 128; Pittsburgh & L. E. R. R. Co. v. Bruce, 102 Pa. St. 23. 141 § 177.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 176. The rights of abutting owners regarding the use of a public street in a city were carefully considered in Story v. ISTew York Elevated R. R. Co.,* where the l^ew York Court of Appeals assumed that the plaintiff did not own the fee of the street, but had only an easement based on a covenant made bj the city with the plaintiff's grantor, whose deed was from the city, that the street should forever "continue and be for the free and common passage of, and as a public street and way for, the inhabitants of the said city, and all others passing through or by the same, in like manner as other streets of the same city now are or lawfully ought to be ;" and, on this assumption, the court held that the building of an elevated railroad, which obscured to some extent the light of the plaintiff's abutting premises, and to some extent impaired their general usefulness and depreciated their value, deprived the plaintiff of rights for which he was entitled to compensation. The legislature might regulate the uses of the street as a street, but had no power to authorize a corporation to build thereon, without compensating the plaintiff, a structure subversive of and repugnant to the uses of the street as an open public street. Their decision would have been the same, the court said, if the fee of the street had been conveyed by the deed from the city to the plaintiff's grantor ; for then the plaintiff' would have possessed a private easement of a right of way in the street, with an express covenant that the entire street should be forever kept as A public street ; though under such construction the covenant referred to would have been the covenant, not of the city, but of the city's grantee. I^o matter who was the covenantor, the plaintiff could not without compensation be deprived of , his easement derived from the covenant. And even if the city held the fee to the street, the street was, nevertheless, held in trust to be used only as a public street.' § 177. In some cases a distinction is drawn between the liability of a private corporation, organized with a view to the ' 90 N. Y., 122; S. C, 11 Abb. * See Railroad Co. v. Schurraeir, 7 N. C. 286. This case was affirmed Wall. 272, 289 ; Yates v. Milwaukee, and authoritatively expounded in Lahr 10 Wall. 497, 604; Cincinnati & S. V. Metropolitan Elevated Ry. Co., 104 G. Ave. Ry. Co. v. Cumniinsville, 14 N. Y. 268. Ohio St. 528, 546. 142 PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 178. gain of the stockholders, to compensate for the inconvenience and damage it may cause individuals while acting Distinction within the scope of its powers ; and the liability of between a public corporation or officer to persons damaged public cor- through acts done by him or it in the performance p°''**^°''^- , of a purely public trust or office.^ This distinction, whether proper or not, renders some of the decisions respecting the responsibility of municipal corporations for damages caused, for instance, in paving and grading streets, inapplicable to private corporations.* § 178. In determining the valine of property taken by a cor- poration, the same considerations are to be regarded ]\16a.Bur6 of as in the sale of property between private persons, compensa- The inquiry should be what is the property worth in *"'°' the market, not merely with reference to the uses to which it is at the time applied, but also with regard to those to which it is plainly adapted.' And the measure of compensation should be the difference between the market value of the property which is injured or taken, before and after the injury or taking.* ' Tinsman v. Belvidere Delaware R. R. Co., 26 N. J. L. 148; Baltimore and Potomac R. R. Co. v. Reaney, 42 Md. 117. A public corporation is one created for a political purpose. Tins- man «. Belvidere Delaware R. R. Co., 26 N. J. L. 148. The whole interest in it must belong to the government. Rundle v. Delaware, etc. Canal, 1 "Wall. Jr., 275, 290. * See Baltimore and Potomac R. R. Co. V. Reaney, supra; Smith v. Cor- poration of Washington, 20 How. 135 ; Transportation Co. v. Chicago, 99 U. S. 635. ' Boom Co. V. Patterson, 98 U. S. 403 ; Hooper v. Savannah, etc. R. R. Co., 69 Ala. 529; Shenango & A. R. R. Co. v. Braham, 79 Pa. St. 447 ; Mississippi Bridge Co. v. Ring, 58 Mo. 491 ; Henry v. Dubuque & P. R. R. Co., 2 Iowa, 288. See Stinson u. Chicago St. P. & M. Ry. Co., 27 Minn. 284; Selma R. & D. R. R. Co. 1-. Keith, 53 Ga. 178; Gear v. C. C. & D. R. Co., 39 Iowa, 23. Com- pare Jacksonville & S. E. Ry. Co. v. Walsh, 106 111. 253. * Pittsburgh, etc. R. R. Co. v. Rob- inson, 95 Pa. St. 426; Pittsburgh, etc. R'y Co. v. Bentley, 88 Pa. St. 178; Hooper 17. Savannah, etc. R. R. Co., 69 Ala. 529. See Indianapolis, etc. R. R. Co. V. Piigh, 85 Ind. 279 ; compare Everett v. Union Pac. R. Co., 59 Iowa, 243 ; Dreher v. I. S. W. R. Co., ib. 599 ; Leber v. Minneapolis, etc. R'y Co., 29 Minn. 256. Where property taken by a corporation, by its right of eminent domain, is already deteriorated in value through the ex- ercise of the right of eminent domain by another corporation, the damages must be estimated with reference to 143 § 178.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. VII. When a portion of a tract of land belonging to one owner is taken, the just compensation should equal the fair market value of the land taken and the damage done to the rest of the tract by taking the land which is taken and operating a railroad thereon in a proper manner.' And the measure of this compen- sation is the difference between the fair market value of the whole tract before and after the railroad is built upon the strip taken.^ Thus, when the construction of a railroad through a farm or other tract of land renders the use or cultivation of the remaining portions more inconvenient and expensive, this is an element of damage.' the existing deterioration. Lycoming Gas and Water Co. v. Moyer, 99 Pa. St. 615. See generally Mills on Emi- nent Domain, Chap. XVI. ' Bangor & P. R. R. Co. v. Mc- Comb, 60 Me. 290; Hooper v. Savan- nah, etc. R. R. Co., 69 Ala. 629; Robbins v. Milwaukee & H. R. R. Co., 6 Wis. 636 ; Cincinnati & S. Ry. Co. V. Longworth, 30 O. St. 108; Wyandotte K. C. & N. W. Ry. Co. V. Waldo, 70 Mo. 629 ; Raleigh & A. Air Line R. R. Co. v. Wicker, 74 N. C. 220 ; Virginia & T. R. R. Co. v. Henry, 8 Nev. 165 ; White Water Valley R. R. Co. v. McClure, 29 Ind. 636 ; Baltimore P. & C. R. R. Co. v. Lansing, 62 Ind. 229 ; Hartshorn v. B. C. R. & N. R. Co., 62 Iowa, 613; St. Louis, etc; R. R. v. Anderson, 39 Ark. 167 ; Texas & St. L. R. R. Co. V. Matthews, 60 Tex. 215. " Pittsburgh & L. E. R. R. Co. v. Robinson, 95 Pa. St. 426 ; Pittsburgh V. & C. Ry. Co. V. Bentley, 88 Pa. St. 179 ; Danville H. & W. R. R. Co. V. Gearhart, 81* Pa. St. 260 ; She- nango & A. R. R. Co. v. Braham, 79 Pa. St. 447 ; Hornstein u. Atlantic & Gt. W. R. R. Co., 51 Pa. St. 87; Harvey v. Lackawanna & B. R. R. Co., 47 Pa. St. 428; East Pennsyl- vania R. R. Co. V. Hottenstein, 47 144 Pa. St. 28; Watson v. Pittsburgh & C. R. R. Co., 37 Pa. St. 469 ; Schuyl- kill Navigation Co. v. Thoburn, 7 S. & R. (Pa.) 411; Henry v. Dubuque & P. R. R'. Co., 2 Iowa, 288; Sater V. Burlington, etc. Plank Road Co., 1 Iowa, 386 ; Brooks v. Davenport & St. P. R. R. Co., 37 Iowa, 99 ; Page V. Chicago M. & St. P. Ry. Co., 70 111. 324 ; Bangor & P. R. R. Co. v. McComb, 60 Me. 290 ; Ham v. Wis- consin I. & N. Ry. Co., 61 Iowa, 716 ; Black River, etc. R. R. Co. v. Bar- nard, 9 flun (N. Y.), 104 ; Fleming v. Chicago D. & M. R. R. Co., 34 Iowa, 353 ; Powers r. Hazelton, etc. R'y Co., 33 O. St. 429. Compare'St. Louis J. & S R. R. Co. .). Kirby, 104 111. 346 ; St. Louis, etc. R. R. Co. v. Ander- son, 39 Ark. 167; Reisneru. Atchison, etc. R. R. Co., 27 Kan. 382; Hen- derson, etc. R. R. Co. V. Dickerson, 17 B. Mon.,(Ky.) 173 ; Price v. Mil- waukee & St. Louis Ry. Co., 27 Wis. 98 ; Cincinnati & S. Ry. Co. v. Long- worth, 80 O. St. 108; Hatch v. Ver- mont Central R. R. Co., 35 Vt. 49 ; S. C, 28 Vt. 142 ; Parker v. Boston & M. R. R., 3 Cush. (Mass.) 107 ; Pro- prietors of Locks and Canals v. Na- shua & L. R. R. Co., 10 Cush. 385. ' Tucker v. Massachusetts Central R. R., 118 Mass. 546; Presbrev v. PART II.] ACTS WITHIN THE COEPOKATB POWERS. [§ 179, § 179. When the property of a person is taken or injured, and the question is as to the amount of compensa- tion, certain species of benefits which, concurring ^eneats"^ with the injury, may have lessened the actual de- preciation of his property, are to be taken into consideration. If the whole of an owner's property in the vicinity is taken, manifestly no question can arise as to set-off of benefits. "When a portion only of a tract or piece of land is taken, the benefits accruing to the rest of the tract may be set-off as against the damage done to it, but not as against the value of the portion taken:' and the benefits which may be set-off are Old Colony & N. Ry. Co., 103 Mass. 373; Wilson v. Rockford, etc. R. R. 1 ; McReynolds v. Burlington & O. R. Co., 59 111. 273 ; Todd v. Kankakee, Ry. Co., 106 111. 152; Robbins u. Mil- etc. R. R. Co., 78 111. 530; Mayor, waukee & H. R. R. Co., 6 Wis. 636 ; etc. of Atlanta v. Central Ry. Co.,' St. Louis, etc. R. R. v. Anderson, 39 53 Ga. 120 ; Jones v. Wills Valley R. Ark. 167; Watson v. Pittsburgh & C. R. Co., 30 Ga. 43; Shipley v. Balti- R. R. Co., 37 Pa. St. 469; Sherwood more, etc. R. R. Co., 34 Md. 336; V. St. Paul & C. Ry. Co., 21 Minn. Woodfolk v. Nashville, etc. R. R. 127 ; White Water Valley R. R. Co. Co., 2 Swan (Tenn.), 422 ; East Ten- V. McClure, 29 Ind. 536 ; Baltimore P. nessee & V. R. R. Co. v. Love, 3 &C. R. R. Co. W.Lansing, 52 Ind. 229; Head. (Tenn.) 63; Mississippi Ry. Missouri Pacific R'y Co. v. Hays, 15 Co. v. McDonald, 12 Heisk. (Tenn.) Neb. 224 ; Raleigh, etc. R. R. Co. v. 54 ; Grafton & G. R. R. Co. v. Fore- Wicker, 74 N. C. 220. Compare man, 24 W. Va. 662 ; San Francisco, Atchinson & D. Ry. Co. v. Lyon, 24 etc. R. R. Co. v. Caldwell, 31 Cal. Kan. 745 ; Curtis v. St. Paul, etc. R. 367 ; Henderson & N. R. R. Co. v. R. Co., 20 Minn. 28; Ham w. Wis- Dickerson, 17 B. Mon. (Ky.) 173; consin I. & N. Ry. Co., 61 Iowa, 716; Alabama & F. R. R. Co. v. Burkett, Bangor & P. R. R. Co. v. McComb, 46 Ala. 569 ; Philadelphia & E. R. R. 60 Me. 290; Western Pennsylvania Co. v. Cake, 95 Pa. St. 139. Cases R. R. Co. V. Hill, 56 Pa. St. 460 ; which do not sustain this rule are Selraa R. & D. R. Co. v Camp, 45 Britton v. D. M. O. & S. R. Co., 59 Ga. 180; I*fleger v. Hastings & D. Iowa, 540; Brooks v. Davenport & Ry. Co., 28 Minn. 510. St. P. R. R. Co., 37 Iowa, 99 ; Giesy ' Bobbins v. Milwaukee & H. R. v. Cincinnati, etc. R. R., 4 O. St. R. Co., 6 Wis. 636 ; Chapman v. 308 ; Cincinnati & S. Ry. Co. v. Long- Oshkosh & M. R. R. R. Co., 33 Wis. worth, 30 O. St. 108 ; St. Louis, etc. 629; Neilson u. Chicago M. & N. Ry. R. R. v. Anderson, 39 Ark. 167; Co., 58 Wis. 516; Fremont E. & M. Isom u. Mississippi Central R. R. Co., V. R. R. Co. V. Whalen, 11 Neb. 36 Miss. 300 ; New Orleans J. & G. 585 ; Elizabethtown & P. R. R. Co. N. R. R. Go. v. Moye, 39 Miss. 374 ; V. Helm, 8 Bush (Ky.), 681 ; Hayes Brown v. Beatty, 84 Miss. 227. In V. Ottawa, etc. R. R. Co., 54 111. these cases the set-off of benefits wasi 10 145 §180.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. those only that are direct and peculiar to the tract of which a part is taken, and not shared by that tract in common with lands in the vicinity belonging to other owners.' The general rise of land in the neighborhood caused by building the railroad is- not to be regarded, nor the benefits accruing to the owner of the tract through having the use of the railroad, when no greater privilege is given him than the railroad as a com- mon carrier would be bound to furnish.* § 180. An act within the scope of the corporate powers done by the body corporate acting as such in the manner bodycorpo- prescribed by the constitution of the corporation, is bindiDg!"^" binding on all persons in any way interested in the held excluded by language of the state constitutions. The Massachu- setts cases on the other hand permit set-off even as against value of the portion of land taken. Meacham v. Eitchburgh R. R. Co., 4 Cush. (Mass.) 291 ; Upton b. South Branch Reading R. R. Co., 8 Cush. (Mass.) 600; "Whitman v. Boston & M. R. R., 7 Allen (Mass.), 313; Childs v New Haven & N. Co., 133 Mass. 263 1; also a Minnesota case, Winona & St. P. R. R. Co. t;. Waldron, 11 Minn. 515. ' Childs V. New Haven, etc. Co., 133 Mass. 253; Meacham v. Pitch- burg R. R. Co., 4 Cush. (Mass.) 291 ; Upton V. South Branch Reading R. R. Co., 8 Cush. (Mass.) 600 ; Shipley V. Baltimore, etc. R. R. Co., 34 Md. 336; Fremont, E. & M. V. R. R. Co. V. Whalen, 11 Neb. 685; Wood- folk u. Nashville & C. R. 6.. Co., 2 Swan (Tenn.), 422; East Tennessee & V. R. R. Co. V. Love, 3 Head. (Tenn.) 63 ; Winona & St. P. R. R. Co. V. Waldron, 11 Minn. 515 ; Horn- Stein V. Atlantic & Gt. W. R. R. Co., 51 Pa. St. 87 ; Freedle v. North Caro- lina R. R. Co., 4 Jones, L. (N. C.) 89 ; Raleigh & A. Air Line R. R. Co. V. Wicker, 74 N. C. 220 ; Hosher v. Kansas City, St. Jo. etc. R. R. Co., 146 60 Mo. 303; Pacific R. R. Co. v. Chrystal, 25 Mo. 544; St. Louis & St. Jo. R. R. Cb. V. Richardson, 45 Mo. 466; Alden v. White Mountains R. R., 55 N. H. 413 ; Nicholson v. New York & N. H. R. R. Co., 22 Conn. 74, 88 ; St. Louis, etc. R. R. Co. V. Morris, 35 Ark. 622; Missis- sippi Ry. Co. V. McDonald, 1.2 Heisk. (Tenn.) 64 ; St. Louis, etc. R. R. Co. V. Kirby, 104 Il>. 345; Uphara v. Worcester, li3 Mass. 97; Peoria P. & J. R. R. Co. V. Black, 58 111. 33 ; Todd V. Kankakee, etc. R. R. Co., 78 111. 530. Contra, Hendeiigon, etc. R. R. Co. V. Dickerson, 17 B. Mon. (Ky.) 173; see California Pacific R. R. Co. V. Armstrong, 46 Cal. 85. '^ Drury v. Midland R. R. Co., 127 Mass. 571. Compare Pittsburgh & L. E. R. R. Co. V. Robinson, 95 Pa. St. 426. If the state constitution provides that when eminent domain is exercised by a railroad company, compensation must first be made the owner, the entry of a railroad company without the owner's permission is a trespass ; except when the entry is made for a preliminary- survey. New Orleans, etc. R. R. Co. V. Jones, 68 Ala. 48. PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 181. corporate enterprise; for the body corporate, expressing its will through a vote of a majority (in interest) of its members, or of a two-thirds or three-fourths majority if that majority is necessary in respect of any class of acts, possesses the ulti- mate power and discretion which the corporators as individuals, through incorporation, vested in themselves as a body corporate. This broad statement, however, which seems and is logical enough, is practically of less general application than what may be regarded as exceptions or qualifications to it. For the man- agement of the affairs of a corporation is ordinarily vested by the corporate constitution in the board of directors ; and this constitution embodying the original contract among the cor- porators is the final determinant of all rights and liabilities subsisting in respect of the corporate enterprise. Accordingly, if all the corporators or shareholders originally agreed that the management of the corporate enterprise should rest with the directors, it is incompetent for a majority of the shareholders to divest the directors of the management ; at least as long as a single shareholder objects; for in such case to change the management of the corporate enterprise would violate the rights of the shareholders under the original agreement. And there is much reason in this, for manifestly the body of share- holders are incapable of managing the corporate business with efficiency. It is also to be remembered here, that as all per- sons dealing with a corporation are affected with knowledge of its constitution,' every one has notice of whatever incapacity the constitution has imposed on the body of shareholders. § 181. Accordingly, in one case where the enabling act con- tained the following provision : " the powers of the ^^^^ ^^ ^^^ corporation shall be exercised bv a board of trustees," tody corpo- ** rSitJC ' WD613 a conveyance of real estate belonging to the corpo- heia'in- ration was held invalid because authorized by a '^' ' shareholders' meeting f and in another case, a lease of corpo- rate property, authorized in the same manner, was set aside on the ground that the management having been vested in the board of directors, a shareholders' meeting was incompetent to authorize the lease.* I See § 195. ' Conro v. Port Henry Iron Co., 12 ' Gashwiler v. Willis, 33 Cal. 12. Barb. 27. But in this case the lease 147 § 183.] THE LAW OF PRIVATE -CORPORATIONS. [OHAP. VII. § 182. It is submitted, however, that any general rule which, from these cases, might be deduced as to the incapacity of shareholders to act in a corporate meeting, when the manage- ment is vested in a board of directors, is to be applied most cautiously.* A shareholders' meeting would rarely act except in regard to matters of vital importance to corporate interests ; and there are certainly acts which the corporate constitution may authorize, that are beyond the authority of the board of directors, although the management is vested in the board.* Such acts — even if a shareholders' meeting would not by itself have been sufficient authority for them — if done by the direc- tors, at least require for their validity the shareholders' ratifica- tion.^ And certainly the final authority of all in a corporation, to say whether the business shall be carried on or wound up, rests with the shareholders and not with the directors.^ § 183. Unquestionably all the shareholders, or all the share- holders and creditors, acting unanimously, have more extensive powers than the body corporate acting by a majority, and may validly do acts which would have been invalid had they been done by the body corporate through an ordinary vote. Such acts, however, are rarely acts within the scope of the corporate powers ; and it is only with doubtful propriety that they njay be called acts of the corporation ; for they are rather acts whereby the individuals interested in the corporate enterprise authorize or ratify what it was legally incompetent for the cor- poration as such to do.* had been made to the principal share- vested in the directors, a shareholders' holder for a nominal consideration, and meeting may appoint a committee to was set aside at the suit of creditors on investigate the affairs of the eorpora- whom it was a fraud. It should have - tion and incur the necessary expenses ; been set aside had its execution been for which the corporation will be liable, perfectly regular. See also Union Star Line v. Van Vliet, 43 Mich. 364. Gold Mining Co. v. Rocky Mn. Nat. ^ E. g. Directors have no power to Bk., 2 Col. 565 ; McCuUough v. Moss, increase the capital stock, or leaSe the 5 Den. 567, 575 ; Union Mut. Ins. Co. entire property of the corporation; see V. Keyser, 32 N. H. 313, 315; Dana §§ 226-229. V, Bank of U. S., 5 W. & S. 223, ' See Hancock v. Holbrook, 9 Fed. 245-247 ; Dayton, etc. R. R. Co. v. Rep. 853. Hatch, 1 Disney (Cincinnati Sup'r * See §§ 229, 230. Ct.)) 84. 5 Compare Railroad Co. v. Howard, ' Although the management be 7 Wall, 392. Such acts are ultra 148 PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 184. § 184. To be valid in themselves acts done by the body cor- porate must be done in a corporate meetinsr dulv ^^ * .1 o J Manner m assembled , though any irregularity may be cured which the by the acquiescence of those who would have had rate^shouid the right to complain of it. In considering the *"'' relations between the corporation and outsiders dealing with it in good faith, this general rule requires modification. Great hardship would be worked if an outsider were compelled to see to it at his peril that all the formalities which the corporate body before action or in acting should observe were in fact observed. Accordingly, the non-observance of antecedent for- malities in regard to notifying the meeting will not affect the rights of (Outsiders acting in good faith on the assumption that the corporate action was regular.^ On the other hand it may be said, since ordinarily only acts of great importance are done by the body corporate, outsiders knowing the manner in which vires; and their legal effect is the subject of Part III. of the present chapter. " Einstimmigkeit ist nur erforderlich bei Beschliissen, welche iiber dem Corporationszweck hinaus- gehen ; in BeschlU.ssen dieser Art handelt nicht die Corporation als solche, sondern es liegt in ihnen ein neuer constituirender Act der Corpo- rationsmitglieder. Und auch Ein- stimmigkeit reicht zu Beschliissen dieser Art in dem Falle nicht hin, wo die Corporation nicht lediglich in Pri- ratinteresse iher Mitglieder besteht; sobald das Bffentliche Interesse bei derselben betheiligt ist, is die Gultig- heit auch des Einstimmigkeitbesch- lusses an die Staatsgenehmigung ge- bunden." Windscheid Pandekten, §59. ' As to the manner of holding cor- porate meetings and elections, see §§ 673-576. » See §§ 204, 259, for analogous principles applying to the acts of di- rectors and other corporate olRcers. If the corporate records show that a meeting was duly called on proper notice, and that business was trans- acted at the meeting, it is to be pre- sumed, in the absence of direct contrary evidence, that a quorum was present. Citizens'' Ins. Co. v. Shortwell, 8 Allen, 217. See Sargent v. Webster, 13 Mete. 497; Chouteau Ins. Co. v. Holmes, 68 Mo. 601. At a meeting duly convened, a majority of those present have power to transact busi- ness, though they are a minority of the whole number. Granger v. Grubb, 7 Phila. 350. Still, it has been held that a vote purporting to authorize an agent of the corporation to convey its real es- ■tate, passed at a meeting which had not been notified to the holders of about one-third of the stock, was void ; and gave no validity to a deed exe- cuted pursuant to it ; but the case was actually decided on another point. Stowe V. Wise, 7 Conn. 214. 149 § 185.] THE LAW OF PRIVATE COEPORATIONS. [CHAP. VII. corporations usually act, ought carefully to examine the pro- ceedings of the body corporate when their rights are to be based directly on its action. § 185. Further, if there are in the constitution of a corpora- tion provisions of an imperative natuite relating to req™red by ^^^ action of shareholders, every one will be affected statute. with notice of them, and bound at his peril to see to Consent ' ^ of share- it that they are observed. Thus, when a statute re- quires the assent of two-thirds of the shareholders present in a shareholders' meeting as a condition to a lease of a railroad, a lease executed without such assent is invalid.* In like manner, where under its enabling act a corporation is au- thorized to mortgage its property, having first obtained the written consent of the owners of two-thirds of the capital stock, this writtten consent is a eonditien precedent to the validity of a mortgage executed by the corporation ; and the corporation itself caimot give consent on behalf of stock held by itself, nor can the assenting shareholders be deemed to rep- resent a proportionate amount of the stock held by the corpo- ration.^ Still, in another case,' it was held by the same court cpnstruiug the same statute, that where there is no fraud, the defects in the execution of the consent must, to invalidate it, be so radical that an intention to consent cannot be inferred. In this case the objection was interposed by the holder of a subsequent mortgage, and the court said: "Without consider- ' Peters v. Lincoln and N W. R. the shares on -which the corporation E. Co., 2 McCrary, 275. purported to consent, and which were ^ Vail V. Hamilton, 85 N. Y. 453. needed to jnake up the two-thirds, it Such a mortgage may be set aside at had reissued to an individual by a the suit of a receiver, the corporation transfer absolute in form, though made being insolvent lb. as collateral security. Compare Green- The two last points stated in the point Sugar Co. v. Whitin, 69 N. Y. text -were not necessary to the decisioa 328, 389, infra. Still, it is settled that of this case ; for even if the corpora- a corporation cannot vote on shares tion could validly have consented on held by it. § 136. .behalf of the shares held by it, or if ' Greenpoint Sugar Co. v. Whitin, those shares had been deducted from 69 N. Y. 328. See Paulding v. the total amount of its stock, still there Chrome Steel Co., 94 N. Y. 334. would not have been a representation Compare Lewis v. Jeffries, 86 Pa. St. of two-thirds of the stock ; for some of 340. 150 PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 186. ing the question whether any but stockholders may interpose the objection to the authority exercised in this case, the infer- ence that the general purpose and design of the act was in the interest of stockholders only has some bearing on the questipn presented as to the proper rule of construction to be adopted of the paper produced as the assent of the stockholders."' The consent, of which the validity was before the court, had been signed by the owners of two-thirds of all the stock that had ever been issued ; and, although they were not the holders of two-thirds of the amount of stock specified in the articles of incorporation, they represented, as the court said, " two-thirds of the pecuniary interest and property of the corporation."^ And the consent was held sufficient, notwithstanding other alleged defects, all of which the court considered immaterial under the circumstances of the case.' § 186. Further principles of law are to be taken into con- sideration when it is the function of certain officers (igpuflca- to certify the existence of an assent of shareholders tfon of the . 1111 perform- to a measure. Then it would seem, although the as- anceoffor- sent might be defective or perhaps entirely wanting, "** ' "'^' that the certification of the proper officer would estop the cor- poration from setting up either of these facts to the detriment of an outsider who had acted in good faith relying on the cer- tification.^ ' 69 N. Y. 333. See § 813. This same statute provides that the assent " shall first be filed in the office of the clerk of the county where the mort- gaged property is situated." Under this, as against a subsequent mortgagee with notice of the prior mortgage, an assent given after the execution of the prior mortgage validates it, although not filed in the office of the proper county clerk, such assent being prior in time to the subsequent mortgage. Rochester Savings Bank v. Averell, 96 N. Y. 467. « 69 N. Y. 339. ' Where for the validity of a mort- gage, a statute requires the concur- rence of two-thirds of the shareholders present at a meeting, it is sufficient if all the directors assent at a directors' meeting, they being in fact all the shareholders but one. Thomas v. Citi- zens' Horse R'y Co., 104111. 462. The court said that all the shareholders had assented ; and the corporation had had the proceeds of the mortgage. Compare Miller v. Rutland, etc. R. R. Co., 36 Vt. 452. * See §§ 207, 208 for analogous prin- ciples which estop a corporation from denying the existence of a fact certi- fied to by an agent, on the existence of which the authority of the agent to act depends; also, §§ 329-332. 151 § 188.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. Individual shai-ehold- erB cannot aA for the corpora- tion. § 187. Shareholders separately and individually have no power to act for the corporation ; and acts done by them in such a manner will have no validity as cor- porate acts ;' unless, to be sure, a shareholder acts under some special authority, in which case he does not act as a shareholder. This statement, however, requires modification in this respect; shareholders by their separate and individual action or acquiescence may estop them- selves from questioning the validity of an act done on behalf of a corporation.* Conversely, a person owning all the capital stock of a corporation is not the legal owner of its property, and cannot maintain replevin for it is in his own name.* § 188. Before entering on the discussion of what acts of the various classes of corporate officers are binding on thVacts of the corporation it will be convenient to notice how offi'cers! *^® validity of an act is affected by the circumstance that the person acting on behalf of the corporation as a corporate agent or officer is not in point of strict law the ' Shay V. Tuolumne County Water Co., 6 Cal. 73 ; Ruby v. Abyssinian Society, 15 Me. 306 ; Bartlett v. Kins- ley, 15 Conn. 327 ; Hartford Bank v. Hart, 3 Day (Conn.), 491 ; Hayden v. Middlesex Turnpike Co., 10 Mass. 397, 403 ; Harris v. Muskingum M'f g Co., 4 Blackf. (Ind.) 267. See Canal Bridge v. Gordon, 1 Pick. 296, 303 ; Bidwell V. Pittsburgh, etc. Ry. Co., 1 14 Pa. St. 535. All the shareholders acting individually cannot convey the corporate lands. Wheelock v. Moul- ton, 15 Vt. 519; Isham v. Bennington Iron Co., 19 Vt. 230, 249 ; Baldwin V. Canfield, 26 /Minn. 43. Compare Gordon v. Swan, 43 Cal. 564 ; Cas- tleberry v. State, 62 Ga. 442. So a person who is president, treasurer, and general manager of a corporation and owns all but two shares of its stock, cannot give a mortgage of the prop- erty of the corporation to secure a pre,existiiig debt ; England v. Dear- 152 bom, 141 Mass. 590. Semble contra, Swift V. Smith, 65 Md. 428. So a sale of cc)rporate property made in good faith by the assignee of an insol- vent corporation cannot be set 'aside on account of any fraud committed by a shareholder, with which the assignee was in no way connected. «Trevitt v. Converse, 31 Ohio St. 60. Notice to individual shareholders is not. notice to the corporation. Davis Improved Wrought Iron Wagon Wheel Co. v. Davis, etc. Co., 22 Blatchf. 221. But if the shareholders covenant that the corporation shall do certain acts they will be individually liable, at least in damages, if it do not per- form. Tileston v. Newell, 13 Mass. 406 ; see Wheelock v. Moulton, 15 Vt. 519, 524. ^ Sheldon Hat Blocking Co. v. Eickemeyer Hat Blocking Machine Co., 90 N. Y. 607. See §§ 213-217. » Button V. Hoffman, 61 Wis. 20. PART II.] ACTS ■WITHIN THE CORPORATE POWERS. [§ 189. officer he purports to be^s an of^cer de facto, and not an officer de jure} " An officer d.e facto" says Lord Ellenborough, " is one who has the reputation of being the officer he assumes to be, and yet is not a good officer in point of law."^ It is consistent with this definition, and has been so held, that by color of election a person, though clearly ineligible, may be such an officer.' Moreover, " persons acting publicly as officers of the corporation are presumed to be rightly in office. ... If officers of the corporation openly exercise a power which presupposes a dele- gated authority for the purpose, and other corporate acts show that the corporation must have contemplated the legal existence of such authority, the acts of such officers will be deemed right- ful, and the delegated authority will be presumed. If a person acts notoriously as cashier of a bank, and is recognized by the directors or by the corporation as an existing officer, a regular appointment will be presumed ; and his acts, as cashier, wiU bind the corporation, although no written proof is or can be adduced for his appointment."* Mere general reputation, however, is not evidence as against the corporation, to prove that certain persons were its officers (directors), the ordinary rules of evidence being applicable.' § 189. The general rule regarding the legal effect of the acts of de facto officers is stated in Angell and Ames on principles Corporations, as follows : " The act of an officer de °^^^^^^f facto is good, wherever it concerns a third person, .validity of who had a previous right to the act, or has paid a de facto valuable consideration for it ; and this, whether the °®<=^"' act concerns the preservation of the corporation or not."* • In regard to setting aside the ap- Liitw., 508, 519. See, also, O'Brian pointment or election of de facto offi- v. Knivan, Cro. Jac. 552. cers, see§§ 577-581. * Story, J., in Bank of U. S. v. ' King V. Bedford Level, 6 East, Dandridge, 12 Wheat. 64, 70. In ac- 356, 868 ; see Parker v. Kett, 1 L'd cord with his remarks are Hall v. Raymond, 658, 660. This definition Carey, 5 Ga. 239 ; Despatch Line v. is followed in Mechanics' Nat. Bank Bellany M'f'g Co., 12 N. H. 205. V. Burnett M'f g Co., 32 N. J. Eq. " Litchfield Iron Co. v. Bennett, 7 236. Compare Norton v. Shelby Cow. 234. County, 118 U. S. 425. ' § 287. See Riddle v. Bedford ' Knight u. Corporation de Wells County, 7 S. & R. 386, 392; Greenfe 153 § 190.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. It is submitted that this statement of the rule does not give sufficient prominence to the principle of estoppel on which the rule depends ; a principle which, in its application to the re- sponsibility of corporations for the acts oide facto officers, may be stated thus : If a body of men acting as a corporation permit certain persons to act openly as corporate officers — or if it is permitted by the directors, assuming them to have had the power to appoint the officer in question— ^he corporation will not, to the detriment of persons who in good faith have acted on the assumption that the persons acting as officers were the officers they assumed to be, be permitted to impeach the validity of their acts and contracts on the ground that such persons were not legally corporate officers;' and, on the other hand, persons who contract with de facto officers as officers of the corporation will not, when sued by the corporation on the contract, be allowed to defend on the ground that such officers were not legally the representatives of the corporation.^ § 190. Both branches of the foregoing proposition rest on principles of estoppel ; and with the limits of the tionf*' estoppel the scope of their application is determined. Consequently, to an action for calls, a shareholder may plead that the directors making the calls were not legally V. Sprague M'f'g Co.,' 5!! Conn. 330. cers hold over after the expiration of Of course, an outsider, having no their terms of office. The acts of such standing in court to do so, cannot im- officers bind the corporation as to out- peach the validity of the acts of a de siders acting in good faith.* Thoring- facto officer. See Simpson v. Gar- ton v. Gould, 59 Ala. 461 ; St. Louis land, 76 Me. 203. . Domicile Ass'n v. Augustin, 2 Mo. » Baird u. Bank of Washington, 11 App. 123. Milliken v. Steiner, 56 S. & R. 411 ; Heath v. Silverthorn Ga. 251. So persons dealing with an Lead Mining Co., 39 Wis. 147 ; Me- insurance agent may assume the con- chanics' Nat. Bk. v. Burnet M'f'g tinuanee of his authority until in some Co., 32 N. J. Eq. 236 ; Hackensaek way informed of its revocation. In- Water Co. v. De Kay, 36 N. J. Eq. surance Co. v. McCain, 96 U. S. 84. 548 ; San Jos§ Savings Bank v. Sierra See also cases cited in the preceding Lumber Co., 63 Cal. 179. In re and following notes. County Life Assurance Co., L. B. 5 ' Delaware, etc. Canal Co. u. Penn- Ch. 288 ; see Stratton v. Lyons, 53 sylvania Coal Co., 21 Pa. St. 131 ; Vt. 130 ; Newton M'f'g Co. v. White, Cooper u. Curtis, 30 Mc. 488 ; Imbo- 42 Ga. 148. den v. Etowah, etc. M'g Co., 70 Ga. A familiar application of this rule is 86. See Simpson u. Garland, 76 Me. to the case where legally elected offi- 203 ; Abbott v. Chase, 75 Me. 83. 154 PART II.] ACTS WITHIN THE CORPOEATB POWERS. [§ 192. elected ;> and a forfeiture of shares declared by illegally chosen directors may be set aside.'' It is also held that the principle on which the validity of the acts oide facto officers is sustained against the corporation does not apply where all the persons affected have notice that the officers assuming to act were not legally chosen.' § 191. There are certain rules of general application regard- ing the respon*sibility of corporations for the act of gg^g^g^j their agents, which it will be well to consider before rules regu- discussing in detail the authority of the different respmisi-^ classes of corporate agents. corpora- § 192. The acts of directors and other corporate t'oosfor ' . -,-,-, the acts of agents are valid as to the corporation and all persons their interested in the corporate enterprise, when bhe direc- °'^^" ^" tors or other agents act in pursuance of powers originally con- ferred on them by the charter, or enabling statute and articles of association ; or conferred on them through an exercise of power vested in the body corporate or — in the case of agents other than the board of directors — in the board of directors. And where a competent authority is expressly conferred on an agent for a certain purpose, he will have incidentally autjiority ' People's Mutual Ins. Co. v. West- cott, 14 Gray, 440; Howbeach Coal Co. V. Teague, 5 H. & N. 151. Quaere, supposing the only shareholders dis- puting the call had taken part -without objection in the election of the direc- tors, and voted for them. It has been held, where directors ■were elected at a meeting of share- holders not called by the persons named in the certificate of incorpora- tion, that a subscriber when sued on his subscription cannot plead that the dn-ectors were not legal officers. The statute in this respect being but direc- tory, the validity of the directors' acts could not thus be questioned collate- rally. Chamberlain v. Painesville, etc. R. R. Co., 15 Ohio St. 225. See §540. ' Garden Gully Mining Co. v. Me- Lister, L. R. 1 App. Gas. 39. » State 0. Curtis, 9 Nev. 325 ; On- Water Ditch Co. v. Reno Water Co., 17 Nev. 166. It has also been held that, though the acts of a president de facto would be valid "for ordinary purposes," yet when a suit by which he was eventu- ally ousted was pending to try his title to the office, he could not make a valid assignment of securities belonging to the corporation, with a view to making preferences between creditors. Wal- ker V. Flemming, 70 N. C. 483. Quaere, would the making of such an assignment have been in the power of a president de jure f See §§ 236 et seq. 155 193.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. to do whatever acts are necessary and proper to carry out the purpose of his appointment.' § 193. If directors or other corporate agents do an act which is not beyond the scope of the corporate powers, the question whether the act is binding on the corpora- tion and all persons interested in the corporate enter- prise, may be usually solved by an application of the ordinary rules of agency. If the act was within the ordinary scope of the agent's authority, and the other party acted in good faith, having no notice that the agent had in fact no authority to do the act in ques- tion, the corporation will be bound by the act, unless the powers of the agent are contained in some instrument {e.g., the charter), with knowledge of the contents of which the other party was affected; for a person dealing with a corporate agent is justified in assuming that the agent has authority to do any act or make any contract within the scope of his employment and incidental thereto.^ As Justice Story said, giving the opinion of the court Rules of the law of agency ap- plicable, Acts within the ordi- nary scope of the agent's au- thority valid. ' A general power conferred on the president of a railroad company to borrow money for it, and purchase rails, locomotives, etc., and in order to do so, to make and deliver obligations, bills of exchange, and contracts of the company, includes authority to give securities to a lender or a vendor. Hatch V. Coddington, 95 U. S. 48. * See, e. g., Fletcher v. New York Life Ins. Co., 14 Fed. Rep. 846; Adams Exp. Co. v. Schlesinger, 75 Pa. St. 246 ; Great Western Ry. Co. v. Miller, 19 Mich. 305. Thus, sta^ tion agents are presumed to have authority to contract for the trans- portation of freight ; and shippers are not affected with notice of limita^ tions on their powers unless the limi- tations are conveyed to the public in a manner authorizing the inference that shippers are apprised of them. Pruitt V. Hannibal and St. Jo. R. R. Co., 62 Mo. 527; Harrison v. Missouri Pacific Ry. Co., 74 Mo. 364 ; Watson 156 ». TMemphis, etc. R. R. Co., 9 Heisk. (Tenn.) 255; Michigan Southern & N. I. R. R. Co. V. Day, 20 111. 375. But compare Wood w. C. M. and St. P. Ry. Co., 59 Iowa, 196; Burroughs V. Norwich, etc. R. R. Co., 100 Mass. 26 ; Missouri Pac. Ry. Co. v. Stults, 31 Kan. 752; Wood v. C.,M. & St. P. Ry. Co., 59 Iowa, 196. Passengers may assume that baggage-masters have authority to make all ordinary contracts and arrangements connected with the transportation of baggage. Isaacson V. N. Y. C. & H. R. -&. R. Co., 94 N. Y. 278. So general or division super- intendents, or general agents of a rail- road company may be presumed to have authority to employ a physician to at- tend an employ^ injured in the service of the company. Atlantic and Pac. R. R. Co. V. Reisner, 18 Kans. 458 ; Pa- cific R. R. Co. V. Thomas, 19 Kans. 256. Compare Louisville E. & St. L, Ry. Co. V. McVay, 98 Ind. 391 ; Union Pacific Ry. Co. v. Beatty, 35 Kan. 265. PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 194. in Minor v. Mechanics' Bank,* " The officers of the bank are held out to the public as having authority to act, according to the general usage, practice, and course of their business ; and their acts within the scope of such usage, practice and course of business, would, in general, bind the bank in favor of third per- sons possessing no other knowledge."* Further, from the circumstance that a corporate agent or officer for a space of time has performed certain acts on behalf of the corporation, with its acquiescence or with the acqui- escence of his superior officers, who themselves have authority to do the acts in question, persons dealing with him will be protected in acting on the honest assumption that those acts and acts of a like nature done for a similar purpose are within the scope of his authority.' § 194. In the present connection it is of great importance to determine what limitations on the authority of cor- „ porate agents will protect a corporation from responsi- limitations bility for their unauthorized acts. Limitations having authority But a station agent or conductor has no such authority, §201. See also Insur- ance Co. V. McCain, 96 U. S. 84, and cases in the following notes. ' 1 Pet., 46, 70. ' Thus, where a person pays a debt over the bank-counter to an officer who was paying and receiving teller of the bank, without knowledge that he is not authorized to receive the money, the bank is bound by the payment. East River National Bank v. Gove, 57 N. Y. 597. See Hotchkiss v. Artisans' Bank, 2 Keyes, 664. So an agent for an insurance company, authorized to take and approve risks and to insure, is authorized by general usage to allow credit for the premium. Its allowance does not impair the validity of the pre- liminary contract to insure. Insur- ance Co. V. Colt, 20 Wall. 660. And a corporation may be held on promis- sory notes issued by its treasurer in accordance with usage. In re Great Western Telegraph Co., 6 Biss. 368. Compare, as to treasurer's authority, Atkinson v. St. Croix M'f 'g Co., 24 Me. 171 ; Stark Banku. U. S. Pottery Co., 34 Vt. 144. ' Mining Co, v. Anglo- Calif ornian Bank, 104 U. S. 192; Creswell v. Lana,han, 101 U. S. 347; Merchants' Bank v. State Bank, 10 Wall. 604 ; Beers v. Phoenix Glass Co., 14 Barb. 356; Phillips u. Campbell, 43 N. Y. 271 ; Talladega Insurance Co. v. Pea- cock, 67 Ala. 263; Lester v. Webb, 1 Allen, 34 ; see Allen u. Citizens' Steam Navigation Company, 22 Cal. 28; Lee v. Pittsburgh Coal, etc. Co., 56 How. Pr. (N. Y.) 373; S. C, aff'd 75 N. Y. 601 ; Woman's Chris- tian Temperance Union v. Taylor, 8 Col. 75; and generally the principles of estoppel apply to corporations. Bank I). Flour Co., 41 O. St. 552; New York & N. E. R. R. Co. v. New York, etc. R. R. Co., 52 Conn. 274, 282. Compare Elliott Bank v. Western, etc. R. R., 2 Lea (Tenn.), 676. 157 § 195.J THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. Class I. of corpo- this effect mav be divided into three classes : first, rate agents. .,■,■,-, ^ ■, ■ ■, those With knowledge of which persons transacting business with corporate agents are affected as a matter of law ; secondly, those actually brought to the knowledge of such persons ; and, thirdly, those a reasonable man would infer from the character of the agent's employment. § 195. It is undisputed that persons dealing with a corpora- tion are charged with notice of the limitations on the authority of its agents contained in its charter or enabling act and articles of association.' And a person dealing with a domestic corporation is also charged with knowledge, of the general law regulating corporations, statutory as well as unwritten.* Further, where a certain class of corporations, for instance banks, have established, recognized, and well-known usages, all persons dealing with their agents will be affected with notice of these usages, and the contracts of such corpora- tions will be construed with reference to them.' ' Pearcet). Madison, etc. R. R. Co., 21 How. 441, 448; Davis v. Old Colony R. R. Co., 131 Mass. 258; Beatty v. Marine Ins. Co., 2 Johns. (N. Y.) 109; Dabney v. Stevens, 2 Sweeney, 415, aff'd 46 N. Y. 681 ; Adriance v. Roome, 52 Barb. 399 ; Silliraan v. Fredericksburg, etc. R. Co., 27 Gratt. (Va.,) 119; Merritt v. Lambert, 1 Hoffman's Ch. (N. Y.) 165; Root V. Wallace, 4 McLean, 8; Salem Bank v. Gloucester Bank, 17 Mass. 1, 29 ; see Zabriskie v. Cleve- land, etc. R. R. Co., 23 How. 381, 398. The English law is similar in this respect. In re County Life Assurance Co., L. R. 5 Ch. 288, 293; Royal British Bank v. Turquand, 6 El. & Bl. 327 ; Ernest v. NichoUs, 6 H. L. C. 401, 419; Fountaine v. Carmarthen Ry. Co., L. R. 5 Eq. 316, 322. ' A party dealing with the agents of a foreign corporation must take notice of every limitation in its charter ; but is not affected with notice of statutes of 168 a general nature enacted by the foreign state, though they tend to abridge the corporate powers. Hoyt ii. Thomp- son's Exr., 19 K. Y. 207; see Bank of Chillicothe v. Dodge, 8 Barb. 233. But see City Fire Ins. Co. v. Carrugi, 41 Ga. 660. A person dealing with the directors of a foreign (English) corporation is affected with notice of the limitations on their authority contained in the articles of association. Davis v. Flag- staff Silver Mining Co., 2 Utah, 74; compare Flagstafl' Silver Mining Co. II. Patrick, ib. 304.. ' Renner v. Bank of Columbia, 9 Wheat. 581 ; Lincoln, etc. Bank v. Page, 9 Mass. 155 ; Smith v. Whiting, 12 Mass. 6. See Blanchard v. Hilliard, 11 Mass. 85; Weld v. Gorham, 10 Mass. 366; Jones v. Fales, 4 Mass. 245 ; Whitwell v. Johnson, 17 Mass. 452 ; City Bank v. Cutter, 3 Pick. 414 ; Haddock v. Citizens' Nat. Bank, 53 Iowa, 542. Compare Jackson Ins. Co. V. Cross, 9 Heisk. (Tenn.) 283. PART 11.] ACTS WITHIN THE CORPORATE POWERS. [§ 197. § 196. In regard to by-laws, it is impossible to state any rule of universal or even general applicability ; for whether a person dealing with a corporation is affected with ^^^1^^°^ notice of its by-laws depends greatly on the position they fill in the scheme of organization and incorporation of the company prescribed by its enabling act. It has perhaps been held that all persons dealing with corporate agents are charged with notice of the limitations on their authority contained in the by-laws.' But this proposition, thus broadly stated, is not generally accepted as law. Indeed, the weight of authority is in favor of the general rule that outsiders are not charged with- knowledge of the by-laws of a corporation.^ An examination of the ratio decidendi of a few cases may point to some rule on this important point. Smith v. Smith' holds that outsiders are not affected by the by-laws of a corporation, because "these are private, and only accessible to the officers of the company." So in Samuel v. Holladay* it was held that a by-law made by a board of directors for their own government, providing how special .meetings of the board should be called, could not affect contracts made with third persons having no actual notice of the by-law ; Justice Miller saying that the . effect of such a by-law on outsiders differed from the effect of " by-laws made by the stockholders at the annual or stated meeting, under au- thority and direction of a provision of the charter."" § 197. The principle underlying these decisions seems to be that a stranger should not be charged with knowledge of by- ' Adriance v. Roome, 52 Barb. 399, ing notes. See also Kingsly v. New 411; Dabney v. Stevens, 2 Sweeny England Ins. Co., 8 Gush. 393, 403; (N. Y.) 415; De Bost v. Albert Mechanics', etc. Bank v. Smith, 19 Palmer Co., 1 How. Pr. N. S. (N. Johns. 115. In re Asiatic Banking Y.) 601. In these cases, however, Corp., Royal Bank of India's Case, the decision seems to have turned L. R. 4 Ch. 252; Anglo-California rather on the fact that the act in Bank v. Grangers' Bank, 63 Cal. 359 ; question was beyond the scope of the Gordon v. Mnchler, 34 La. Ann. 604. authority of the officers doing it, Last case holding depositor in bank not coupled with the absence of circum- bound by 'by-law. stances from which authority might ' 62 111., 493, 497. reasonably have been inferred. * 1 Woolw. 400, 408 ; S. C, Mac- « Fay V. Noble, 12 Cush. 1 ; Ten Cahon, 214. Broek v. Boiler Compound Co., 20 ' See Cummingsw. Webster, 43 Mbj Mo. App. 19; and cases in the follow- 192. 169 § 198.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. laws because of the difficulty he would have in acquainting himself with them, and because the authority of the corpora- tion to make by-laws was not intended to affect the rights of outsiders.! But suppose the statutes regulating the organiza- tion of the company require the by-laws to be passed at the first meeting of the subscribers or shareholders, and, together with the articles of association, to be filed with some public official like the secretary of state or a county clerk.* Under such circumstances, there is nothing private about the by-laws. Any stranger may examine them. Moreover, by requiring the by-laws to be filed with the articles of association, the legisla- ture indicates its intention that they shall be open to the in- spection of all ; and every reason for holding outsiders charged with knowledge of the articles of association is a reason for holding th^m charged with knowledge of by-laws filed with the articles. Accordingly, it would seem reasonable that per- sons dealing with the officers of a corporation should be charged with notice of by-laws which, in pursuance of the enabling act, are filed in a public place for public inspection. Finally, whether outsiders are charged with notice of the by-laws or not, if a course of action unauthorized with refer- ence to some by-law is acquiesced in by the corporation, the by-law will not affect the rights of an outsider acting, in good faith.* § 198. The next class of restrictions on the authority of cor- porate agents which are effectual in protecting the corporation from the consequences of an agent's ex- ceeding his authority, are those which are brought to the actual knowledge of the party dealing with the corporate agent before the act is done wherein it is alleged that the agent exceeded his authority. An express limitation on the authority of a corpo- rate agent brought to the actual notice of any person dealing with him will, in respect of the matter to which the limitation ' See Mechanics', etc. Bk. v. Smith, Co., 138 Mass. 398 ; Donovan v. Hal- 19 Johns. 115, 124. sey Fire Engine Co.', 58 Mich. 38; " As, e. g., in the New York Busi- compare Knight v. Lang, 4 E. D. ness Companies Act, ch. 611, laws of Smith (N. Y.), 381; Jackson v. 1875. ' Campbell, 5 Wend. 572. ' Phillips V. Campbell, 43 N. Y. 271 ; Emery v. Boston Marine Ins. 160 PAKT II.] ACTS WITHIN THE COEPOKATE POWERS. [§ 200. refers, protect the corporation from any liabiHty arising ex con- tractu from its agent's unauthorized acts.* The efficacy for the protection of the corporation of this class of limitations depends on the actual knowledge of the person contracting with the corporate agent •? and the burden is on the corporation to prove knowledge on the part of such person, unless the circumstances are such that his knowledge may reasonably be presumed.* Any special or private instructions to the corporate agent, un- communieated to the person dealing with him, will not affect the rights of such person against the corporation.^ § 199. It may be added here, that when reasonable regula- tions have been competently made by the proper corporate authority with special reference to the dealings of outsiders with the corporation through its agents, all persons having knowledge of the regulations will be bound by them in con- tracting and dealing with the corporation. Thus, where in making a deposit in a savings bank, the depositor receives a pass-book containing a printed rule that no depositor shall be paid without producing the pass-book, and that payments made to the bearer of the pass-book shall be deemed good and valid payments to the depositor, a payment made in accordance with the rule binds the depositor, although his signature to a draft or order may have been forged ; providing the officers of the bank are guilty of no negligence." § 200. The third class of effective restrictions arise from the nature of the agent's employment as indicating the ^^^^^ ^^^ scope of his authority. If an act is beyond the ordi- 1 Marvin i;. Universal Life Ins. Co., hattan Co. v. Lydig, 4 Johns. 377; 85 N. Y. 278. Kimball v. Norton, 69 N. H. 1. 2 Insurance Co. v. McCain, 96 U. S. Likewise may the depositors rely on g4_ the by-laws in such case ; and when a ' See § 193, and compare §§ 358, savings bank pays money to the wrong 3g9_ person, and, in so doing, acts in con- * Insurance Co. v. McCain, supra ; travention of its by-laws, it will be Fay V. Noble, 12 Cush. 1. liable. People's Savings Bk. v. Cupps, « Schoenwald B. Metropolitan Sav- 91 Pa. St. 315. In this case the forged ings Bk., 57 N. Y. 418; Appleby u. " order was not witnessed as required Erie County Savings Bk., 62 N. Y. by the by-laws. Compare State v. 12; Sullivan u.Lewiston Institution of Atherton, 40 Mo. 209 ; Morris Canal, Savings, 56 Me. 507. Compare Man- etc. Co. u.'Van Vbrst, 21 N. J. L. 100. 11 161 § 201.J THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. narj scope of the agent's employment and authority, and was not in fact authorized by the corporation, nor by superior officers who themselves have authority to do or authorize it, the corporation will not be bound ; for the power to bind the corporation may be presumed to exist in its agents and officers only in regard to acts within the scope of its ordinary business and their ordinary duties.' And when a corporate agent, with- out actual authority, exceeds the powers which an outsider from the agent's employment may reasonably suppose him to possess, the corporation is not estopped from repudiating the unauthor- ized act.^ § 201. The following are instances of the last class of re- strictions : A general insurance agent will not bind his com- pany by accepting articles of personal property in satisfaction of a premium payable in money .^ Station agents and conduc- tors of a railroad company have no authority, by virtue of their positions, to employ a physician at the expense of the company for a brakeman injured by its cars.* Nor has a ticket agent at a way station authority to modify the terms of a through ticket." If or is a railroad company liable for advances made by a commission merchant on the faith of a bill of lading fraudulently signed by one of its station agents, when the goods described in the bill had not been received at the station for transportation ; for every one must be held to know that a station agent has no power to give bills of lading for goods not received by him, and must ascertain whether the goods'have in fact been shipped.* Proof that a person was the general agent of a corporation in charge of its business at a certain place, shows no authority in him to execute a bill, or note on behalf ' First Nat. Bk. v. Ocean Nat. 98 Ind. 3^8. But a division superin- Bk., 60 N. Y. 278. tendent has. Ante, §193, note. « Fawcett o. New Haven Organ » McClure v. Philadelphia, etc. R. Co., 47 Conn. 224. R. Co., 34 Md. 532. » Hoffman v. Hancock Mut. Life « Balto. and Ohio R. R. Co. v. Wil- Ins. Co., 92 U. S. 161. Compare kens, 44 Md. 11. But in this case the Hackney v. Allegheny County Mut. station agent was the merchant's own Ins. Co., 4 Pa. St. 185. correspondent, and the goods purported ■• Tucker v. St. Louis, K. C. and N. to have been shipped by the station Ry. Co,, 54 Mo. 177. But see Terra agent himself. Compare § 198, note. Haute & I. R. R. Co. V. McMurray, 162 PART II.] ACTS' WITHIN THE COEPORATB POWEKS. [§ 202. of the corporation.* A "general agent" has no implied au- thority to transfer the real estate of the corporation f nor has a general superintendent and manager.* A secretary of a mining company has no authority, ex officio, to assign a note belonging to the company ;* nor the secretary of an insurance company to sign a draft on its behalf.* And officers of a bank have no authority to waive service of a petition filed by the attorney- general to forfeit its franchises." § 202. It is of importance to bear in mind that the authority of an officer, as indicated by his office, does not de- Authority pend so much on his title or the theoretical nature of °J *^®5' ^ _ ... depends ou his office, as on the duties>he is in the habit of per- Ws actual forming.'^ Accordingly, the general managing offi- rather than cer of a corporation, be he styled "president," "su- name^ofWs perintendent," or "agent," from the circumstance °^'^^- that he has general charge of the business, will possess exten- sive powers that might not be possessed by an officer of another company holding the same title.* Thus, where compromises of debts are matters of common occurrence with a certain bank, a court will presume, in the absence of affirmative proof to the contrary, that the cashier and the president, who are its active managers, have power together to compro- mise a claim.* So the officers managing the affairs of a corpo- ration have authority, without a formal vote of the board of directors, to employ counsel.'" And it has been held that a 1 Atkinson v. St. Croix M'f g Co., v. Noble, 12 Cush. 1 ; Richmond En- 24 Me. 171; New York Iron Mine u. quirer Co. h. Robinson, 24 Gratt. (Va.) First Nat. Bk., 39 Mich. 644; see 548. As to a treasurer's authority, Benedict v. Lansing, 5 l)enio, 283. § 193, note. ' Stow V. Wyse, 7 Conn. 214. ^ State v. Citizens' Savings Bk., 31 ' Standifer v. Swann, ^ Ala. 88. La. Ann. 836. * Blood V. Marcuse, 38 Cal. 590. ' Stokes u. New Jersey Pottery Co., Authority in a secretary to renew notes 46 N. J. L. 237. does not impliedly authorize him in ' See Spangler v. Butterfield, 6 renewing a note made by two persons Col. 356, 363. to release one of them. Moshannon ' Chemical Nat. Bk. v. Kohner, 8S Land Co. v. Sloan, 109 Pa. St. 532. N. Y. 189. ' First Nat. Bk. v. Hogan, 47 Mo. '° Western Bank v. Gilstrap, 45 Mo. 472. Nor has a secretary authority to 419; Southgate v. Atlantic and Pac. sign a due-bill. Gregory v. Lamb, 16 R. R. Co., 61 Mo. 89 ; Frost v. Po- Neb. 205. Compare, generally, Fay mestic Sewing Machine Co., 133 Mass. 163 § 203.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. general managing agent, in whose charge were placed the affairs of a corporation, might; without authority from the directors, assign choses in action belonging to the corporation in payment of its debt.* A mining superintendent, however, is held to have no implied authority to borrow money ;* nor has the treasurer of a savings bank f though it has been decided to be within the powers of a president of a mill company, who was also its superintendent and general agent, to execute for the company its promissory notes, for money paid by one of its directors to satisfy a debt due from the corporation to a creditor who was threatening suit.* § 203. A corporate agent sometimes makes a contract which / is apparently within his authority, yet which, taken agent's act in Connection either with the existence or non-exist- ^ffectea°by ^ncc of some fact extrinsic to the contract, or with fact'""'^ the intention of the agent, is beyond his authority, and perhaps ultra vires the corporation. If the im- propriety of the contract consists in the unexpressed intention of the corporate representative, and the other contracting party acts in good faith, having no cause to suspect any such improper intention, the contract will be binding on the corporation." As 563. See Holmes v. Board of Trade, directors and at a shareholders' meet- 81 Mo. 137. But subordinate officers ing, the court need not have decided it and agents have not implied authority to have been within the power of the to employ counsel. Maupin v. Vir- president. The powers of directors, ginia Lead M'fg Co., 78 Mo. 24. presidents, and cashiers are particu- ' McKiernan v. Lenzen, 56 Cal. 61. larly discussed below. ^ Union Gold Mining Co. v. Rocky ^ Even though the contract viewed Mt. Nat. Bk., 2 Col. 565 ; compare in connection with the purposes of the Same v. Same, 1 Col. 5S1 ; Consoli- agent was ultra vires the corporation ; dated Gregory Co. v. Raber, 1 Col. thus, if atcontract to guaranty the 511. A railroad superintendent has bonds of another railroad company is power to conduct ordinary business on its face such as a certain railrdad transactions, e. g., accept cord-wood, company has power to make, the fact Sacalaris v. Eureka, etc. R. R. Co., that the guaranty was made for an un- 18 Nev. 155. authorized purpose, e. gr., the aecommo- " Fifth Ward Savings Bank v. First dation of the other road, will not affect Nat. Bank, 48 N. J. L. 513. the right of a bona fide holder of the * Seeley «. San Jos6 Mill Co., 59 bonds without notice, to recover on the Cal. 22. As in this case, the act of guaranty. Madison and Indianapolis the president was ratified both by the R. R. Co. v. Norwich S'v'gs Society, • 164 PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 204, far as concerns the other contracting party, the contract is within the agent's authority; and if the agent intends some- thing further and unauthorized, that intention, if carried out, is a violation of duty towards a principal with which the other contracting party is not connected, for a person dealing in good faith with an agent, who is apparently acting within the scope of his authority, is not responsible for any breach of trust the agent may intend or perpetrate in regard to his own principal. As between the other contracting party and the corporation, the rule applies that where one of two innocent parties must suffer from the unauthorized act of an agent, the loss should fall on him who selected the agent, and whom the agent repre- sents. It is certainly not the business of persons dealing with agents to be on the watch lest the agents wrong their principals. Thus, in a case where the plaintiff delivered certain moneys to the president, who was the general manager of the defendant corporation and had often borrowed money for it before, the court held that, in th-e absence of anything to show bad faith on the part of the plaintiff, the corporation could not defend by showing that the moneys had not been used in the corporate business.^ § 204. The maxim Omnia prcesumuntur rite esse acta applies to acts done on behalf of corporations ; and it can never be presumed that a corporate agent is acting Piesump- wrongfuUy ;* or that an act which might have been favorofthe 24 Ind. 457. See also Farmers and Trustees of Canandaigua Academy v. Mechanics' Bk. v. Butchers and Dro- McKechnie, 90 N. Y. 618 ; Solomon's vers' Bk., 16 N. Y. 125. See §§ Lodge v. MontmoUin, 58 Ga. 547; 284-286. Wood w. Whelen, 93 111. 153; Lovett ' Kraft V. Freeman Printing Ass'n, v. Steam Saw Mill Ass'n, 6 Paige's 87 N. Y. 628; ace. Thompson!). Lam- Ch. 54; Flint v. Clinton Company, bert, 44 Iowa, 239. 12 N. H. 430 ; Evans v. Lee, 11 Nev. '" When the common seal of a cor- 194; Chouquette v. Barada, 28 Mo. poration appears to be affixed to an 491; Mickey u. Stratton, 5 Sawyer, instrument, and the signatures of the 475; Bliss v. Kaweah Co., 65 Cal. proper officers are proved, the courts 502 ; see New England Iron Co. v. are to presume that the officers did not Gilbert, etc. R. R. Co., 91 N. Y. 153. exceed their authority, and the seal Compare Osborne v. Tunis, 25 N. J. itself is prima facie evidence that it L. 633 ; Bank of the United States v. was affixed by proper authority." Dandridge, 12 Wheat. 64, 70; Hil- Angell and Ames on Corp., § 224 ; ' liard v. Gould, 34 N. H. 230, 239 ; 165 § 205.] THE LAW OF PKIVATE CORPORATIONS. [CHAP. VII. Taiidity of a proper act to do on behalf of the corporation, was utl6 £LClJS 01 -1 ■ ■ • 1 corporate done Under circumstances rendering it improper.' age° s. Accordingly, if under circumstances which a party dealing with a corporate agent has no reason to suppose not to exist, the corporate agent has authority to make the contract or do the act in question, the party dealing with him is justified in assurain'g the existence of the circumstances, and, acting in good faith on such assumption, will be protected.' As Justice Swayne said, giving the opinion of the Federal Supreme Court in Merchants' Bank v. State Bank :' " Where a party deals with a corporation in good faith, — the transaction is not ultra vires — and he is unaware of any defect of authority or other irregularity on the part of those acting for the corporation, and there is nothing to excite suspicion of such defect or irregu- larity, the corporation is bound by the contract, although such defect or irregularity in fact exists. If the contract can be valid under any circumstances, an innocent party in such a case has a right to presume their existence and the corporation is estopped to deny them."* § 205. Accordingly, when the agent of a corporation has power to make negotiable paper on its behalf, a party receiving Maas V. Missouri K. and T. R'y Co., v. Rome E. R. Co., 17 Ga. 574 ; Mor- 83 N. Y. 223 ; C. B. & Q. R. Co. o. ris and Essex R. R. Co. v. Sussex R. Lewis, 53 Iowa, 101 ; Atlantic and R. Co., 20 N. J. Eq. 542 ; Oxford P. R. R. Co. V. St. Louis, 66 Mo. Iron Co. v. Spradley, 46 Ala, 98 ; 228; Goodnow i;. Oakley, 68 Iowa, Hart v. Missouri State Ins. Co., 21 25; Morse v. Beale, 68 Iowa, 463. Mo. 91. ' Chatauqua County Bank v. Risley, ' Bank of Batavia v. N. Y. etc. R. 19 N. Y. 869, 381; Yates v. Van De R. Co , 106 N. Y. 195 ; Steamboat Bogert, 56 N. Y. 526 ; Olcott v. Tioga Co. v. McCutcheon, 13 Pa. St. 13 ; R. R. Co., 27 N. Y. 546 ; DeGroff u. Royal British Bk. v. Turquand, 6 El. American Linen Thread Co., 21 N. Y. & Bl. 327; Eastern Counties K'y u. 124 ; Farmers' Loan and Trust Co. v. Hawkes, 5 H. L. C. 331. See Moss Perry, 3 Sandf. Ch. 339; Same v. v. Rossie Lead M'g Co., 5 Hill, 137, Clowes, 3 N. Y. 470 ; Same v. Curtis, and cases in following notes. 7 N. Y. 466 ; New York Firemen Ins. ' 10 Wall., 604, 644. Co. V. Sturges, 2 Cow. 664; Ex parte * See also Gano u. Chicago, etc. Ry. Peru Iron Co., 7 Cow. 540; Blake u. Co., 60 Wis. 12; Schallard m,. Eel HoUey, 14 Ind. 383 ; Dockery v. Mil- River Navigation Co., 70 Cal. 144. ler, 9 Humph. (Tenn.) 731 ; Mitchell 166 PART II.J ACTS WITHIN THE CORPORATE POWERS. [§ 206. Negotiable paper. Money bor- rowed in excess of statutory limit. such paper in good faith may assume that it was issued by the agent for an authorized purpose in the ordinary course of the business of the corporation.* So, if an agent has authority to borrow for his corporation moneys not exceeding a certain amount, the corporation will be liable to a person lending money to the agent in ignorance that the amount limited had already been borrowed.^ § 206. The circumstances, however, the existence of which an outsider is protected in assuming, must be such as ^ ^ he has no ground to suppose not to exist ; they must Hon of un- not be extraordinary and unusual. Thus, an outsider unwar- is not justified in assuming that the cashier of a bank ^^^^^ ' has authority to bind it as an accommodation indorser on his own individual note.' If or is an outsider justified in assuming authority in corporate officers to issue negotiable paper in the name of the corporation, when the issuance of such a paper is altogether foreign to the purposes for which the corporation was organized.* ' Monument Nat. Bk. v. Globe Works, 101 Mass. 57 ; Commercial Bank v. St. Croix M'f g Co., 23 Me. 280 ; l^afayette Bank v. St. Louis Stoneware Co., 2 Mo. App. 299; Madison and Indianapolis R. R. Co. v. Norwich Saving Society, 24 Ind. 457 ; Ridgeway v. Farmers' Bank, 12 S. & R. 256 ; Philadelphia, etc. R. R. Co. V. Lewis, 33 Pa. St. 33 ; Mclntire v. Preston, 1 111. 48 ; Stoney v. Ameri- can Ins. Co. , 1 1 Paige, 635 ; Mechanics' Banking Ass'n v. White Lead Co., 35 N. Y. 505 ; Ex parte Estabrook, 2 Lowell, 547 ; National Bank v. Young, 41 N. J. Eq. 531 ; Credit Co. v. Home Machine Co., 54 Conn. 357. Com- pare McCullough V. Moss, 5 Denio, 567. See §§ 204, 284-286, 329-332. 2 Ossipee M'f g Co. v. Canney, 54 N. H. 295 ; see Gordon, u. Sea Fire Life Assurance Soc'y, 1 H. & N. 599. In Garret v. Burlington Plow Co., 70 Iowa, 697, it was held that money loaned by directors to a corporation in excess of the statutory limit on tlie ca- pacity of the corporation to borrow could be recovered, although the direct- ors knew that the limit was exceeded. ' West St. Louis Savings Bapk v. Shawnee County Bank, 95 U. S. 557. See § 241. It cannot be presumed that directors have authority to sell property of a corporation essential to its business. Rollins v. Clay, 33 Me. 132. * Bacon v. Mississippi Ins. Co., 31 Miss. 116. See § 329. An officer of a corporation has no authority to give its notes to take up the outstanding obligations of shareholders ; and such notes will not bind the corporation, in the hands of a person having knowl- edge of the facts. McLellan v. Detroit File Works, 56 Mich. 579. 167 § 208.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. VII. § 207. If from the mere doing of the act by the corporate agent on behalf of the corporation, the person dealing Certifica- .,,. . .,^ .^.., -^ n ■ tion by With him 18 entitled to infer the existence or circum- ffcS'^o'Jf stances on which the agent's authority depends, then which his tiie case becomes stronger in favor of such person authority ^ • d ^ is condi- when the agent expressly affirms the existence of the circumstances in question. Here the person dealing with him has an express assertion to rely on, and not merely the implication arising from the presumption that the agent is not acting wrongfully. Accordingly if it is within the power of the corporate agent to certify to the existence of any fact, e. g., the circumstances on which his authority to act depends, and he dbes certify to its existence, his certification will bind the corporation as towards persons who have acted thereon in good faith ; and the corporation cannot plead the fraud of its own agent acting within the scope of his authority.* § 208. Further, the general proposition is submitted, that it is within the authority of a corporate agent to certify to the existence of any fact not unusual or extraordinary in itself, nor rendered improbable from special circumstances "known to the person dealing with him, which is peculiarly within his knowl- edge and on which his authority to act in that particular case depends ; provided to act in such cases be within the ordinary scope of the agent's powers. As Judge Davis said, giving the opinion of the New York Court of Appeals in New York and New Haven R. E. Co. v. Schuyler," " Where the principal has clothed his agent with power to do an act upon the existence of some extrinsic fi^ct necessarily 'and peculiarly within the knowledge of thfe agent, and of the existence of which the act of executing the power is itself a representation, a third per- son dealing with such agent in entire good faith pursuant to the apparent power may rely on the representation, and the principal is estopped from denying its truth to his prejudice." And again, as stated by Judge Selden in Griswold v. Haven,* and approvingly cited by Judge Davis in the opinion last re- ' Whiting V. Wellington, 10 Fed. » 34 jj_ y__ 30^ ^^ j^^^ Willis v, R6p. 810. Fry, 13 Phila. 33. ' 25 N. Y., 595, 602. 168 PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 210. , ferred to :* " "When the authority of an agent depends upon some fact outside the terms of his power, and which, from its nature, rests particularly within his knowledge, the principal is bound by the representation of the agent, although false, as to the existence of such fact."^ § 209. If, however, the person contracting with the corpo- rate agent has notice of any intended violation of his duty on the part of the agent, or of the existence of circumstances negativing his authority to act, the corporation will ^ot bind- not be bound; for such a person, far from acting in g°f ""a^oQ good faith, has been privy to a breach of trust. And when the evidently no estoppel can exist in his favor, because knows its he cannot have relied on representations, express or '^^^^^'y- implied, known to him to be untrue. Thus, a corporation is not liable for money borrowed by its directors in its name, when the corporation has not received the consideration, and the lender knew that the money was to be applied to the individual purposes of the officers.' And, since the officers of a corpora- tion have no power to execute its note to secure a debt bearing no relation to the corporate business, due from a third person to the payee of the note, neither the payee nor any other person with knowledge of the circumstances under which the note was insured, can recover on it against the corporation.^ § 210. Just as agents of natural persons, the agents of a cor- poration in contracting or otherwise acting on its Admissions behalf, have incidental authority to make admissions ^1^°^^°^^^ or declarations, which within the scope of the agent's Notice to ordinary employment, or of the authority specially conferred on him for the matter in hand, will bind the corpora- tion or be evidence against it, according to the nature of the admission.* Likewise, notice to directors or other corporate ' 34 N. Y., pp. 68 and 73. Manufactory; 16 Kan. 486 ; Eahm v. " See also Farmers and Mechanics' Same, 16 Kan. 277. Bk. V. Butchers and Drovers' Bk., 16 ^ Xenia Bank v. Stewart, 114 U. S. N. Y. 125 142. 224; Northrup v. Mississippi Valley ■ > Culver V. Reno Real Estate Co., Ins. Co., 47 Mo. 435 ; Western Boat- 91 Pa'. St. 367. men's Benevolent Ass'n v. Kribben, * Hall V. Auburn Turnpike Co., 27 48 Mo. 37 ; Toll Bridge Co. v. Bets- Cal. 255. See also Ehrgott v. Bridge worth, 30 Conn. 380 ; Morris and 169 § 210.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. VII. agents, or knowledge on their part, regarding matters witbin the scope of their authority or the range of their ordinary occupations, received or possessed While transacting corporate business, will be the knowledge of or notice to the corporation.' But, on the other hand, the admissions or statements of cor- porate agents regarding matters beyond their authority "to act for the corporation,^ or matters in which they are not acting on Essex R. E. Co. v. Green, 15 N. J. Eq. 469 ; Malecek v. Tower Grove, etc. Ry. Co., 57 Mo. 17; Hoag v. Lamont, 60 N. Y. 96; Webb v. Smith, 6 Col. 365 ; Merchants' Des- patch Trans. Co. v. L-feysor, 89 111. 43 ; Huntington, etc. R. R. Co. v. Decker, 82 Pa. St. 119. For instance, decla- rations of a freight agent made in per- formance of his duty are evidence against a railroad company. Lane v. Boston & A. R. R. Co., 112 Mass. 455. Declarations of brakemen, en- gineers, conductors, otc, to be ad- missible against the corporation must be made at the time of the occurrence so as to constitute part of the res gestce. Vicksburg & M. R. R. Co. v. O'Brien, 119 U. S. 99; Michigan Central R. R. Co. V. Coleman, 28 Mich. 440 ; Hannibal & St. Jo. R. R. Co. v. Martin, 11 111. App. 386; Dietrich v. Baltimore, etc. Ry. Co., 58 Md. 347 ; Michigan Central R. R. Co. v. Carrow, 73 III. 348; Pittsburgh C. & St. L. R. R. Co. V. Theobald, 51 Ind. 246. Compare McLeod v. Ginther, 80 Ky. 399; O'Connor v. Chicago, etc. Ry. Co., 27 Minn. 166. The acts of an agent within his powers may estop a corporation as they would an individual principal. Railroad Co. v. Sehutte, 103 U. S. 118; Little Rock & N. R. R. Co. V. Little Rock, etc. R. R. Co., 86 Ark. 663. > Keith V. Globe Ins. Co., 52 111. 518 ; Pont-Chartrain R. R. Co. v. 170 Heirn, 2 La. Ann. 129; Pittsburgh, etc. R. R. Co. V. Ruby, 38 Ind. 294 ; Egerton v. Fulton Nat. Bk., 43 How. Pr. (N. Y.) 216; Ex parte Stewart, 11 Jur. N. S. 25; Lovell v. St. Louis Mutual Life Ins. Co., Ill U. S. 264; New York & N. E. R. R. Co. v. New York, etc. R. R. Co., 52 Conn. 274, 280 ; Cragie !>. Hadley, 99 N. Y. 131 ; Loring v. Brodie, 134 Mass. 453. Notice of the dangerous condition of the mines to the superintendent is notice to the mining company. Quincy Coal Co. V. Hood, 77 111. 68. Knowl- edge of the president of a bank r/3- ceived or possessed while discounting a note on its behalf, is the knowledge of the bank ; and his accidental absence at any particular time is no legal excuse to the bank for its failure to act on such knowledge. Central Nat. Bank v. Levin, 6 Mo. App. 543. Notice to a board of directors is notice to the bank, and no subsequent change of directors can require a new notice. Mechanics' Bk. V. Seton, 1 Pet. 299. If notice is given to a director officially, to the end that it ma,v be communicated to the board, the corporation is affected with notice, although the director does not communicate it to the board. Boyd V. Chesapeake and Ohio Canal Co., 17 Md. 195. Compare Nat. Security Bk. V. Cushman, 121 Mass. 490, and the cases in the following notes. ' Bishop d. Globe Co., 135 Mass. 132 ; Commonwealth v. Reading Sav- PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 210. its behalf are not evidence against it;* nor is a corporation affected with notice to a corporate agent or with his knowledge acquired under such circuYnstancesi' Accordingly, when an officer of a corporation sells it his own property, he does not represent the corporation in the transaction so as to affect it with knowledge which he possesses, but does not communicate, of facts derogatory to his title to the property.' And the fact that the cashier of a bank was a director in another corporation, which was the payee and indorser of a note, will not affect the bank with notice of equities subsisting between the maker and the payee.* Nor will knowledge by one of several corporators of the existence of an incumbrance on property purchased by ings Bank, 137 Mass. 431, 444 ; Tripp V. New Metallic Packing Co., 137 Mass. 499 ; Johnston v. Elizabeth Building Ass'n, 104 Pa. St. 394. That an individual is a director, and a member of the discount board of a bank will not, in the absence of special authority to act as its agent in a ])ar- ticular transaction regarding the re- newal of a note, authorize him to make admissions or statements concerning such transaction, which will be binding on the corporation. East River Bk. V. Hoyt, 41 Barb. 441. The treasurer of a manufacturing company has no authority virtute officii to bind it by written admissions as to the amount due on a disputed claim for salary of the superintendent. Kalamazoo No- velty M'f g Co. V. McAlister, 36 Mich. 327; see Henry. «. Northern Bk., 63 Ala. 527. Nor to confess judgment on behalf of his corporation. Stevens V, Carp River Iron Co., 67 Mich. 417. ' Declarations or statements of in- dividual directors, made when the board is not in session and not accom- panying any official act, are not com- petent evidence against the corpora- tion. Peek V. Detroit Novelty Works, 29 Mich. 313. ^ Bank of United States v. Davis, 2 Hill (N. Y.), 451; Piatt v. Bir- mingham Axle Co., 41 Conn. 255 ; Savannah Bank v. Hartridge, 73 Ga. 223 ; Fairfield Savings Bank v. Chase, 72 Me. 226 ; Shaw v. Clark, 49 Mich. ' 384 ; Farrel Foundry v. Dart, 26 Conn. 376; Mercier v. Canonge, 8 La. Ann. 37 ; United States Ins. Co. v. Shriver, 3 Md). Ch. 381 ; Wells v. American Exp. Co., 44 Wis. 342 ; Winchester V. Baltimore & S. R. R. Co., 4 Md. 231. Compare Hoffman Steam Coal Co. V. Cumberland Coal Co., 16 Md. 456 ; Smith v. South Royalton Bk., 32 Vt. 341 ; Terrell v. Branch Bank, 12 Ala. 502; Whelan«. McCreary, 64 Ala. 319. ' Barnes r. Trenton Gas Light Co., 27 N. J. Eq. 33 ; Peckham v. Hendren, 76 Ind. 47 ; Wickersham v. Chicago Zinc Co., 18 Kan. 481; Davis Im- proved Wrought Iron Wagon Wheel Co. V. Davis, etc. Co., 22 Blatchf. 221. Compare Tarbox v. Gorman, 31 Minn. 60. Compare Miliill'sM'f'g Co. V. Camp, 49 Wis. 130. * First Nat. Bk. v. Loyhed, 28 Minn. 396. See § 641. 171 § 211.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. the corporation, affect his associates when he does not act as their agent in forming the company.' § 211. If an unauthorized act is done on hehalf of a corpora- Katifica *^°"' although the Corporation may not be bound by tion of _ the act as done, yet, if the corporation or that corpo- thorized rate authority which would have been competent ori- ^'^'*" ginally to do the act, knowingly ratifies it or accepts the benefit of it, or if all the persons having a right to object to the act knowingly acquiesce in it, the act will be as binding on the corporation as if it had been originally authorized.' This proposition is but an application of the doctrine of the law of agency, that when a person ratifies the unauthorized act of another who has purported to act on his behalf, the legal effect of the act will be the same as if it had been authorized before it was done. True, in applying this doctrine to corpora- tions, circumstances and the complicated legal relations subsist- ing in respect of corporate enterprises must be taken into con- sideration. ^Nevertheless, the doctrine applies to corporations in its fullest scope,^ and with them, as with natural principals, subsequent ratification is equivalent to antecedent authority.'' The important principle to be borne in mind is this: the ratifi- cation to be binding on the corporation must be the act or acquiescence of some corporate agency which itself would have had the power to do or authorize the unauthorized acts ; for a ratification cannot arise from the action either of the officers 1 Burt V. Batavia Paper M'f'g Co., present chapter. The discussion here 86 111. 66. So, on the other hand, relates only to acts within the scope of when a person is merely in possession the corporate powers. of bank stock as collateral security, ' Kelsey v. National Bank, 69 Pa. does not participate in shareholders' St. 426. meetings, and is not recognized by * First Nat. Bank v. Fricke, 75 Mo. shareholders as a member, he is not 178; Planters' Bank w. Sharp, 12 Miss. such a member of the corporation as 75. Mt. Washington Hotel Co. v. to be bound to have knowledge of Marsh, 63 N. H. 230; Greenleaf v. facts known to the corporation or its Norfolk Southern R. K. Co., 91 N. officers. Baker v. Woolston, 27 Kan. C. 33. 185. The maxim Omnis ratihahitio retro 2 The effect of acquiescence in ultra trahitur et mandatn priori cequipara- vires acts, by persons entitled to ob- tur applies. Fleckner u. Bank of the ject, is discussed in Part III. of the U. S., 8 Wheat. 338, S6S. 172 PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 212. who did the unauthorized acts' or of those who would have had no authority to do them.^ But unquestionably a valid ratifica- tion can take place through the action of superior corporate agents, for instance directors, who could competently have done the act themselves or authorized it to be done.* And the body corporate, in a duly summoned meeting, may ratify any act of the directors which it was competent for the body corporate acting as such to perform.^ , § 212. A formal ratification is not requisite. If there is no express ratification by the action either of the body corporate, or of superior agents having authority, fa°tiflcation whether or not an act has been ratified is a question notnecee- eary, of fact for the jury. And, in general, it may be said, that whether the alleged ratification be that of the body corporate or of superior corporate agents, it may be proved by continued acquiescence on the part of the persons competent to ratify, when knowledge of the facts may be shown, reason- ably inferred, or presumed to have been had by the persons ac- quiescing." Thus, if the president of a manufacturing company, in excess of his authority, executes a mortgage, the mortgage will be binding on the company if the directors who could competently have authorized it knowingly acquiesce for a considerable 1 Tracy v. Guthrie County Agricul- made by the directors may be ratified tural Society, 47 Iowa, 27. by a vote of the body corporate. In re ' Even directors cannot ratify the New Zealand Banking Co., Sewell's act of the president, which they them- Case, L. R. 3 Ch. 131 ; In re British selves had no authority to perform. Provident, etc. Assurance Society, Crum's Appeal, 66 Pa. St. 474. Lane's Case, 1 DeG. J. & S. 504; ' Scott V. Middletown, etc. E. R. see Payson v. Stoever, 2 Dill. 427, Co., 86 N. Y. 200 ; Fleckner v. Bank § 213. of U. S., 8 Wheat. 338, 363; Sher- = Indianapolis Rolling Mill v. St. man v. Pitch, 98 Mass. 59 ; LyndeJ Louis, etc. R. R. Co., 120 U. S. 256. borough Glass Co. v. Massachusetts To constitute a valid ratification, the Glass Co., Ill Mass. 315 ; Eeichwald principal must have had at the time of V. Commercial Hotel Co., 106 111. the ratification full knowledge of the 439. cifcumstances attending the perform- ' For example, if it is within the ance of the unauthorized act. Ben- power of the body corporate to issue ninghoff v. Agricultural Ins. Co., 93 further stock, but not within the power N. Y. 495. See §§ 214, 215, 216. of the directors, an unauthorized issue 173 § 214.] THE LAW OF PRIVATE CORPORATIONS. [cHAP. VII. time.' So, in another case where a master mechanic on a rail- road -withoufc authority employed a physician to attend an in- jured employe, and sent the physician's bill in a letter to the division superintendent, who would have had authority to em- ploy the physician, it was held that a jury might find a ratifica- tion on the part of the superintendent from his neglect to pay any attention to the bill and letter sent him.' § 213. In a similar manner the ratification on the part of the body corporate or shareholders may be proved. Thus, the capital stock of a company had been increased by the directors without authority. At a regular annual meeting, however, the matter was reported to the shareholders, who did not then ob- ject, and the holders of the shares improperly issued voted at the ipeeting as shareholders. These facts, it was held, amounted to a ratification.^ Again, the trustees of a manufacturing cor- poration in good faith conveyed all its property to settle a judg- ment debt which the corporation had no other means of pay- ing. The value of the property conveyed did not exceed the amount of the judgment, and all the shareholders had notice of the conveyance about the time when it was made. The court held, that after the lapse of four years no action would lie either by the corporation or its shareholders to set aside the convey- ance.^ § 214. An implied ratification majj^ also arise if the corpora- tion accepts the benefit of the unauthorized act." But a cor- ' Sherman v. Fitcli, 98 Mass. 59 ; Kan. 256. See also Lewis v. Alber- Lyndeborough Glass Co. v. Massa- marie, etc. R. E. Co., 95 N. C. 179. chusetts Glass Co., Ill Mass. 315; » Payson v. Stoever, 2 Dill. 427; Lester v. Webb, 1 Allen, 34; Wal- Phosphateof Lime Co. v. Green, L. R. worth County Bk. v. Farmers' Loan 7 C. P. 43. Compare Miller v. Rut- and Trust Co., 16 Wis. 629; Uarst v. land, etc. R. R. Co., 36 Vt. 452. Gale, 83 111. 136 ; Chicago Building * Sheldon Hat Blocking Co. v. Society v. Crowell, 65 111. 453 ; Perry Bickmeyer Hat Blocking Machine V. Simpson Waterproof M'f'g Co., Co., 90 N. Y. 607. 37 Conn. 520 ; see Texas and St. L. « Taylor v. Agricultural, etc. Ass'n, R. R. Co. V. Robards, 59 Tex. 545 ; 68 Ala. 229 ; Bezan v. Pike, 23 La. Peterborough R. R. Co. v. Nashua Ann. 788 ; Medomak Bank v. Curtis, and L. R. R. Co., 59 N. H. 385. 24 Me. 36 ; Grape Sugar M'f g Co. v. 2 Pacific E. R. Co. v. Thomas, 19 Small, 40 Md. 395 ; Wood Hydraulic 174 M'f g Co. V. King, 45 Ga. 34. PART II.] ACTS WITHIN THE CORPORATE POWERS. [§ 215. poration will not be held to have ratified an act impliedly by accepting the benefit of it, unless knowledge of the Ratification act was actually possessed by some corporate agent through "who would have had authority to act for the corpo- benefit of ration in the matter,^ or whose function it was to re- S'act"'" port it to the proper authorities ; or unless knowledge Knowledge of the act would have been possessed by some such notice es- agent had there not been neglect of duty on his part, the consequences of which are to be borne by the corporation, rather than by the party from whose performance it has been benefited.^ § 215. Consequently, in order to constitute an implied ratifi- cation on the part of the corporation, arising from acquiescence or from accepting the benefit of an act, it may not be necessary that the circumstances should be such as to warrant a jury in finding actual knowledge on the part of the corporation or cor- porate agents competent to ratify. For the knowledge of one agent may, at least in the absence of proof to the contrary, be imputed to other agents who have authority to do the acts in question, or even to the corporation. Thus, where certain un- authorized loans were made by a person on behalf of a corpora- tion with banking powers, who notified the cashier, it was held, although the cashier himself had no power to ratify the unau- thorized acts, that notice to him was notice to the board of ' Oilman, etc. R. R. Co. v. Kelly, assent of the directors, that is an adop- 77 111. 426 ; Murray v. Nelson JLum- tion and ratification of the president's ber Co., 143 Mass. 250. act ; and the directors using the pur- Thus, where the president of a cor- chased material were bound to inquire poration executed an unauthorized and were presumed to know whether lease of mining property, and the it was paid for or not : it is not essen- corporation accepted the rent, but as tial to the adoption of the acts of an " money for ores sold," not knowing officer that the directors should know of the lease, it was held that there the terms of his contracts. Scott o. was no ratification. Yellow Jacket Middletown, etc. R. R. Co., 86 N. Y. Silver M'g Co. v. Stevenson, 5 Nev. 200. See Blen v. Bear River, etc. 224. See § 212, note. Water jCo., 20 Cal. 602 ; Hazelhurst 2 Where a railroad company re- v. Savannah, etc. R. R. Co., 43 Ga. ceives railroad material bought wifh- 13; Indianapolis Rolling Mill v. St. out authority by the president on its Louis, etc. R. R. Co., 1^0 U. S. 256. credit and for its use^ and the material Compare Benninghoflf" v. Agricultural is used for corporate purposeswith the Ins. Co., 93 N. Y. 495, § 212, note. 175 § 216.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. VII. directors, who had power to ratify ; and accordingly a ratifica- tion was inferred through their neglect to repudiate; the court saying: "It was the duty of the managers at those meetings to inform themselves of the affairs of the company, and to take the same care of its funds and property as a prudent man would take of his own. The cashier was an officer selected and ap- pointed by themselves, in whom they must be supposed to have entire confidence. An important part of his duty was to keep the managers informed of the state and condition of the com- pany's funds, and to communicate to them everything affecting the interests of the company. Without presuming a gross neglect of duty on the part of the managers in meeting and making the inquiries in relation to the funds in ISTew York, and a like neglect of duty on the part of their cashier in giving them information, it cannot be supposed that the managers re- mained ignorant of the loan now in controversy ; or of the entire disposition which had been made of their funds in the defend- ants' bank during the month of June. The plaintiffs themselves cannot call on a court or jury to presume such a neglect on their part."" § 216. Likewise notice to an agent who himself has no au- thority to ratify, may be notice to the corporation : and if within a reasonable time after such actual and implied notices there is no repudiation, an implied ratification from acquiescence may be presumed. Thus, in Gold Mining Co. v. Ifational Bank,^ a person acting as the agent of the company borrowed money on its account. The president accepted the accounts of the agents, thus acquiring actual knowledge of the transaction ; and the court said that the president " was the suitable man to receive the information." Accordingly, the company failing to disavow the loan made to its agent within a reasonable time after its president had received information in the matter, was held to have assented to the acts of its agent as originally done in its name.' ' New Hope, etc. Bridge Co. v. " 96 U. S. 640. Phoenix Bank, 3 N. Y. 166, 164 ; see ' See also Bennett v. Maryland Fire Chicago, etc. Ry. Co. v. James, 24 Ins. Co., 14 Blatohf. 422; Billiard u. Wis. 388; Martin v. Webb, 110 U. Goold, 34 N. H. 230. What directors S. 7. ought by proper diligence to have 176 PART II,] ACTS WITHIN THE CORPORATE POWERS. [§ 219. § 217. Mere lapse of time does not in itself constitute a rati- fication ; though in connection with the circumstances of the case lapse of time may be competent evidence time no of a ratification arising from acquiescence.^ And 1^^^'^^' when the corporation has had the full benefit of the unauthorized acts of its agents, from very slight evidence a ratifi- cation may be inferred/ as may be inferred from slight evidence the ratification of an act plainly beneficial to the corporation, like the acceptance of a grant.' § 218. The rules governing the powers of corporate agents in general to act for their corporations having now been ^„thoritv discussed, as well as the legal effect of their acts as of special between the corporation and persons with whom they corporate contract, it remains to consider more specifically the '^se^ts. authority of certain prominent classes of corporate agents. And first of all as to the authority of the board of directors. § 219. As a usual thing, the entire management of the busi- ness of a corporation is by its constitution vested in the board of directors; so that from the beginning the board the shareholders have little to do with the corporate tors."^^"" management, their main function being to elect the- directors. It may be, however, that according to the original organization of the company, the corporate powers are left to a large extent in the hands of the shareholders, to be exercised by themselves if they see fit. Under such circumstances the share- holders by resolution or by-law. maj' delegate authority to the directors; and may at will revoke it, provided thereby no vested rights are affected. This latter style of organization is infrequent, and usually the powers of the directors emanate directly from the constitution of the corporation. Accordingly, known as to the general course of busi- See also Merchants' Union Barb Wire ness of their corporation, they may be Co. v. Rice, 70 Iowa, 14. presumed to have known in any con- ' See Evans v. Smallcombe, L. R. test between the corporation and those 3 H. L. 249, 253, 260. See also who are justified by the circumstances especially § 269 et seq. in dealing with its officers upon the ' See generally cases in the preced- basis of that course of business. Mar- ing notes ; also §§ 279, 280. tin V. "Webb, 110 U. S. 7; see § 240. ' Bank of U. S. u. Dandridge, 12 Wheat. 64, 70. 12 177 § 221 .J THE LAW or PRIVATE CORPORATIONS. [CHAP. VII. whether or not any given act is within the scope of their au- thority, is, in most instances, to be ascertained by a construction of the charter, or enabling acts and articles of association, in- cluding any statutes that may be applicable. The common phrase is something like this: "the business of the corporation shall be managed by the board of directors ;" or "the powers of the corporation shall be exercised by the board of directors." In consequence, the directors for ordinary purposes have full authority to act for the corporation and rep- resent it in all matters pertinent to the corporate enterprise.' § 220. The first and most general rule as to the extent of the power conferred by " authority to manage the busi- of general ness of the corporation," is that such power extends '""*®' to the doing of any ordinary act conducive to the success or required by the exigencies of the business ; and, since any person vested with authority to act for another must neces- sarily act largely according to an honest discretion, which un- der certain circumstances warrants acts that under dift'erent circumstances would constitute a flagrant breach of trust, so it may be said, that in critical emergencies the discretionary au- thority of directors justifies the doing of many acts which would be unauthorized under ordinary circumstances. § 221. The next general rule regarding the construction of the authority of directors is a negative one. Au- ofSl^n- thority to manage the ajffairs of a corporation does erai limita- not authorize the directors to change the scheme of tion. . =■ the corporate enterprise or the nature of the corpo- rate business ; nor does it authorize them to bring the business to a conclusion either directly, or indirectly through acts which render the further carrying on of it as planned impossible. ' See Hoyt v. Thompson's Ex'r, 19 Marshall, C. J.) ; Tripp v. Swanzey N. Y. 207, 216; Burrill '«. Nahant Paper Co., 13 Pick. 291; Leavitt v. Bank, 2 Mete. (Mass.) 16.3, 166; Oxford, ete. M. Co., 3 Utah, 265. Wood V. Whelen, 93 111. 153 ; Sims When the directors and shareholders V. Street Railroad Co., 37 Ohio St. of a corporation are not identical, it is 556 ; Maynard v. Firemen's Fund incompetent for the directors to bind Ins. Co., 34 Cal. 48 ; Wright v. Oro- the corporation by an agreement with ville M'g Co., Cal. 20 ; Dana v. Bank a certain person that he shall be a di- of U. S., 5 W. & S. 246 ; Bank of U. rector Seymour v. Detroit Rolling S. V. Dandridge, 12 Wheat. 113 (per Mills, 56 Mich. 117. 178 PART II.J ACTS WITHIN THE CORPORATE POWERS. [§ 223. § 222. Thirdly and finally, since the constitution and all au- thority thereby conferred, relate to a specific enter- 1 . J 1 . 1 . /> -I statement pnse and corporate purpose, no authority is conferred of second on directors to bind the corporation in regard to ^mStion matters having no connection with the objects of in- corporation. The three preceding rules outline the law regulating the power of directors to bind by their acts the corporation and its property ; and the cases and instances now to be referred to will be but illustrations of their application, but of their appli- cation as aflfected by rules previously discussed in regard to presumptions and estoppels, and by special provisions in the constitution or by-laws of the corporation. § 223. How is the scope of the first general rule deter- mined, — that directors may do any regular or ordi- g 'ggf nary act within the corporate powers, in the man- thegen- . eral rule. agement of the corporate business? The word " ordinary" here is by no means synonymous with " routine ;" it is in no sense limited to daily clerical or ministerial manage- ment. It has a far more comprehensive meaning ; and a trans- action may still be " ordinary" although of great importance, involving a large amount of money. In construing the terra " ordinary business," which a by-law empowered a quorum composed of less than a majority of directors to transact, Judge Corastock said, giving the opinion of the New York Court of Appeals in Hoyt v. Thompson's Executor:' ^'The ordinary business of the corporation had, I think, no limit short of the varied and extensive afi"airs in which it was authorized by its charter to engage. It could construct and operate a canal, deal in stocks and in trusts, and it could carry on the business of banking in all its departments. If the due execution of these powers did not constitute the ordinary busi- ness of the company, then it seems to me impossible to suggest any definition of the term, and the by-law becomes senseless and unmeaning : and if these express powers of the corporation were embraced in the terms of the by-law, it must necessarily follow that the quorum designated took all the incidental 1 19 N. Y., 206, 217. .179 § 224.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. authority which the whole board would possess in the execution of the same powers. In the operation of banking, which con- stituted one portion of the ordinary business, it might become necessary to borrow money, and the power to do so existed. As debts could be contracted, the incidental power of paying them cannot be doubted. So, the condition of the company's afl'airs might require a negotiation with creditors, and the post- ponement and securing of their demands. To secure a debt, and procure its forbearance in a period of embarrassment, would not by any means be an extraordinary act, in the sense of the by-law, although it might be unusual in the magnitude and importance of the transaction."' § 224. Accordingly, all business relating to the legitimate objects of incorporation, not involving a departure from the original plan, may be transacted by the directors.* They have full power to manage the concerns of the company.' Thus, bank directors have authority to make discounts, and fix the discount rate.^ And with directors rests the power to place unsubscribed stock.* Directors of a railroad company may competently contract to transport freight for a fixed term at a certain rate ;' and it has been held to be within the discre- tionary power of the boards of two connecting roads to make an agreement for the division of earnings proportioned to the distance that each corporation carries the passengers or freight for which the money is paid.'' Again, in a case where the deed ft ' Compromises to avoid and reduce Bank of Kentucky v. Schuylkill Bank, losses come -within the general scope 1 Pars. Sel. Cas. (Penn.) 236; Wright of the powers of a board of directors v. Oroville M'g Co., 40 Cal. 20; com- of a national bank, and are submitted pare Beaty v. Knowler's Lessee, 4 Pet. to their discretion, except in so far as 152 ; Bargate v. Shortridge, 5 H. L. there may be restrictions in the charter Cas. 297. and by-laws. Banks may do in this * Bank of United States v. Dunn, 6 behalf whatever natural persons could Pet. 51 ; Bank Commissioners v. Bank do under like circumstances. First of Buffalo, 6 Paige, 497. Nat. B'k V. Nat. Exchange B'k, 92 * Sims v. Street Railroad, 37 Ohio U. S. 122. See Keyser v. Hitz, 2 St. 556. Mackey (Dist. of Col.), 513. e Railroad Co. v. Furnace Co., 37 « Wood V. Whelen, 93 111. 163. Ohio St. 321. ' Sims V. Street Railroad Co., 37 ' Elkins r. Camden and Atlantic R. Ohio St. 556 ; see Dana u^Bank of R. Co., 36 N. J. Eq. 241. United States, 5 W. & S. 223, 246 ; 180. PART II.] ACTS WITHIN THE COKPORATB POWERS. [§ 225. of settlement of a joint-stock bank gave its directors extensive powers to carry on the business of banking and to act in such manner as might appear to them best calculated to promote the interest of the bank, it was held that they had power to, guar- anty the payment of interest on debentures of another com- pany issued for the purposes of its formation, when that was of importance to the bank.' Directors are the proper officers to institute legal proceedings on. behalf of the corporation, and to that end have unquestioned authority to employ counsel,* and compromise litigation.^ § 225, To carry on the corporate business, directors have power to borrow money for the corporation,^ and in the absence of express restriction on their power in of directors this respect,* may secure the corporate indebtedness ° ''°''''°^- by a pledge of its personal property or a mortgage of its real estate.* Likewise directors may assign any choses in action or ' In re West of England Bank, Ex ^arteBooker,L.R. UCh.D.317. So, where a lease was made of its road by one railroad corporation to another, which lease was executed by the share- holders and provided for a guaranty by the lessee corporation of a ten per cent, annual dividend on the slock of the lessor corporation, it was held that the respective boards of directors had power to modify the terms 6f the lease and reduce the amount guaranteed. People V. Metropolitan Ry. Co., 26 Hun, 82 ; Flagg v. Manhattan Ry. Co., 10 Fed. Rep. 413; S. C, 20 Blatchf. 142. (Quffire as to the propriety of these two decisions, which may yet be reversed on appeal.) See Sheffield Nickel Co. v. Unwin, 36 L. T. N. S. 246 ; S. C, L. R. 2 Q. B. Div. 214. 2 See Pollok v. Shultze, 1 Hun, 320. •' Donohue v. Mariposa Land, etc. Co., 66 Cal. 317. See § 223, note. * Ridgway v. Farmers' Bk. 12 S. & R. 256, and cases in following notes. But a single director has no such power by virtue of being a director. Law- rence V. Gebhard, 41 Barb. 575. ' See Davis v. Flagstaff Silver M'g Co., 2 Utah, 74 ; compare Flagstaff Silver M'g Co. v. Patrick, ib. 304. See also chap. 40 of New York Laws of 1848 for an example of a restriction on the power of trustees (directors) to mortgage the corporate property. Capital not paid up is only sub modo property of the corporation ; the due making of a call being a condition pre- cedent to the absolute proprietary right of the company therein. Conse- quently, a power given to the direc- tors to mortgage the property of a corporation does not authorize them to include in such mortgage future calls, i. e., the unpaid capital of the companj'. Batik of South Australia v. Abrahams, L. R. 6 P. C. 265. 6 Wood V. Whelen, 93 Bl. 153; Burrill a. Nahant Bk.^ 2 Mete. (Mass.) 163; Hendee u. Pinkerton, 14 Allen, 381 ; see Tripp v. Swanzey Paper Co., 13 Pick. 291 ; Hopson v. Aetna Axle, 181 § 226.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. transfer any property of the corporation,* provided the property transferred be not essential to the carrying out of the objects of incorporation.^ And authorities hold that the directors of an insolvent corporation may assign all its property for the pay- ment of its debts, when to make such an assignment is within the powers of the corporation.' Thus, according to a Massa- chusetts case, directors of a corporation suddenly rendered in- solvent by the burning of its .works, have authority to convey to a creditor all the corporate property provisionally, upon con- dition to pay or provide for the payment of the just d'ebts of the corporation to himself; he giving proper security to apply no more than necessary and pay over the remainder to the trea- surer of the corporation for the benefit of other creditors.* § 226. Under the second general rule, that directors cannot change the scheme of the corporate enterprise nor First gene- , . ° ,, , . ^ , . ,, ^ rai limita- bring the busmess to a conclusion, there are lour *'°"" things which directors cannot do. etc. Co., 50 Conn. 597. The execu- tive committee of the board of direc- tors, having been authorized by the board to procure a loan, and possess- ing according to the constitution of the corporation power to transact "any official business, "may execute a mort- age. Taylor v. Agricultural, etc. Ass'n, 68 Ala. 229. Compare, as to authority of the directors of a railroad company to execute a mortgage of its property and franchises, McCurdy's Appeal, 65 Pa. St. 290, which seems to proceed on the assumption that they have such power, at least when the mortgage is not repudiated soon. Directors of a manufacturing company may mortgage practically all its pro- perty to enable it to go on. Hopson v. Aetna Axle, etc. Co., 50 Conn. 597. See also Arms v. Conant, 36 Vt. 745, 748. ' Marvine v. Hymers, 12 N. Y. 223. But power to sell bonds is not in a single director virtute officii. Titus v. Cairo and Fulton R. R. Co., 37 N. J. 182 L. 98. Compare New Haven and Northampton Co. v. Hayden, 107 Mass. 525. ^ See § 229. » Union Bank v. EUicott, 6 G. & J. 363 ; Dana v. Bank of U. S., 5 W. & S. 223, 247; Catlin u. Eagle Bk,, 6 Conn. 233 ; Gibson v. Goldthwaite, 7 Ala. 281. See Merrick u. Bank of the Metropolis, 8 Gill, 59; Sheldon Hat Blocking Co. v. Eickeraeyer Hat Blocking Machine Co., 90 N. Y. 607; Duncomb v. New York, H. and N. R. R. Co., 88 N. Y. 1 ; S. C, 84 N. Y. 190; contra, Bank Commissioners v. Bank of Brest, Harrington's Ch. (Mich.) 106. An assignment made, without the consent of shareholders, by the directors of a bank of all its assets is voidable at the suit of share- holders ; but a creditor cannot object to the directors' lack of power. Epp- right V. Nickerson, 78 Mo. 482. See § 230, note. * Sargent v. Webster, 13 Mete. (Mass.) 497. PART II.] ACTS WITHIN THE CORPORATE POWERS, [§ 227. § 227. First, they cannot change the ' nature or plan of the corporate business, nor, in the absence of special authorization, can they accept from the legislature any substantial alteration or amendment in the corporate constitution.' But the rule de- nying the authority of directors to accept any legislation mate- rially changing the constitution is not to be construed to pre- clude them from accepting the benefit of a statute which effects no changes, but which merely facilitates the exercise of fran- chises already conferred.^ 1 Baker's Appeal, 109 Pa. St. 461 ; Commonwealth v. Cullen, 13 Pa. St. 133 ; Brown v. Fairraount Gold M'g Co., lOPhila. 32; Marlborough M'fg Co. u. Smith, 2 Conn. 579; Hope Mut. Fire Ins. Co. v. Beckmann, 47 Mo. 93, 96 ; Mississippi, etc. K. R. Co. V. Gaster, 24 Ark. 96. See Ven- ner v. Atchison, etc. R. Co;, 28 Fed. Rep. 581. But see, semble contra, Dayton, etc. R. R. Co. v. Hatch, 1 Disney (Cin. Sup. Ct.), 86; Matter of JCxcelsior Fire Ins. Co., 16 Abb. Pr. (N. Y.) 8; Illinois River R. R. Co. V. Zimmer, 20 111. 654 ; Bahet v. Alton, etc. R. R. Co., 13 111. 504, 508. Compare Case of St. Mary's Church, 6 S. & R. 498 ; S. C, 7 S. & R. 517; Railway Co. v. AUerton, 18 Wall. 233, 235. In some of the cases in this note holding it beyond the power of directors to accept an amend- ment, the assent of all the shareholders might have been necessary. See § 532. In the absence of express power in the deed of settlement, it is not com- petent for the directors to amalgamate withianother company carrying on the same business, and assume on behalf of their own corporation the liabilities of the other company. A clause in the deed of settlement authorizing the directors "generally, where these pre- sents are silent, or do not otherwise provide, to act in the direction of the concerns of the society in such man- ner as at their absolute discretion they shall think most conducive to the in- terests of the society" is not an autho- rity for the purpose. In re Era As- surance Society, Ex parte Williams, 30 L. J. Eq. 137. See Blatchford V. Ross, 5 Abb. Pr. N. S. (N. Y.) 434. Directors of a railroad company have no authority to purchase the road of another company. Deaderick v. Wilson, 8 Bax. (Tenn.) 108. ' A statute was passed authorizing a railroad company to take for a pas- 'senger station land belonging to an- other railroad company. The by-laws provided that the directors might pur- chase what real estate they deemed necessary for the railroad, and exercise all powers granted to the company by the charter, for the purpose of locating, constructing, and completing the road, and all other powers necessary and proper to carry out the objects of the corporation : Held that an acceptance of the statute by shareholders was not necessary to authorize directors to take land in pursuance of it. Eastern R. R. Co. V. Boston and Maine R. R. Co., Ill Mass. 125. See Joy «. Jackson, etc. Plank Road Co., 11 Mich. 155, 170. 183 § 229.] THE LAW OF PRIVATB CORPORATIONS. [CHAP. VII. § 228. Secondly, directors have no power to increase or decrease the capital stock of the corporation.* In the leading case on this point, Eailway Company v. Allerton, Justice Bradley said :' " A change so organic and fundamental as that of increasing the capital stock of a corporation beyond the limit fixed by the charter cannot be made by the directors alone, unless expressly authorized thereto. The general power to perform all corporate acts refers to the ordinarj' business transactions of the corporation, and does not extend to a re- construction of the body itself, or to an enlargement of its capital stock."* § 229. Thirdly, directors cannot transfer property of the cor- poration which is essential to the continuance of the corporate business;* nor have they power to give away the corporate funds or deprive the corporation of the means which it pos- sesses to accomplish the purposes of its incorporation." Ac- ' When a corporation has the power to increase or diminish its capital stock, the mode of doing it and the conditions under which it may be done are usually- prescribed by statute. But when the statute is silent the power rests in the body corporate, not in the board of di- rectors. Eidman v. Bowman, 58 111. 444. On the general principle that the powers of a corporation not speci- ally vested in any particular officers remain in the body corporate, see Matter of Wheeler, 2 Abb. Pr. N. S. (N. Y.) 361 ; People v. Twaddel, 18 Hun, 427, 432 ; State v. Merchant, 87 Ohio St. 251. " 18 Wall., 238, 234. ' Gill V. Balis, 72 Mo. 424 ; Finley Shoe and Leather Co. v. Kurtz, 34 Mich. 89 ; Eidman v. Bowman, 58 111. 444 ; Percy v. Millaudon, 3 La. 569. And directors cannot increase the capi- tal stock indirectly, e. g., by agreeing to pay in stock for services and for money loaned, when the corporation has no stock in its treasury. Finley Shoe and Leather Co. v. Kurtz, supra. 184 * Abbot V. American Hard Rubber Co., 33 Barb. 578; Rollins v. Clay,' 33 Me. 132; Balliet v. Brown, 103 Pa. St. 546. Compare Sheldon Hat Blocking Co. v. Eickemeyer Hat Blocking Machine Co., 90 N. Y. 607 ; Reichwald v. Commercial Hotel Co., 106 111. 439; and see § 225. 6 Burke v. Smith, 16 Wall. 390, 895; Bedford R. R. Co. v. Bowser, 48 Pa. St. 29, 87 ; Jones v. Morrison, 31 Minn. 140. See Penobscot, etc. R. R. Co. V. Dunn, 39 Me. 587, 601. But it has been held that directors have power to apply £1500, out of the undivided profits of a manufacturing company, as a gratuity of one week's extra pay to each worker in the factory who had worked with a good character throughout the year. Hampson v. Price's Patent Candle Co., 45 L. J. Eq. 487. The point came up on a motion by a shareholder to restrain the payment. But see Jones v. Mor- rison, 31 Minn. 140. PAKT II.] ACTS WITHIN THE CORPORATE POWERS. [§ 231. cordingly, directors cannot ordinarily lease the whole plant of a corporation ;* nor can the directors of a railroad company lease its road without special authority.^ § 230. Fourthly, if directors have no power to sell corporate property which is essential to the continuance of the business, a fortiori they have no power to wind up the afi'airs of the cor- poration.' § 231. The last of the three general rules above mentioned,^ is that directors have no authority to bind the cor- ggg„„^ poration in matters not relating to the corporate general bufiiness. On the face of it, this rule seems self- evident. All the powers of directors to represent the corpora- tion, whether derived directly from the corporate constitution or conferred by a vote of the body corporate, have their ulti- mate bases in that constitution and in the agreement of the associates embodied in it. Consequently, directors have no power to do any act ultra vires the corporation ;' and, as the corporate constitution and the agreement embodied in it relate only to the corporate enterprise, any acts having no relation to the corporate enterprise must be beyond the authority of directors. As Vice Chancellor Wickens said in Pickering v. • Cass y. Manchester Iron and Steel March v. Eastern R. R. Co., 43 N. Co., 9 Fed. Rep. 640. In this case H. 515. Compare S. C, 40 N. H. the holder of a majority of stock had 648. See Kersey Oil Co. a. Oil protested against the action of the Creek, etc. R. R. Co., I2 Phila. 374. directors. Compare Black v. Delaware and Rari- 2 Stevens W.Davison, 18 Gratt. 819; tan Canal Co., 22 N. J. Eq. 130, 407 Mills V. Central R. R. Co., 41 N. J. et seq., and § 224, note. Eq. 1 ; Board, etc. Tippecanoe County ^ Bank Commissioners v. Bank of V. Lafayette, etc. R. R. Co., 50 Ind. Brest, Harrington's Ch. (Mich.) 106 ; 85, 112; Martin v. Continental Pas- Smith v. Smith, 3 Des. Ch. (S. C.) senger Ry. Co., 14 Phila. (Pa.) 10. 547; Angelland Ames on Corp. § 772. Nor can directors change the termini But it is held that directors may make of a railroad. See Board, etc. Tippe- an assignment of the corporate prop- canoe Count/ w. Lafayette, etc. R. R erty for the equal benefit of all credi- Co. supra. tors, when the corporation is insolvent. When the lease of the railroad of Descombes v. Wood, 91 Mo. 196 ; one company has been made to another Hutchinson «. Green, 91 Mo. 367. See railroad company, and ratified by the § 225. shareholders, the directors have no * § 222. power, as against objecting share- ' § 267. holders, to change its provisions, 185 § 232.] THE LAW OF PBIVATB CORPORATIONS. [CHAP. VII. Stephenson :* " The special powers, given either to the directors or to a majoi'ity by statutes or other constituent documents of the association, however absolute in terms, are always to be construed as subject to a paramount and inherent restriction that they are to be exercised in subjection to the special pur- poses of the bond of association." Accordingly, directors have no power to give the note of the corporation for a debt having no relation to its business, due to the payee of the note ; and the note will be void in the hands of any person having notice of the circumstances under which it was given.^ § 232, On the other hand, if directors acting within the ap- parent scope of their authority, commit or intend a won^to'it' breach of trust, the rights of an innocent person dealing with them will not be affected thereby.' Thus, if directors borrow money for their corporation, having authority to do so, the lender is not bound at his peril to see that the money is not applied to purposes ultra vires the corpo- ration,^ nor embezzled by the directors. And if a person sells to directors for their corporation such property as it is author- ized to buy, he need not ascertain whether it requires his par- ticular property.* In this last case, Eastern Counties Eailway Co. V. Hawkes, Lord St. Leonards said that the English deci- sions' did " not authorize directors to bind their companies by contracts foreign to the purposes for which they were estab- lished, but they do hold companies bound by contracts duly entered into by their directors for purposes which threy have treated as within the objects of their Acts, and which cannot clearly be shown not to fall within them; and they further hold companies to be bound by a continual course of dealing by their directors with third persons in relation to their shares, although that mode of dealing is contrary to the regulations of their deed of management."' 1 L. R. 14 Eq. 322, 340. See also * In re Marseilles Extension Rail- Minor V. Mechanics' Bank, 1 Pet. 46, way and Land Co., 20 W. R. 254. 71- ° Eastern Counties R'y Co. v. " Hall V. Auburn Turnpike Co., 27 Hawkes, 5 H. L. Cas. 331. Cal. 255. See Salem Bk. v. Glouces- « /. e., National Exchange Co. v. ter Bk., 17 Mass. 30. Drew, 2 Macq. 103 ; Bargate v. Short- » See § 203 et seq. ridge, 5 H. L. Cas., 297. '6 H. L. Cas., 381. 186 PART II.] ACTS WITHIN THE CORPORATE POWERS. [^ 233, § 233. As to what portion of their authority directors may delegate to some of their own number or to other officers of the corporation it is difficult to state any o/aftto"" rule of general application more specific than this: itybydirec- directors may not delegate authority which it was intended that the board should exercise. From some cases it might indeed be inferred that it was ordinarily competent for them to delegate authority to perform mere ministerial acts, but not authority to do acts involving discretion.^ Thus, it has been held that the power of directors to lease property of the corpo- ration could not be delegated to an agent.' But this view is not borne out by the authorities.^ Directors may undoubtedly appoint subordinate officers, and -empower them to .do all acts which properly come within the scope of their respective offices.* Such appointments, however, are rather an exercise than a delegation of their powers by direc- tors ; for clearly it was not intended that directors should per- form the duties of subordinate officers. Directors may also regulate the authority of whatever officers they have the power to appoint. Accordingly, they may authorize the president, or president and cashier, or the general agent, to borrow money and draw and indorse negotiable paper in the name of the cor- poration ;° or may authorize a treasurer to assign mortgages belonging to the corporation.' ' Silver Hook Road v. Greene, 12 the cashier. See Pleckner u. Bank of R. I. 164; Farmers' Mutual Ins. Co. the U. S., 8 Wheat. 338, 356. V. Chase, 56 N. H. 341. ' Ridgway ti. Farmers' Bank, 12 S. 2 Gillis V. Bailey, 21 N. H. 149; & R. 266; Spear v. Ladd, 11 Mass. see Tippets v. Walker, 4 Mass. 595. 94 ; Northampton Bank v. Pepoon, ' See Burrill v. Nahant Bank, 2 11 Mass. 288; Fleckneru. Bankof the Mete. (Mass.) 163 ; Hoyt v. Thomp- U. S., 8 Wheat. 338, 356; Preston v. son's Ex'r, 19 N. Y. 207 ; Mercer Missouri, etc. Lead Co., 51 Mo. 43 ; County Ins. Co. v. Stranahan, 104 see Merrick m. Bank of the Metropolis Pa. St. 246. 8 Gill (Md.), 59 ; Bank Commissioners * Kitchen v. Cape Girardeau, etc. v. Bank of Bufialo, 6 Paige, 497 ; R. R. Co., 59 Mo. 514. Unless, to be Manchester and Lawrence R. R. Co. sure, the power of appointment re- v. Fisk, 33 ST. H. 297. mains with the body corporate. Direc- "Commonwealth v. Reading Sav- iors usually receive express authority ings Bank, 137 Mass. 431. to appoint the higher officers as, e. g., 187 § 235.] THE. LAW OE PRIVATE CORPORATIONS. [CHAP. VII. § 234. Powers involving a wide discretion — wider than should Delegation ^^ Vested in any single officer or subordinate agent — of powers may be delegated by directors to a committee of their board to a owD number, especially when the membership of the committee. ^^^^^^ j^ j^^.^^^ j^ -^^^ york it is held that a board of twenty-three directors may delegate to a "quorum" of any five of their number authority to transact all ordinary business.^ Likewise, a board may delegate to a committee of their own number authority to alienate or mortgage real estate of the corporation,* or to transfer its personal property,' The power to do certain acts, however, the board of directors cannot delegate? even to a committee of their own number. They cannot dele- gate authority to allot shares,* to make calls,' to declare dividends,* or to order a sale of shares for the non-payment of assessments.^ § 235. It may be added that the power of agents, appointed by the board of directors, to act for the corporation, ofagents is not terminated by the expiration of the authority expire with ^^ ^^^ directors appointing them.* ' Hoj't V. Thompson's Ex'r, 19 N. Y. 207 ; see § 223. See Leavitt v. Oxford, etc. M. Co., 3 Utah, 265. But it has also been held that the au- thority possessed by a portion of the directors to do " ordinary business," did not authorize them to compromise a large debt due the corporation. Kirk V. Bell, 16 Q. B. 290. ' Burrill v. Nahant Bank, 2 Mete. (Mass.) 163 ; Augusta Bank v. Ham- blet, 35 Me. 491 ; Taylor v. Agricul- tural, etc. Ase'n, 68 Ala. 229; Hoyt V. Thompson's Ex'r., supra. « Mitchell V. Deeds, 49 111. 418; compare Palmer v. Yates, 3 Sandf. (N. y.) 137. * In re Leeds Banking Co., How- ard's Case, 36 L. J. Eq. 42; S. C, L. R., 1 Ch. 561 ; In re County Pala- tine Loan, etc. Co., Cartmell's Case, 43 L. J. Eq. 588 ; compare Crocker V. Crane, 21 Wend. 211. But au- 188 thority to delegate this power to a committee of their own number may be given in the corporate constitution. Harris's Case, L. K. 7 Ch. 587. ' Silver Hook Road v. Greene, 12 R. I. 164; Farmers' Mutual Ins. Co. V. Chase, 56 N. H. 341 (in 'both the cases the delegation was to the treas- urer) ; compare Read v. Memphis Gay- oso Gas Co., 9 Heisk. (Tenn.) 545. ' This power is especially conBded to the discretion of the board, see § 562. ' York and Cumberland R. R. Co. V. Ritchie, 40 Me. 425. ' Anderson v. Langdon, 1 Wheat. 85 ; Northampton Bank v. Pepoon, U Mass. 288, 294; Dedham Bank o. Chickering, 8 Pick. 335 ; Union Bank V. Ridgely, 1 Har. & G. (Md.) 324, 431-2. In regard to the authority of directors to release shareholders from their sub- scriptions see §§549-551, 745, 746, 780. PART II.] ACTS WITHIN THE COKPORATE POWERS. [§ 236. § 236. To lay down any general rule, sufficiently tii** of tbe 1 -• . , \. . 1 1 , . directors definite to be oi practical value, as to the powers of who ap- presidents of corporations is well nigh impossible. ^°'° *™' Virtute officii a president has very little authority to q "^ p°res^ act for his corporation, and can bind it only by such . Penna. Trans'n Co., 83 Pa. St. 160 ; tend beyond the purposes of organiza- Goundie v. Northampton Water Co., tion. See Pickering v. Stephenson, 7 Pa. St. 233 ; Leazure v. Hillegas, 7 L. R. 14 Eq. 322, 340. S. & R. 313 ; Leavitt v. Pell, 27 2 E. g., Parish v. Wheeler, 22 N. Barb. 322; Steam Nav. Co. v. Weed, T. 494. 17 Barb. 378; Germantown Farmers' ' 68 N. y., 62 ; Accord National Mut. Ins. Co. v. Dhein, 43 Wis. 420 ; Bank v. Whitney, 103 U. S. 99; Edwards v. Fairbanks, 27 J.a. Ann. Union Water Co. v. Murphy's Flat 449; Allen v. Freedman's Savings Pluming Co., 22 Cal. 621 ; Hall M'f g Co., 14 Fla. 418 ; Brown'u. Mortgage Co.. II. American, etc. Supply Co., 48 Co., 110 111. 236; Chicago & A. Ry. 226 PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 277.' authority would seem clear. " One who has received from a corporation the full consideration of his engagement to pay money . . . cannot avail himself of the objection that the contract thus fully performed by the corporation was ultra vires, and not within its chartered privileges and powers."" Such a persoti, having himself made the contract and received its bene- fit, is clearly estopped from making any such allegation.'' § 277. The converse of this proposition is also said to be law. If the other contracting party has performed his side converse of of the contract, the corporation cannot plead that its this propo- charter gave it no power to enter into the contract; voivesafai- at least if the corporate property has been benefited '*''^' by the performance. It is submitted that this last proposition involves a fallacy. If the other contracting party, had con- tracted through an agent whose instructions were contained in a written instrument which the corporation knew to contain all the authority which the agent possessed ; and if the contract in question was unauthorized by this instrument, pould any one Co. V. Derkes, 103 Ind. 520 ; Chester Glass Co. V. Dewey, Id Mass. 94 ; Union Nat. Bank v. Hunt, 76 Mo. 439. See Goodin v. Evans, 18 Ohio St. l.'iO; Goodin i<. Cincinnati, etc. Canal Co., ib. 169; Kelly v. People's Transportation Co., 3 Oregon, 189; Shewalter v. Pirner, 55 Mo. 218; Third Avenue Savings Bank u. Di- mock, 24 N. J. Eq. 26 ; Dutchess Cotton Manufactory v. Davis, 14 Johns. 238, 245 ; Reynolds v. Craw- fordsviUe First Nat. B'k, 112 U. S. 405, 413. Contra, Chambers v. Falk- ner, 65 Ala. 449 ; compare Screven Hose Co. V. Philpot, 53 Ga. 625 ; Mut. Benefit Life Ins. Co. u. Davis, 12 N. Y. 569 ; North River Ins. Co. V. Lawrence, 3 Wend. 482 ; Beach v. Fulton Bank, 3 Wend. 573. Regarding contracts forbidden by statute, see §§ 297 et seq. ' Whitney Arms Co. v. Barlow, 63 N'. Y; 70. ^ As long as the corporation has not performed its side of the contract, there might be great hardship in disallowing the plea of ultra vires to the other con- tracting party ; as he might have no assurance that the corporation would perform on its side. See Simpson v. Building Ass'n, 38 Ohio St. 349 ; and compare Railroad Co. v. Telegraph Co., ib. 31. Accordingly, it is held that an ultra vires contract, as long as it remains executory on both sides, cannot be enforced by the corporation, at least if the contract be such that public policy forbids the corporation to make it. Nassau Bank v. Jones, 95 N. Y. 115. The contract was for the purchase by a bank of shares in a railroad corporation. See also Wilkes V. Pacific R. R. Co., p Ala. 180; Day V. Spiral Springs Buggy Co., 57 Mich. 146. 227 § 278.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. maintain that the principal would be bound because the corpora- tion had performed its side of the contract? Yet, in reality, it is in analogy with this to hold the corporation bound because the other contracting party has performed.' § 278. To illustrate, let us imagine that B. is a land-owner, A. his agent, and C. a manufacturer of fertilizers. If inustra- Q_^ knowing that A. has no authority from B. to pur- chase fertilizers, sells a krge amount of them to be applied on B.'s lands, and they are so applied, but without B.'s knowledge, C. has executed the contract on his side, and B.'s lands have had the benefit. Yet it is clear that C. has no valid claim against B. Apply this to the case of a corporation. Let B. be the shareholders and creditors ; let A. be the board of directors, and C. the other contracting party. A. makes a con- tract with C. beyond the powers of the corporation — beyond A.'s powers to represent the corporate interests. In legal in- tendment C. knows this contract to be beyond A.'s authority, but nevertheless performs his side of it, and the results of his performance are applied to the benefit of the corporate enter- prise, but without the knowledge of the shareholders or credi- tors. Here the interests of shareholders and creditors have been benefited ; but through no voluntary action or acquiescence on their part, and through acts which C. knew they had not authorized. It is again clear that C. by his performance acquires no rights which can affect the interests of shareholders and creditors. And the same reasoning would apply even if the corporation by a vote in corporate meeting ratified the con- tract ; the rights of absent or dissentient shareholders would not thereby be affected, provided they were guilty of no laches in asserting their rights. Undoubtedly, if the shareholders know that ultra vires contracts are being entered into and per- ' To be sure the principal could not forcement of the mortgage cannot be disavow the unauthorized portion of a enjoined on the ground that the mort- contract, and hold the other contract- gage was ultra vires. Amerman «. ing party with respect to the rest. And Wiles, 24 N. J. Eq. 13; see Parish on similar principles, when the agent v. Wheeler, 22 N. Y. 494 ; Whitney of a corporation has purchased for it «. Leominster Savings Bank, 141 Mass. certain chattels, and given back a pur- 85. See §8 310-312. chase-money mortgage thereon, the en- 228 PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 279. formed, aud that the proceeds are being applied to the col-po- rate enterprise,. they cannot with honesty stand quietly by, but must do'all in their power to prevent such application. There- fore through acquiescence after they know, or, if they had been at all observant of corporate affairs, "would have known of the contracts, they would be estopped from objecting. And so per- haps might creditors estop themselves. The preceding argument leads to this unavoidable conclusion : the mere facts that the other contracting party has executed his side of the ultra vires contract, and that the corporate property has thereby been benefited, do not affect the rights of persons who have done nothing from which assent to the contract can in any way be inferred.' ,„; § 279. If one examines with care the cases which are regarded' . as authority for this alleged general rule that sounds Examina- '" so just — if the other contracting party has performed, tion of cer- and by his performance benefited the property of the- corporation, the latter cannot plead ultra vires — it will appear that the recovery of the other party really does not rest on the fact that he has performed, nor on the fact that his performance has benefited the corporate property : though undoubtedly he would not have had the same cause of action had he not per- formed ; and that corporate interests were benefited may very likely have been a material point in establishing his case. It is submitted, that in these cases the plaintiff's recovery rests on the circumstance that all the persons who would have been en- titled to object to the contract, allowed the plaintiff to go on and perform under the reasonable assumption on his part of general acquiescence in the contract. To be sure, shareholders are not generally supposed to be continually exercising an active supervision over the affairs of the corporation. Biit they have a right to inspect its books, and, if they choose, may keep themselves acquainted with what is being done by the corporate management. At any rate, unless they keep a watch over the course of the corporate affairs, they will not be entitled on the • This reasoning accords as fully as a person cannot by his own act acquire the proposition controverted disaccords a right against another ; the other must with a most universal principle of law)*; in some way have bound himself. 229 § 280.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. plea of their own ignorance to come forward at their pleasure and cause the repudiation of corporate obligations. Share- holders wishing to prevent illegal or ultra vires acts, or to absolve the corporation from responsibility for them, must be vigilant and swift.* § 280. Take, for instance, the leading case of Bissell v. Rail- road Companies,'' on which this alleged rule is said to rest. In the first place not all the judges who concurred in the result based their decision on that rule at all ; and in the second place, it would have been preposterous not to assume that all the share- holders were acquainted with the fact that the corporations were running a railroad where their charters did not authorize them to run one. Or take the leading Illinois case often referred to ^s establishing this rule, Bradley v. Ballard.^ There a share- ■'^61der sought to restrain the prosecution of a suit against the corporation brought to recover on an ultra vires contract, which had been .performed by the plaintiff in the suit against the cor- poration. But the shareholder seeking the injunction was also a director, and, as the court said, had been willing enough that the contracts should be made as long as he expected profits to arise from them.* So in other Illinois cases more or less based ' Thompson v. Lambert, 44 Iowa, " 55 111., 413. 2.S9. " A court of equity may refuse ' 55 111., 419. For instance, it has to interfere with a corporation at the been held that the holder of a note for instance of a stockholder, in respect to value may enforce it against the maker, an unauthorized contract which has a corporation, although it was ultra been fully executed, when if the same vires the corporation to purchase the stockholder had applied in season for property in payment for which the an order to restrain the execution of note was given, and the holder knew the contract, equity might have felt the consideration of the note. The bound to grant the relief prayed for. defendant retained the property, and Especially is tljis so where the com- did not offer to give it up. Wright v. plainant has stood by and allowed the Pipe Line Co., 101 Pa. St. 204. The illegal transaction to be consummated, note was given to pay for stock pur- and has allowed and induced others to chased by defendant in contravention become interested in the corporation of a statutory prohibition. Court said on the supposition that the existing this was a matter for the attorney- state of things is legal and proper." general. But see, semble contra, Terry v. Eagle Lock Co., 47 Conn. Westinghouse Machine Co. v. Wil 141, 161. kinson, 79 Ala. 312. 2 § 275. « 230 PART III.] a"CTS beyond THE CORPORATE POWERS. [§ 281. on Bradley v. Ballard, but in which the corporation itself re- sisted the suit on the plea of ultra vires, it is evident that the decisions proceed on the assumption, and there was no sugges- tion to the contrary, that the contracts sued on, and the trans- actions in the course of which the contracts were performed, had been generally acquiesced in.' Darst V. Gale^ is another case frequently cited in support of the alleged rule — which is indeed stated in so many words in the opinion of the court — " that a private corporation cannot avail of the defence of ultra vires where the contract has been in good faith fully performed by the other party, and the scor- poration has had the benefit of the contract and the perform- ance." But in this case the defence was not set up by or on behalf of the corporation, nor on behalf of any person inte- rested in it. A subsequent grantee of premises belonging to the corporation attempted to have a prior deed of trust covering the same property set aside, on the ground that such deed was ultra vires the corporation ; he having bought with full notice of the prior deed. The ultra vires nature of the prior deed had infringed no right of. his ; and, consequently, he had no stand- ing in court to interpose the plea of ultra vires. § 281. The decision, if not the reasoning, in this case, points to an important principle respecting the plea of ultra „ 4 , ^ 11 1 . 1 mtra vires Vires. As we have seen, the plea cannot be interposed cannot be by the party contracting with the corporation when ^ person''^ the corporation has performed :' and the reason for whose ^ ^ rights are this lies not only in the estoppel with which, under notin- the circumstances, such a person is afteeted, but in the following reason as well : That the transaction was ultra ' Peoria and Springfield R. R. Co. Compare Arnot v. Erie R'y Co., 67 V. Thompson, 103 111. 187; Ward v. N. Y. 315; Zabriskie v. Cleveland, Johnson, 95 111. 215. It is thought etc. R. R. Co., 23 How. 381 ; Main that the foregoing remarks will gene- v. Casserly, 67 Cal. 127. rally apply to cases relied on in support ^ 83 111., 136. Compare Grant v. of this alleged rule, in some of which, Henry Clay Coal Co., 80 Pa. St. 208. indeed, the rule is stated in so many And for the validity of unauthorized words. See Oil Creek^etc. R. R. Co. conveyances of real or personal prop- V. Penna. Trans'n Co., 83 Pa. St. erty to a corporation, see § 303. 160; State Board of Agriculture w. '§276. Citizens' Street R'y Co., 47 Ind. 407. 231 § 282.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. i;?>es infringed none of his rights; he cannot, therefore, inter- pose the defence. There is a plain principle which is not only law, but patent common sense. With a few special exceptions, no one can represent another before the courts or elsewhere, without authority, express or implied, to do so. To an action brought against himself, a man cannot ordinarily plead that the rights of another, whom he is not authorized to represent, will be affected by the prosecution of the suit. If the court consider that hardship and injustice will result, unless the in- terests of such outside person are regarded, the court — at least a court of equity — may require him to be made a party to the suit, in order to afford him opportunity to protect his inte- rests. Accordingly, when a contract ultra vires a corporation is entered into, it is not competent for persons whose rights are not infringed, any more than for those who by their actions have estopped themselves from complaining, to restrain the fulfil- ment of the contract on the ground that the interests of others, which they are not authorized to represent, will be injured. It may therefore be stated as a rule, that a person whose rights are in no way infringed by the fact that a given act is ultra vires a corporation, can found no action or defence on that fact.i § 282. There are a number of decisions in accord with this rule. Thus, a corporation incorporated "for the purpose of manufacturing fabrics of wool and worsted or of a mixture thereof with other textile materials," may maintain an action against the purchaser of groceries sold by a person who was keeping a store as the undisclosed agent of the corporation.' On similar principles it is held that when a corporation has, in an unauthorized manner, purchased a note, its title thereto 'Compare Wherry v. Hale, 77 Mo. of defendant who had a personal in- 20 ; Farmers', etc. Bank v, Detroit, terest in getting the contract dis- etc. R. R. Co., 17 Wis. 872 ; St. Louis charged, is a good consideration to sup- Drug Co. V. Robinson, 81 Mo. 18. port a promise made by the defendant A release executed by a conti'acting to the party executing the release, party to a corporation (a county) of Wile v. Wilson, 93 N. Y. 255. his rights relating to the unfulfilled * Slater Woolen Co. v. Lamb, 143 portion of an ultra vires contract, the Mass. 420. release being executed at the request 232 PART III.] ACTS BEYOND THE CORPORATE POWERS, [§ 283. cannot be questioned by the promisor.' ]!for can irregularities in a mortgage made by a corporation be taken advantage of by a subsequent grantee of the mortgaged premises.* Likewise, the power of a corporation to assign a chose in action eaimot be questioned in an action thereon by the assignee ;' and although the purchase of a piece of land may have beer^ ultra vires a rail- road company, still, when the railroad company sells the land the title of its vendee is good.* Again, when both plaintiff and defendant claim under a common source, — from a rail- road corporation, — the plaintiff by conveyance at an execution sale of its property, the defendant under deeds of trust exe- cuted by it, neither can set up that the acquisition of the property was ultra vires the corporation.' And, finally, where the president with other officers of a corporation bought stock for the company, and subsequently converted it unlawfully to their own use, they cannot plead when sued for the conver- sion, that the original purchase made by them on behalf of the corporation was ultra vires.^ § 283. Still, however clear it may be that in order to do adequate and accurate justice in regard to legal relations arising from ultra vires transactions, the rights of the different persons and clksses of persons interested in the corporate enterprise must be adjudicated upoii as distinguishable, it must be ad- mitted that courts often seem to have disregarded these dis- tinctions, apparently viewing the corporation as a unit, like the person dealing with it; and it must also be admitted that the rule disapproved of in the text is generally regarded as law.' Undoubtedly it will be' often impossible to allow a contract to be repudiated by shareholders who have never assented to it and who in justice should be allowed to repudiate it^ without at, the same time relieving consenting shareholders from the burden of a "contract they have assented to, from which there 1 Ehrman v. Union Cent. Life Ins. ° Morgan v. Donovan, 58 Ala. 241 . Co., 35 Ohio St. 324. ^ St. Louis Stoneware Co. v. Part- ' Beecher v. Marquette, etc. Mill ridges 8 Mo. App. 217. Co., 45Mieh. 103; Darstw. Gale, a«. Denver and N. O. R. R Co., 110 U. S. 667. A railroad company \i under a duty to transport merchandise on equal terms for all parties, where the carrying for some shippers at a lower price than for others will create monopoly or destroy the business of those less favored. Scofield V. Railway Co., 43 O. St. 571. So a contract to grant privileges for the withdrawal of opposition, based on public grounds, to proposed legislation concerning a railroad, is void. Pingry V. Washburn, 1 Aiken (Vt.), 264. Otherwise if the opposition rests on private grounds. Low v. Conn, and P. R. R. Co., 46 N. H. 284. " Atchison T. and S. F. R. R. Co. V. Denver and N. O. R. R. Co., 110 U. S. 667, 674. Contracts between railroad and telegraph companies, vesting in the latter the exclusive right to use the railroad's right of way for telegraph poles, etc., are void, as against public policy, being in restraint of trade and tending to create monopolies. Railroad companies cannot convey to another company for its exclusive in- terests, and in antagonism to the public interest, property acquired by the rail- road company through its right of enjinent domain. Western Union Tel. Co. V. American Union Tel. Co., 65 Ga. 160. See § 350 and notes. 3 §§ 352-354. 259 § 311.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. benefits contract, -when it is seeking to repudiate the obliga- received ; , „ o ^ -- under an tlOnS thereOI. contracr' Here distinctions must again be taken between contracts which are merelj' ultra vires, and those which are also illegal. In regard to contracts merely ultra vires the general principle is stated by Mr. Brice as follows :' " But though a corporation cannot be sued, any more than any other citizen, directly upon a contract or analogous transaction which does not bind it, yet if it sets up this 'defence it must restore to the other party what it has obtained from him. It may repudiate the transaction if it chooses, but if so it must repudiate altogether — it cannot reprobate and approbate — it cannot reject and yet keep what in another form it has re- jected." ^ Clear as this statement seems, it requires qualifica- tion in this respect : that the corporation may repudiate the contract without rendering up the benefits which through the contract have accrued to the corporate property, when such benefits have become amalgamated with the corporate property and cannot be rendered up without infringing the rights of persons who have never assented to the contract nor in any way acquiesced in it.' In ascertaining the liability of the corpora- tion, either directly on the contract, or indirectly for the benefits which through the contract have accrued to the corporate pro- perty, it must continually be borne in mind that the rights of different persons regarding the corporate property are dis- tinguishable. Some persons may be in a position to say to the other contracting party, "take back what you can reach with- out disturbing my rights." The above-mentioned qualification, however, is applicable only where the benefits from the ultravires contract have become undistinguishably interwoven with the cor- porate property, so as to make impossible a restitution in integrum. § 311. The simplest conceivable case for the application of Specific *^® general rule, is where a corporation has received chattels specific property real or personal, the distinguishing returned. characteristics of which r(!main unimpaired after it Money. j^^g come into the possession of the corporation. In ' Ultra Vires, 2d Eng. ed., p. 769. ' See Hill's Case, L. R. 9 Eq. 605. 2 See Matinville v. Belden M'g Co., 5 McCrary, 891. 260 PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 311. such case the property must be returned upon the repudiation of the contract in pursuance to which the corporation received it.' If money has been loaned to a corporation in furtherance of some scheme known to the lender to be ultra vires, it does not necessarily follow that the corporation will have to return the money, which may never have been applied to corporate pui'poses. Thus, where the directors of a building society, the rules of which gave directors no power to borrow, borrowed money for the purpose of advancing it to the members on the security of their shares, the lender's claim was disallowed on the winding up of the society.^ In this case there was no proof that the money was ever applied to the proper purposes of the society or to the payment of any debt for which the society was liable. On the other hand, when through an ultra vires transaction, money has come into the possession of a corporation and has been applied to proper corporate purposes by persons acting within the scope of" their authority, the corporation in repu- diating the transaction will have to refund the money so ap- plied. Thus, in Burges and Stock's Case* the holders of marine insurance policies, which the company was not authorized to issue, were allowed on the winding up of the company to recover the premiums paid by them on such policies; but were not allowed to recover the value of the policies. Page- Wood, V. C, saying: "They have had no consideration for the premiums they paid. The directors, it is true, had no power to issue marine policies ; but they had power to receive money and apply it to the benefit of the company. It is proved that they did so receive and apply these premiums, and the amount might have been recovered even at law as money had and re- ceived." * ' Compare § 277. Co.'s Case, 5 DeG. M. & G. 465; S. 2 In re Nat. Permanent Benefit C, sub. nom. Ernest o. NichoUs, 6 B'ld'g Asso., Ex parte Williamson, H. L..C. 401 ; Hall v. Mayor, etc. of L. R. 5 Ch. 309^ Swansea, 5 Q. B. 526; In re Cork, 3 2 J. & H., 441. etc. R'y Co., L. R. 4 Ch. 748, 760; * See also White v. Franklin Bank, Humphrey v. Patrons' Mercantile 22 Pick. 181 ; Hawken v. Bourne, 8 Ass'n, 50 Iowa, 607. M. & W. 703 ; Port of London As'sur. 261 § 313.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 812. The liability of a corporation to account for benefits received by it under an ultra mVes transaction, does Habiiity.*''* not rest On the circumstance that the other party has rendered services or parted with property,* nor on that circumstance combined with the further circumstance that the property of the corporation has received a benefit. The still further circumstance must exist that the benefit itself was appropriated to the uses of the corporation through some cor- porate agency acting within the scope of itfe express or implied authority.' 'So more than an individual can a corporation be compelled to account for money, property, or benefits thrust upon it without its consent. In such case the only remedy of the owner is to recover the identical property or its proceeds, if one or the other can be traced. Moreover, from the mere re- tention and use of a benefit, where there is no freedom of choice to reject or accept, no promise to pay or account for the same can be implied.* § 813. The rules already stated are not always nor altogether applicable to restitutions on the repudiation of con- uitra vires tracts which, besides being ultra vires, are also un- contracte. j^^^^^_ A party to a contract, the making of which, though pro- hibited by law, is not malum in se, may, while it remains ex- ecutory, rescind it and recover money advanced by him thereon to the other party who has performed no part thereof. Per- mitting the plaintiff to recover back, is not carrying out the illegal transaction, but the effect is to put everybody in the situation they were in before the illegal contract was deter- mined on.^ Thus, where a deposit was made in a bank, and ' Except where a specific piece of * Spring Co. v. Knowlton, 103 U. property may be handed back. S. 49 ; Oneida B'k v. Ontario B'k, " Hawtayne v. Bourne, 7 M. & W. 21 N. Y. 490 ; White v. Franklin ^95 ; Ex parte Cropper, 1 De G. M. B'k, 22 Pick. 181 ; Dill v. "Wareham, & G- 147. 7 Mete. (Mass.) 438 ; Whitney v. 3 In re Worcester Corn Exch. Co., Peay, 24 Ark. 22 ; Poulke v. San 8 De G. M. & G. 180; Zottman v. Diego, etc. R. R. Co., 51 Cal. 365; San' Francisco, 20 Cal. 96 ; Murphy Philadelphia lioan Co. v. Towner, 13 V. City of Louisville, 9 Bush (Ky.), Conn. 249. Compare Brooks v. Mar- 189 ; In re Kent Benefit B'ld'g Soc, tin,- 2 Wall. 70. 1 Dr. & Sra. 417. 262 PAET III.J ACTS BEYOND THE CORPORATE POWERS. [§ 314?. the depositor received a book containing the cashier's certificate that the money was to remain on deposit a certain length of time, it was held that such stipulation was void as amounting to a contract on the part of the bank for the payment of money at a future day certain ; a contract prohibited by statute. But the court held that, though no action could be maintained by the depositor on the stipulation, still he could recover back the money before the expiration of the time for which it was to remain on deposit, and that, too, without any previous demand on the bank.* It will be noticed that in this case, though the express contract was beyond the cashier's authority, yet receiv- ing the money on deposit was not, and so. the money was actu- ally applied to the purposes of the bank by its agent acting within his powers. Sometimes a harsher doctrine is applied. Undoubtedly the right of a party to an illegal contract to have it rescinded rests on public policy rather than on any rights of the party himself. And so a corporation, without regard to the fact that it is par- ticeps criminis, may invoke the aid of a court to relieve it from an illegal contract ; for the relief is regarded as given to the public through the party in whose name it is sought. Thus, in a New York case, it was held that a lease taken by a railroad company for the purpose of extending its road beyond its char- tered terminus was ultra vires and void, and would be set aside on the application of a party to it. But it was also held that the court would not relieve the pa,rties any further than the public interest required, and accordingly no recovery was per- mitted for the use of the leased property previous to the time when the lease was declared invalid.* § 314. Persons who at the expense of a corporation have received benefit from an ultra vires transaction, even Ljawiity of a transaction that is illegal as against public policy, other party may have to refund to the corporation to the extent of the benefit they have received.* Where, however, both the 1 White V. Franklin B'k, 22 Pick. p. 814. See Bryson v. Warwick, etc. 181. Canal Co., 1 Sm. & G. 447 ; S. C, 4 2 Union Bridge Co. v. Troy, etc. E. De G. M. & G. 711 ; Ernest v. Croys- K. Co., 7 Lans. (N. Y.) 240. dill, 2 De G. F. & J. 175; Zulueta's " Brice, Ultra Vires, 2d Eng. ed.. Claim, L. K. 5 Ch. 444 ; Hardy v. 263 § 315.] THE LAW OF PRIVATE CORPORATIONS. [CHAP.'VII. corporation and the other contracting party have received benefits under a partially executed ultra vires contract, the cor- poration, it is held, cannot retake its property, which under the cont^-act has passed to the other contracting party, without offering to return the property of the other party, which, through . the same contract, has come into the possession of the corporation ; and, at all events, a corporation will be enjoined from taking possession of its former property under such cir- cumstances till a judicial settlement and accounting can be had.^ The litigation in the cases cited in the note arose from trans- actions which were not only ultra vires, but, on grounds of public policy, illegal. In one of them, American Union Tel. Co. v. Union Pacific Railway Co., Judge McCrary said :^ " Many cases hold that a corporation which has made a contract ultra vires, which has not been fully performed, is not estopped from pleading its own want of power ; but that doctrine does not apply to a case where a party comes into a court of equity, and, while retaining all that he has received upon such a contract, asks to be permitted to retake what he has parted with under it. I take it there is nothing in the law, as there is certainly nothing in the principles of equity, to estop the court from saying that the obligation to return the property transferred under these contracts is mutual, and shall not be enforced against one of the parties without being, at the same time, enforced against the other. As the parties and the subject- matter are now before the court, it is the duty of the court, so far as is possible, to place them in statu quo."^ §315. In a treatise on the law of stock corporations very Munici ai ^^^^^^ °^ ^^^ ^^^ relating to municipa,l corporations corpora- wiU be included ; the latter being very different legal institutions and subserving very different purposes from the former. "A municipal corporation," says Justice Metropolitan Land Co., L. R. 7 Ch. Co.,ib. 551; Western Union Tel. Co. 4!27- V. Burlington, etc. R'y Co., 3 Mc- ' American Union Tel. Co. w. Union Crary, 130. Pac. R'y Co., 1 McCrary, 188 ; At- ' 1 McCrary, 188, 201. lantic and Pac. Tel. Co. u. Union Pae. 'See also Madison Ave. Bap. R'y Co., ib. 641 ; Central Branch U. Church v. Oliver Street Bap. Church, P. R. R. Co. V. Western Union Tel. 73 N. Y. 82. 264 PART III.] ACTS BEYOND THE CORPORATE POWERS. ' [§ 316. Hunt, " in the exercise of all its duties, including those most strictly local or internal, is but a department of the state. The legislature may give it all the powers such a being is capable of receiving, making it a miniature state within its locality. Again, it may strip it of every power, leaving it a corporation in name only ; and it may create and recreate these changes as often as it chooses, or it may exercise directly within the locality any or all of the powers usually committed to a municipality."' The case from which this citation is taken held a municipal corporation responsible for negligence in the management of its streets; and the decision is undoubted law. Nevertheless, a municipal corporation may not be liable for misfeasance or non- feasance in all respects like a private corporation," and to reason by analogy from the one kind of corporation to the other may cause error. § 316. Municipal corporations have little if any inherent jurisdiction to make laws or adopt governmental regulations. They can exercise no powers in this respect which are not given them expressly or impliedly by their charters, or by other statutes or the constitution of the state. There is no contract implied between a municipal corporation and the state; and the state may alter their constitutions in any way, may divide one municipal corporation into two or more, and may apportion between the new corporations the property and burdens of the former corporation. When a municipal corporation is legis- lated out of existence and its territory is annexed to other cor- porations, the latter, unless the legislature otherwise provides, become entitled to its. property and immunities, and severally liable for a proportionate share of all its subsisting legal debts, as well as vested with its powers of taxation to raise revenue with which to pay them. The remedy of creditors of an ex- tinguished municipal corporation is in equity against the corpo- ration succeeding to its property and powers.^ A change in its • Barnes v. District of Columbia, 91 '' Mount Pleasant v. Beckwith, 100 U. S. 540, 544. U. S. 514. See Newton v. Commis- ' See Fowle v. Common Council of sioners, ib. 548 ; East Hartford v. Alexandria, 3 Pet. 898, 409; and § Hartford Bridge Co., 10 How. 511. 177. Compare generally Vidal v. Girard's Executors, 2 How. 127. 265 § 318.] THE LAW OF PKIVATK CORPORATIONS. [CHAP. VII. charter, by amendment or the substitution of a new one, will not be deemed to affect the identity of the corporation or relieve it from its previous liabilities, when substantially the same cor- porators and territory are embraced under the new charter.' § 317. Still, however much in their organization and purposes municipal corporations may differ from stock corpora- aid bonds, tions, the liability of the former on their bonds issued in aid of railroad and other business enterprises of public importance is in many respects similar to the liability of the latter on their contracts. In especial, the rules governing the effect of recitals in municipal bonds are almost identical with the rules which determine the liability of stock corpora- tions for the acts of their agents, when the authority of the agent to act is conditioned on facts peculiarly within his know- ledge.^ Moreover, the rule that every person dealing with a cor- poration, private or municipal, is affected with notice of the .corporate powers, is strikingly exemplified in the law of muni- cipal bonds. For these reasons municipal bonds will be the subject of discussion in the next few pages. ^ § 318. A large proportion of the suits on municipal bonds are brought in the Federal courts ; consequently, that divisions, admirable course of decisions by which the Supreme Court of the United States has upheld the validity of municipal bonds against various defences, is of almost universal authority and application.' The Federal courts will follow an unbroken line of decisions of the highest court of a state con- struing its constitution and statutes.^ But the rights of bona fide holders of municipal bonds are to be determined by the law as judicially construed when the bonds in litigation were put on the market ; and the United States Supreme Court will not follow the later decisions of a state tribunal in conflict with decisions under which the rights of such holders arose." Ac- 1 Broughton v. Pensacola, 93 U. S. 92 U. S. 289; Claiborne County v. 266. Brooks, 111 U. S. 400. ^ See §§ 203-207. , 6 Douglass v. County of Pike, 101 ' Regarding the jurisdiction of the U. S. 677; Green County u. Conness, Federal Circuit Courts see Bernard's 109 U. S. 104; Anderson v. Santa Township v. Stebbins, 109 U. 8. 341. Anna, 116 U. S. 356. * Township of Elmwood u. Maroy, 266 PART III.J ACTS BEYOND THE CORPORATE POWERS. [§ 319. cordingly, when by a series of decisions the highest court of a state has held that the state legislature could competently authorize municipal corporations to issue bonds in aid of rail- roads extending beyond the limits of the town or county issuing the bonds, and those decisions have been approved by the Federal Supreme Court, the fact that subsequently the highest court of the same state has held its former decisions erroneous, will, in a Federal court, have no effect on the rights of bona fide holders arising from transactions which occurred before the change in state judicial opinion had been promul- gated. Under such circumstances Federal courts will not follow the oscillations of state courts.^ Moreover, when the question of the validity of municipal bonds held by an inno- cent holder comes before the Supreme Court of the United States, that court in its discretion may disregard the decisions of a state court, although they involve the construction of a statute of the state, If those decisions are not deemed satis- factory. Such a question belongs to the domain of general jurisprudence, and the Federal courts will not be controlled by state decisions.^ § 319. A municipal corporation has, of course, no implied or inherent power to issue bonds in aid of railroad enterprises f ' Gelpcke • v. City of Dubuque, An injunction lies to restrain an 1 Wall. 175; Havemeyer v. Iowa issue of bonds where there has been a County, 3 Wall. 294. See Columbia material departure from the statute. County ■«. King, 13 Fla. 451. Union Pac. E. R. Co. v. Lincoln Co., 2 Township of Pine Grove v. Tal- 3 Dillon, 300 ; City of Madison v. , cott, 19 Wall. 666; Town of Venice Smith, 83 Ind. 502. See Noesen v. V. Murdock, 92 U. S. 494 ; see Swift Town of Port Washington, 37 Wis. V. Tyson, 16 Pet. 1 ; Oatesw. National 168 ; and compare Rogers v. Burling- Bank, 100 U. S. 239 ; Raih-oad Co. v. ton, 3 Wall. 654, 667. A taxpayer has National Bank, 102 U. S. 14 ; Pana v. a standing in court to maintain such an Bowler, 107 U. S. 529 ; Carroll County injunction. Winston «. Tennessee & P. V. Smith, 111 U. S. 556. See also § R. R. Co., 1 Bax. (Tenn.) 82. But 468. bonds of a municipal corporation which ' Kenicott v. Supervisors, 16 Wall, are void in the hands of an innocent 452 ; Thomson v. Lee County, 3 Wall, holder are no charge against the pub- 327 ; Hancock v. Chicot County, 32 lie, and a taxpayer has no right to Ark. 575 ; see City of Lynchburg v. enjoin their circulation. McCoy v. Slaughter, 75 Va. 57. Compare Bell Briant, 53 Cal. 247. V. Railroad Co., 4 Wall. 598. 267 § 319.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. ity has no Inherent power to issue rail- way aid bonds. nor any implied powei' to utter commercial paper of any kind.' Municipal- State legislatures, however, unless prohibited by some constitutional provision, may authorize a town or county to aid in the construction of a railroad by subscribing for shares in the stock of a railroad cor- poration and issuing bonds in payment therefor, or by issuing its bonds as a simple gift to the corporation.^ And this it is competent for a legislature to do, with or with- out the popular vote of the municipality,^ although' the pro- jected railroad lie outside of the county or even the state ; pro- vided the building of the road will give the county a desirable connection with some other region.* The constitutionality of such legislation is based on the view that the construction of a railroad is of such general utility that taxation in aid thereof is constitutional, being for a public purpose." ' Claiborne County v. Brooks, 111 U. S. 400. * Thomson v. Lee County, 3 Wall. 327 ; Kailroad Co. v. County of Otoe, 1 6 Wall 6 6 7 ; To wn of Queensbury v. Culver, 19 Wall. 83 ; Clarke v. City of Rochester, 28 N. Y. 605 ; David- son v'. County Commissioners, 18 Minn. 482 ; Chicago, Danville, etc. R. R. Co. V. Smith, 62 111. 268; Leaven- ■vyorth County v. Miller, 7 Kan. 479 (in which last ease a full review of au- thorities is given). Stockton, etc. R. R. Co. D. City of Stockton, 41 Cal. 147 ; Petty v. Myers, 49 Ind. 1 ; Lea- venworth, etc. R. R. Co. V. Douglass County, 18 Kan. 169; New Orleans, etc. R. R. Co. V. McDonald, 53 Miss. 240. See Towtfship of Pine Grove v. Talcott, 19 Wall. 666, 677; Dillon on Municipal Corps., 3d ed., § 153, note. Compare City of Ottawa v. Carey, 103 U. S. 110. Contra, People v. Salem, 20 Mich. 452; Whiting u. She- boygan, etc. R. R. Co., 25 Wis. 167; Hanson v. Vernon, 27 Iowa, 28. The last case was virtually overruled in 268 Stewart v. Polk County, 30 Iowa, 1. In the cases cited in the following notes the constitutionality of such legis- lation is affirmed or assumed. The power to issue municipal bonds iip- ports the power to sell and make them payable beyond the limits of the state. Lynde v. The County, 16 Wall, 6. ' Railroad Co. v. County of Otoe, 16 Wall. 667 ; Otoe County v. Baldwin, 111 U. S. 1. * Railroad Co. v. County of Otoe, 16 Wall. 667. See Kirkbride v. La- fayette County, 108 U. S. 208. ° See Olcott V. Supervisors, 16 Wall. 678; and cases in last note but one. Accordingly, legislation authorizing an issue of municipal bonds to aid a pri- vate business enterprise is unconstito- tional, and the bonds are void. Loan Ass'n u. Topeka, 20 Wall. 655; Park- ersburg v. Brown, 106 U. S. 487 ; Os- borne V. County of Adams, 106 U. S. 181; Cole v. La Lagrange, 113 U. S. 1. Where, however, a statute de- clares all custom grist-mills to be "public mills," and regulates their PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 320.' § 320. In order that municipal bonds issued in aid of a rail- road may have any validity in the hands of any one, special authority must have been given by the legis- authority ture to the municipality to issue them. This is uu- requisite. ' .1 Holders questionable law.' And every holder of municipal charged bonds, whether he receive them directly from the town or county, or from the railroad corporation to which they may have been delivered, or take them from some prior holder in the ordinary course of business, is chargeable with notice of the statutory provisions under which they were issued.'' More- management, the legislature may au- thorize a municipal corporation to issue bonds in aid of such a mill, although it is owned by a private individual. I'ownship of Burlington v. Beasley, 94 U. S. 310 ; Blair v. Cuming County, 111 U. S. 363 ; but compare C. B. U. P. K. Co. V. Smith, 28 Kan. 745. ' Wells V. Supervisors, 102 U. S. 625 ; Welsh w. Post, 99 111. 471 ; Hays V. Holly Springs, 114 U. S. 120; Jonesboro City i\ Cairo, etc. R. R. Co., 110 U. S. 192 ; Concord M. Robin- son, 121 U. S. 165. See Allen v. Louisiana, 103 U. S. 80; and cases jn next note. Where there is a total want of authority to issue municipal bonds, there can be no bonajide hold- ing of them. Township of East Oak- land V. Skinner, 94 U. S. 255. See Welch V. Post, supra. And the au- thority must not have been revoked before the actual issue of the bonds. Town of Concord v. Portsmouth Sav- ings Bank, 92 U. S. 625. The charter of a railroad company authorized the county commissioners of a county through which the railroad passed, to subscribe for stock and issue bonds, provided a majority of qualified voters of the county should vote in favor of such action. A favorable vote was had ; but before the subscription was made the State adopted a new consti- tution which prohibited such subscrip- tions unless paid in cash aiid forbade counties to loan their credit to any corporation or to borrow money in order to take stock. It was held that the provisions in the railroad charter authorizing the commissioners to sub- scribe, conferred a power on a public corporation which could be modified by legislative authority ; that the char- ter did not import a contract on the part of the State with the railroad corporation that counties should con- tinue competent to issue bonds ; and that the bonds issued after the new state constitution had gone into effect were void. Aspinwall v. Commis- sioners of the County of Daviess, 22 How. 364 ; confirmed in Wadsworth V. Supervisors, 102 U. S. 534. Com- pare Supervisors v. Galbraith, 99 U. S. 214. ' Ogden V. County of Daviess, 102 U. S. 634 ; United States v. County of Macon, 99 U. S. 582 ; Anthony v. County of Jasper, 101 U. S. 693 ; Town of South Ottawa v. Perkins, 94 U. S. 260 ; McClure v. Township of Oxford, 94 U. S. 429; Ottawa v. Casey, 108 U. S. 110 ; Lewis v. City of Shreveport, 108 U. S. 282 ; Hoff v. Jasper County, 110 U. S. 53; Wood- ruff u. Town of Okolona, 57 Miss. 806 ; Tax Payers v. Tennessee Central 269 § 320.] THE LAW OF PKIVATE CORPORATIONS. [CHAP. VII. over, that which is not a valid law can give no validity to municipal bonds which purport to be issued by virtue of it, even when those bonds have passed into the hands of bona fide holders for value.* To constitute a "subscription" by a county to stock in a rail- road company it is not necessary that there be an actual sub- scribing in the books of the company. If a county passes a resolution declaring a subscription made, which the company accepts, notifying the county: and the county delivers its bonds in payment, accepts shares of stock, votes as a shareholder, and levies a tax to pay the interest on its bonds, it will be estopped, as against a bona fide holder of the bonds, from denying its sub- scription ; assuming that it had power to subscribe. And the county will not be released by a subsequent alteration in the organization or purposes of the railroad company, unless the alteration is fundamental, and, in addition, is not provided for or contemplated either by the charter of the company or the general laws of the state." As Chief Justice Waite said, giving the opin- ion of the Federal Supreme Court in Bates County v. Winters: "An actual manual subscription on the books of a railroad com- pany is not indispensably necessary to bind a municipality as a subscriber to the capital stock. If the body or agency having authority to make such subscription passes an ordinance or a resolution to the effect that it does thereby, in the name and on the behalf of the municipality, subscribe a specified amount of stock, and presents a copy of that ordinance or resolution to the company for acceptance as a subscription, and the company does in fact accept, and notifies the municipality, or its proper agent, R. R. Co., 11 Lea (Tenn.), 329 ; tion for the court, not for the jury. Potter V. Greenwich, 26 Hun (N. Y.), lb. In Norton v. Shelby County, 118 326, S. C, 92 N. Y. 662. Although U S. 426, 442, Field, J., said, giving the law authorizing the subscription the opinion of the court: "An un- be silent on the subject, the municipal- constitutional act is not a law ; it con- ity in voting may impose conditions on fers no rights ; it imposes no duties ; it which the subscription is to depend, affords no protection ; it creates no People V. Glann, 70 111. 232 ; see office ; it is, in legal contemplation, as People V. Holden, 91 111. 446. inoperative as though it had never ' Post 17. Supervisors, 105 TJ. S. been passed." 667. Whether a seeming act of the « Nugent v. Supervisors, 19 Wall, legislature is a law, is a judicial ques- 241. 270 PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 321. to that effect, the contract of subscription is complete, and binds the parties according to its terras."' § 321. State bonds, as well as murfcipal bonds, issued in ex- cess of a constitutional limitation are void.' Accord- ,, ,,, . . Constitu- ingly, when a state constitution declares that no city tionai Umi- or other municipal corporation shall become indebted in any way for any purpose to an amount, including existing indebtedness, in the aggregate exceeding five per cent, on the value of the taxable property therein,"bonds issued in excess cannot be recovered on.^ Further, a constitutional provision prohibiting the creation of indebtedness by a dii-ect loan of municipal credit does not permit an indirect use of such credit" for the same purpose.* ' 112 U. S. 325, 327. '- Williams v. Louisiana, 103 U. S. 637. "Where a county court issues bonds in excess of the amount author- ized, by the statute, the over-issue is void. The bonds delivered before the limit was reached are the valid ones. Daviess County v. Dickinson, 117 U. S. 667. ' Buchanan v. Litchfield, 102 U. S. 278. But the court seemed to think that if the bonds had recited properly that the indebtedness was not in excess of the amount allowed, the recital would have been conclusive in favor of 6ona_^rfe holders for value: and they quseried whether the city is bound to refund to the proper parties the money which her authorized agents had re- ceived for the bonds. See School District v. Stone, 106 U. S. 183; § 332. It has subsequently been held that a bona fide holder for value of municipal bonds is not required to look beyond the law authorizing the issue and the recitals in the bonds, to in- quire as to the amount of the county indebtedness. Where • commissioners estimate the county indebtedness for the purpose of the issue, that estimate, also, whether true or false, is conclu- sive in favor of hona fide holders. Sherman County v. Simons, 109 U. S. 735. So municipal bonds are not invalid in the hands of a hona fide holder, by reason of their having been voted and issued in excess of the statu- tory limit, if the recitals import a valid issue. Dallas County v. McKenzie, no U. S. 686 ; Marcy v. Township of Oswego, 92 U. S. 637; Humboldt Township v. Long, 92 U. S. 642. In Louisiana v. Wood, 102 U. S. 29^^, it was held when a city borrows money on its bonds concededly invalid far want of registration, the money paid for them may be recovered back with lawful interest. Qusere, whether this last decision would apply -if the bonds for which the money was paid had been issued in contravention of a constitutional restriction ? * Jarrolt v. Moberly, 103 U. S. 580. An act forbidding, under certain penalties, the officers of a municipal corporation from subscribing for rail- road stock, without the previous assent of two-thirds of the qualified voters, is in itself no authority to loan money when such assent is given. lb. 271 § 323.] THE LAW OF PRIVATE COBPORATIOKS. [CHAP. VII. § 322. A statute authorizing a municipal corporation to lend its credit to a specified railroad company and " to not yet in any Other railroad company duly incorporated and existence, organized for the purpose of constructing railroads" leading in a direction specified, empowers the corporation to lend its credit to a railroad company duly incorporated sub- sequently to the passage of the act, as well as to one in ex- istence when the act was passed.* And municipal bonds will not be rendered invalid in the hands of a bona fide holder, by the fact that the railroad company, in payment for whose stock the bonds were issued, was not in existence when the vote was passed authorizing the subscription.^ But where a statute au- thorized a town to appropriate money to aid in constructing a certain railroad as soon as its track should have been located and constructed through the town, it was held that the town could make no appropriation until the road was so located and con- structed.' Likewise where the popular vote, taken in accord- ance with a statute, authorized a subscription to one railroad company, and the bonds were issued to another railroad com- pany, this appearing on the bonds themselves, the lack of au- thority is evident from the face of the bonds, and there can be no bona fide holder of them.^ § 323. In the case of March v. Fulton County," a railroad com- Effect of a P^"^ subsequent to its incorporation was divided into consoiida- three divisions, and each division incorporated as a tion of the ■,. . . , ^ « railroad distinct Corporation. A vote of the people of the company, county had authorized the bonds, whose validity was before the court, to be issued to the original corporation ; and the court held that they could not under this vote be validly ' James u. Milwaukee, 16 Wall. 159. ^ County of Daviess v. Huidekoper, A city authorized "to obtain money 98 U. S. 98. on loan, on the faith and credit of said ' Town of Concord v. Portsmouth city, for purposes of contributing to Savings Bk., 92 U. S. 625. See works of internal improvement," may County of Moultrie u. Savings Bk., guarantee bonds of a railroad company 92 U. S. 631 ; Railroad Co. v. Falco- whose road runs through the city, ner, 103 U. S. 821. Compare County City of Savannah v. Kelly, 108 U. S. of Randolph v. Post, 93 U. S. 502. 184. In regard to the meaning of the < County of Bates p. Winters, 97 phrase "corporate purposes," see City U. S. 83. of Ottawa V. Carey, 108 U. S. 110. ^ jq WaH. gye 272 PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 325. issued to one of three new corporations. It is to be noticed, however, that the statute which in this case permitted counties to issue their bonds in aid of railroad enterprises, required the notices of election to specify the corporation to which it was proposed to issue them.' The Federal Supreme Court has also held that although a subscription to the stock of a railroad company be duly authorized by the requisite vote, yet if before the subscription be actually made the company becomes con- solidated with another, thereby forming a third, a subscription to the stock of the new corporation and the issue of bonds therefor are unauthorized.* § 324. It may be questioned whether the case last referred to, Harshman v. Bates County, would be followed now by the Su- preme Court ; for that court has since held in more than one instance, that when a municipal corporation is authorized to issue its bonds to a railroad company, the consolidation of that company with another does not destroy the power of the county to issue its bonds nor the right of the railroad company to re- ceive them.s And bonds voted in aid of one company, which under the law then in force, was subsequently consolidated with another, may be delivered to the consolidated company.* § 325. Municipal bonds, invalid in their inception, may be validated by legislative sanction or even recognition.* For, in > Municipal bonds voted and deliv- 99 U. S. 499 ; County of Tipton v. ered to a corporation under a changed Locomotive Works, 103 U. S. 523 ; name are not by such change invali- Harter v. Kernochan, 103 U. S. 562; dated. Town of Reading v. Wedder, Scott v. Hansheer, 94 Ind. 1 ; Ed- 66 El. 80. wards v. People, 88 111. 340, and § ' Harshman v. Bates County, 92 636. U. S. 669. See Wagner v. Meety, ^ New Buffalo v. Iron Company, 69 Mo. 150. 106 TJ. S. 73 ; Chickaming v. Carpen- » Menasha v. Hazard, 102 U. S. 81 ; ter, 106 U. S. 663 ; Nugent v. Super- County of Scotland v. Thomas, 94 U. visors, 19 Wall. 241 ; Bates County u. S. 682; Town of East Lincoln v. Winters, 112 U. S. 325 ; Niantic Sav- Davenport, 94 U. S. 801 ; County of ings Bank v. Town of Douglas, 5 111. Henry u. Nicolay, 95 U. S. 619. See App. 579. County of Cass v. GiUett, 100 U. S. ' Grenada County Supervisors v. 586 ; County of Schuyler v. Thomas, Brogden, 112 U. S. 261 ; Campbell v. 98 U. S. 169; Wilson v. Salamanca, City of Kenosha, 5 Wall. 194. 18 273 § 326.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. the absence of constitutional restrictionB, a legislature may competently validate, by retrospective statutes, an SsSay irregular or defective execution of a power by a mu- dated*" nicipal or other public corporation.' Moreover, the levy of a tax and the payment of interest by the proper municipal authorities have been held to validate, in the hands of bona fide holders for value, county bonds irregular in their origin.^ § 326. Municipal bonds, made payable to bearer (or, as is unusual, to order) are negotiable;' they are transferable by ■ Otoe County v. Baldwin, 111 U. S. 1 ; Gelpcke v. Dubuque, 1 Wall. 1 75, 203 ; Tiff't v. City of Buffalo, 82 N. Y. 204 ; Keithburg v. Frick, 34 111. 405 ; Copes v. Charleston, 10 Rich. L. (S. C.) 491 ; McMillen v. Boyles, 6 Iowa 304 ; McMillen v. Judge of Lee County, ib. 391 ; Bass v. City of Columbus, 30 Ga. 845 ; Steines v. Franklin County, 48 Mo. 167; Knapp V.' Grant, 27 Wis. 147; Town of Duanesburg v. Jenkins, 57 N. Y. 177. Compare White Mountains K. R. Co. u. White Mountains R. R., 50 N. H. 50 ; Gross v. United States Mortgage Co., 108 U. S. 477; Alexander v. Commissioners of McDowell County, 70 N. C. 208 ; Single v. Supervisors, 38 Wis. 363. But see Cairo and St. L. R. R. Co. V. City of Sparta, 77 111. 505. But a legislature cannot validate municipal bonds by a statute passed after a constitutional amendment has forbidden the legislature to authorize municipal bonds ; Katzenberger v. Aberdeen, 121 U. S. 172. A law requiring a municipal corpo- ration to pay a demand which is with- out legal obligation, but which is equitable and just in itself, being founded on a valuable consideration received by the corporation, ig not a retrospective law, any more than would 274 be an appropriation for the payment of a pre-existing claim. Read v. Plattsmouth, 107 U. S. 568. But compare Coosa River Steamboat Co. V. Barclay, 30 Ala. 120. ^ Gelpcke v. City of Dubuque, 1 Wall. 176; Havemeyer v. Iowa County, 3 Wall. 294 ; Supervisors v. Schenck, 5 Wall. 772 ; Lee County v. Rogers, 7 Wall. 181 ; Commissioners of Johnson County v. January, 94 U. S. 202 ; County of Jasper v. Ballou, 103 U. S. 745 ; see also Hannibal and St. Jo. R. R. Co. V. Marion County, 36 Mo. 294 ; Barrett v. County Court, 44 Mo. 197. " Commissioners of Marion County V. Clark, 94 U. S. 278 ; Oubre v. Donaldsonville, 88 La. Ann. 386 ; City of Mount Vernon v. Hovey, 52 Ind. 563 ; Blackman v. Lehman, 63 Ala, 547. And this although the cor- porate seal is attached. Mercer County V. Hacket, 1 Wall. 83. But county warrants are not negotiable. Wall v. County of Monroe, 103 U. S. 74; County of Ouachita v. Wolcott, 103 U. S. 559. And a purchaser before maturity, unless he is personally chargeable with fraud in procuring them, can recover the full amount of their par value, although he has paid less, and the bonds were originally PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 326. delivery without indorsement,* and the holder may sufe in his own name.* Likewise, the interest coupons, attached to municipal bonds payable to bearer, are themselves coupons negotiable and transferable by delivery' when sepa^ "^sotiab e. rated from the bonds.' An overdue and unpaid interest cou- pon, attached to a bond which has several years to run, does not render the bond and the subsequently maturing coupons dishonored paper, so as to subject them in the hands of a purchaser for value to defences good against the original holder.* affected by some infirmity. Crom-well V. County of Sac, 96 U. S. 51. Where an original issue of its bonds may have been illegal, and a city redeems them with legal bonds, the illegality of the original issue does not prejudice the holder of legal bonds, which he has received on surrendering the illegal bonds. Little Rock v. National Bank, 98 U. S. 308. The legality of the ori- ginal claims against a town cannot be inquired into in a suit on bonds issued .to compromise them. Dugas v. Town of Donaldsonville, 33 La. Ann. 668 ; S. C. and St. P. R. Co. v. Osceola County, 52 Iowa, 26. The court will not readily construe a municipal bond to. contain a condi- tion making it payable on a contin- gency, and so non-negotiable. Hum- boldt Township v. Long, 92 U. S. 642. The holder of a municipal bond is pre- sumed to have acquired it in good faith. He need not have given value for it if an intermediate holder did, and he succeeds to all the latter' s rights. Montclairw. Ramsdell, 107 U. S. 147. ' If originally made payable to order, e. g., of the railroad company in aid of which they are issued, muni- cipal bonds would, of course, have to be indorsed in blank or to bearer, be- fore they would be transferable by de- livery without indorsement. 2 Ottawa V. National Bank, 105 U. S. 342. ' City of Lexington v. Butler, 14 Wall. 282 ; Grand Chute v. Winegar, 15 Wall. 365 ; Clark v. Iowa City, 20 Wall. 583 ; Walnut v. Wade, 103 U. S. 623 ; Ohio v. Frank, ib. 697. * Cromwell v. County of Sac, 96 U. S. 51. And overdue interest coupons detached from a bond not yet matured are negotiable. Thompson v. Perrine, 106U. S. 589. Quaere, as to the scope of the decision in this last case ; for the statute of limitations runs against cou- pons from the time they are due, whether they are detached from their bonds or not. Amy v. Dubuque, 98 U. S. 470 ; Koshkonong v. Burton, 104 U. S. 668. In a suit on municipal bonds, the holder of the bonds and the unpaid coupons is entitled to interest on un- paid interest from the time it fell due. Rich V. Town of Seneca Falls, 19 Blatchf. 558 ; although there has been no demand for payment, McLendon v. Commissibners, 71 N. C. 38; but there must h&ve been default on the part of county, either in the payment of the principal debt or the coupons. See Aurora City w. West, 7 Wall. 82; 275 § 328.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 327. The rule that all persous are affected with notice of a Holder not ^"^* pending in regard to the title to property, and affected that every one buys the same at his peril from any of of lis^pen-^ the litigating parties, does not apply to municipal ^^'' bonds and other commercial securities, purchased before maturity.' But a person who buys overdue municipal bonds which have been adjudged void, is bound by the judg- ment.^ An important consequence of the principle that mu- nicipal bonds payable to bearer are negotiable, is that " the omission of formalities and ceremonies or the existence of fraud on the part of the agents of the municipality issuing their bonds cannot be urged against a bona fide holder seeking to enforce them."' For " when a cor- §328. Presump tions. Gelpcke v. Dubuque, 1 Wall. 175. The right to interest on interest, whether arising on an express or on an implied agreement, if allowed by statutes in force -when the bonds were issued, cannot be impaired by subse- quent legislation declaring the true intent and meaning of those statutes. Koshkonong v. Burton, 104 U. S. 668. ' County of Warren v. Marcy, 97 U. S. 96 i County of Cass v. Gillett, 100 U. S. 585; Carroll County v. Smith, 111 U. S. 556; Enfield v. Jordan, 119 U. S. 680. See also County of Macon v. Shores, 97 U. S. 272 ; Leitch v. Wells, 48 N. Y. 585 Stone V. Elliott, 11 Ohio St. 252 Kieffer v. Ehler, 18 Pa. St. 388 Winston v. Westfeldt, 22 Ala. 760. ^ Louis V. Brown Township, 109 U. S. 162. And persons buying negotiable securities with actual notice of the pen- dency of a suit affecting the title or validity act at their peril, and must abide the result and will be concluded by the judgment. Scotland County V. Hill, 112 U. S. 183. 276 ' Kenicott v. Supervisors, 16 Wall. 452, 465 ; Grand Chute v. Winegar, 15 Wall. 355 ; Meyer v. City of Mus- catine, 1 Wall. 384 ; State v. Saline County Court, 48 Mo. 390. But com- pare Jacksonville, etc. R. R. Co. v. Town of Virden, 104 111. 339. The absence of a seal does not affect the right of a bona fide holder to recover. Draper v. Springport, 104 U. S. 501. Compare Bank v. Statesville, 84 N. C. 169. When commissioners author- ized to issue to^n bonds are directed by the statute to affix their seals, and omit to do so, a bill in equity lies by the bona fide holders to restrain the township from pleading the want of seals. Bernard's Township v. Steb- bins, 109 U. S. 341. All qualified voters, who absent themselves from an election held on public notice duly given, are presumed to assent to the expressed will of the majority of those voting; unless the law providing for the election otherwise declares. County of Cass V. Johnston, 95 U. S. 360; Carroll County u. Smith, 111 U. S. 556. PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 329. poration has power under any circumstances to issue negotiable securities, the bona fide holder has a right to presume tha,t they were issued under the circumstances that give the requisite authority, and they are no more liable to be impeached for any infirmity in the hands of such a holder than any other com- mercial paper.J"' § 329. The last statement in the text is the reiterated lan- guage of the Supreme Court of -the United States. Yet it seems broader than was required for the fecitais^ decision of any case in which it was used in regard to municipal bonds.^ If a corporation has a general power to issue negotiable securities, any person may purchase them on the assumption that they were competently issued in the course of authorized transactions.^ But when a corporation — at least a municipal corporation — has but a special and conditioned power to issue negotiable securities for a specified purpose, it seems to the writer the Supreme Court has never actually decided that from the simple bald fact that the securities were issued, and signed by the proper officers, the commercial public is entitled to assume them to have been issued for the special purpose authorized by law, and that all conditions precedent to the authority of the officers to issue them had been fulfilled.* The Supreme Court decisions warrant the following proposition, however: When a municipal corporation, having authority, upon the fulfilment of certain conditionB, to issue negotiable bonds for a specific purpose, issues its bonds signed by the proper officers, and from the statements or recitals contained in the bonds it may fairly be inferred that the bonds were issued ' Gelpcke «. Dubuque, 1 Wall. 175, recitals in the bonds importing that 203 ; City of Lexington v. Butler, 14 the bonds were issued for the purpose Wall. 282 ; see § 205. But if the authorized by the statute, and in eom- plaintiiF is the railroad company, or is plianee therewith. A complaint on a not an innocent holder, the inquiry bond issued by a town having authority ■whether formalities and conditions pre- to issue bonds for certain . purposes, cedent have been complied with re- should state the purpose for which the mains entirely open. Chambers County bond was issued. Hopper v. Coving- V. Clews, 21 Wall. 317. ton, 118 U. S. 148. 2 For instance, in City of Lexington » See § 205. V. Butler, 14 Wall. 282, where this * See Merchants' Bank v. Bergen general language is used, there were County, 115 U. S. 384. 277 § 330.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. for the authorized purpose, and that the conditions precedent had been fulfilled, a purchaser will be protected in the honest assumption that the bonds were validly and regularly issued.* And it is not necessary that the bonds should specifically recite the performance of the conditions, if general language is used — e. g., to the efl^eet that the bonds were issued in pursuance of the statute — whence purchasers may reasonably infer that the conditions precedent were fulfilled, and if nothing appears on the face of the bonds indicating any violation of the statute or departure from the authority conferred by it.* § 330. Knox County v. Aspinwall' is authority for the pro- position that from the mere issue of bonds with a recital that they were issued in pursuance of the statute, a purchaser might assume that the conditions on which the county was authorized to issue them had been complied with. This proposition has ^ It will be noticed that the validity of municipal bonds depends not on principles of the law of negotiable paper alone. Their validity also rests, especially when they contain recitals, on the rule, for which New York and New Haven R. E. Co. v. Schuyler, 34 N. y. 30, is a leading authority, that when the authority of ai) agent to act depends on the existence of a con- dition of fact peculiarly within his knowledge, and he certifies to the ex- istence of that condition, either ex- pressly, or impliedly, by acting in the matter, the principal (corporation) will be bound to the persons dealing with the agent in good faith, although the condition of fact does not exist. §§ 205-207. 2 Coinmissioners of Knox County v. Aspinwall, 21 How. 539, in which case the bonds recited as follows: "This bond is issued in part payment of a subscription of 200, 000 dollars by the said Knox County to the capital stock, etc. , by order of the board of commis- sioners, in pursuance of the 'third section of the act, etc., passed by the 278 General Assembly of the State of In- diana, and approved 15th January, 1849." See also Kenicott v. Super- visors, 16 Wall. 452; St. Joseph Township V. Kdgers, 16 Wall. 644; Marcyu. Township of Oswego, 92 U. S. 638 ; Humboldt Township v. Long, 92 U. S. 642 ; Commissioners, etc. v. BoUes, 94 U. S. 104; Township of Rock Creek v. Strong, 96 U. S. 271 ; San Antonio «. Mehaffy, 96 U. S. 312 ; County of Warren v. Maroy, 97 U. S. 96 ; Nauvoo v. Ritter, 97 U. S. 389 ; Hackett v. Ottawa, 99 U. S. 86 ; Town of Weyanwega v. Ayling, 99 U. S. 112; Supervisors p. Galbraith, 99 U. S. 214; Brooklyn w. Insurance Co., 99 U. S. 362; Block v. Commission- ers, 99 U. S. 686; Pana v. Bowler, 107 U. S. 529 ; Oregon v. Jennings, 119 U. S. 74; Dodge v. County of Platte, 16 Hun, 285; ShurtlefF v. Wiscasset, 74 Me. 130 ; Anderson County V. Houston & G. N. R. R. Co., 52 Tex. 228 ; compare Jacksonville, etc. R. R. Co. V. Town of Virden, 104 111. 839. » 21 How. 539. PART III.] ACTS BEYOND THE CORPORATE POWERS. . [§ 331. been reaffirmed in the Supreme Court ;' but it may be stated in a somewhat different and a more guarded form, in which form it. is unquestionably the law of the Supreme Court. "Where legislative authority has been given to a municipality, or to its officers, to subscribe for the stock of a railroad company, and to issue municipal bonds in payment, but only on some prece- dent condition, such as a popular vote favoring the subscrip- tion, and where it may be gathered from the legislative enact- ment that the officers of the municipality were invested with power to decide whether the condition precedent has been com- plied with, their recital that it has been made in the bonds issued by them, and held by a bona fide purchaser, is conclusive of the fact and binding upon the municipality, for the recital is itself a decision of the fact by the appointed tribunal."* § 331. This last statement differs little in effect from the pro- position for which Knox v. Aspinwall is authority ; for officers who have authority upon the existence of certain facts or the fulfilment of certain conditions to perform certain acts, ordina- rily have implied authority to certify to the existence of those facts or the fulfilment of the conditions, unless otherwise pre- scribed by the statute,* of which every purchaser would be bound to take notice. As Justice Swayne said, in Commission- ers of Johnson County ?;. January:* "This act .... author- ized the commissioners to issue the bonds, when the require- ' Mercer County ». Hacket, 1 Wall, Savings, 104 Us. S. 579 ; Insurance 83 ; Moran v. Commrs. of Miami Co. v. Bruce, 105 U. S. 328 ; Grenada Countj', 2 Black, 722, 732; Supervi- County Supervisors v. Brogden, 112 sors V. Schenck, 5 Wall. 772, 784; U. S. 261; County of Ralls v. Doug- Meyer V. City of Muscatine, 1 Wall, lass, ib. 728 ; LeWis v. Commissioners, 384. ib. 739 ; Dallas County v. McKenzie, ^ Town of Coloma v. Eaves, 92 U. 110 U. S. 686. S. 484, 491 ; opinion of the court per " See Bissell v. Jeffersonville, 24 Strong, J., ace. Town of Venice v. How. 287 ; "Van Hostrup v. Madison Murdock, 92 U. S. 494; Anderson City, 1 Wall. 291; Mercer County v. County Commrs. v. Beal, 113 U. S. Hacket, ib. 83; also §§ 205 et seq. 227 ; contra, Cogwin v. Town of Han- * 94 U. S. 202, 205. The officer cock, 84 N. Y. 532. executing the bonds is sometimes ex- See also Pompton o. Cooper Union, pressly authorized to certify to the ful- 101 U. S. 196 ; Bonham v. Needles, filment of conditions precedent, as, 103 U. S. 648 ; Walnut v. Wade, ib. e. g., in Lynde v. The County, 16 683 ; County of Clay v. Society for Wall. 6. 279 § 332.] THE LAW OF PRIVATE CORPORATIONS. [CHAP, VII. Vague re- citals. Constitu- tional lim- itations. ments of the law had been complied with. They were thus con- stituted a tribunal for the adjustment of all questions touching the subject. They were clothed with the , power and charged with the duty to decide them. No appeal or review was pro- vided for. Their issuing the bonds was the reflex and embodi- ment of their judgment that it was proper to do so."' § 332. Recent decisions of the Supreme Court of the United States, either deciding new points or interpreting former decisions, seem to place the following limita- tions or conditions on the operation of recitals in municipal bonds as estoppels. First: the recital will not conclude the municipality when from the face of the bond or from some record with notice of which the holder is aftected, it appears that the statute authorizing the issue has not been complied with.^ Thus, where a statute directs the county com- missioners, when the electors shall have voted to issue bonds in aid of a railroad, to order the county clerk to make the sub- scription, and to cause the bonds to be issued in the name of the township, signed by the chairman of the board and attested by the clerk under the seal of the county, the signature of the clerk is essential to the valid execution of the bonds, even though he has no discretion to withhold it ; and the town will not be estopped from disputing their validity by reason of recitals in the bonds to the effect that the terms of the statute have been complied with.* ' The municipality is estopped from setting up the non-fulfilment of a con- dition precedent "if certified to by the authorities whose primary duty is to ascertain it." Fana v. Bowler, 107 U. S. 529. ' Of course no recital will conclude the municipality where there was no authority to issue the bonds ; for every one is bound to take notice of the rule that municipal corporations have no implied authority to issue negotiable bonds, and also every one is bound to take notice of the terms of the legislative authority under which the bonds purport 280 to be issued. See §§319, 320. The Federal Supreme Court "has never intended to adjudge that mere recitals by the officers of a municipal corpora- tion in bonds issued in aid of a railroad corporation precluded an inquiry, even where the rights of a bonajide holder were involved, as to the existence of legislative authority to issue them." Northern Bank v. Porter Township, 110 U. S. 608, 615, opinion of Court per Harlan, J. ' Bissel V. Spring Valley Township, 110 U. S. 162. PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 332. In another case, under the constitution and laws of I^ebraska, a county had authority to issue bonds to the extent of ten per cent, of the assessed valuation of the property in the county. The bonds stated on their face that they were part of a series amount- ing in the aggregate to a specified sum, which exceeded ten per cent, of the assessed valuation of the property in the county, as any one could have ascertained by examining the assessment rolls on file. It was held that ^he officers issuing the bonds had no authority to conclude the county by a recital in the bonds to the contrary of what could thus have been ascertained.* Secondly : recitals in municipal bonds are conclusive only as far as they relate to facts within the authority of the officers making the recitals to determine and certify to the existence of.^ "The adjudged cases, examined in the light of their special circumstances, show that the facts which a municipal corporation, issuing bonds in aid of the construction of a rail- road, was not permitted, against a bona fide holder, to question, in face of a recital in the bonds of their existence, were those connected with or growing out of the discharge of the ordinary duties of such of its officers as were invested with authority to execute them, and which the statute conferring. the power made it their duty to ascertain and determine before the bonds were issued ; not merely for themselves, as the ground of their' own action in issuing the bonds, but, equally as authentic and final evidence of their existence, for the information and action of all others dealing with them in reference to it."' Or, as Justice Matthews said, giving -the opinion of the court in Dixon County V. Field: "Where the validity of the bonds depends on an estoppel claimed to arise upon the recitals of the instrument, the question being as to the existence of power to issue them, it is necessary to establish that the officers executing the bonds had lawful authority to make the recitals and to make them conclusive. The very ground of the estoppol is that the recitals ' Dixon County v. Field, 111 U. S. the court, per Harlan, J. Compare 83. See §321. Townof Springport d. Teutonia S'v'gs 2 See §§ 330, 831. B'k, 75 N. Y. 397 ; S. C, 84 N. Y. ' Northern Bank v. Porter Town- 408 ; Craig v. Town of Andes, 93 N. ship, 110 U. S. 608, 619, opinion of Y, 405. 281 § 332.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. VII. are the official stateipents of those to whom the law refers the public for authentic and final information on the subject."* ■ Thirdly : the recital or fact to be conclusive on the munici- pality must be the act of municipal officers empowered to cer- tify to it, or to take final action in the matter, and not the act of some outside tribunal before whom the municipality has had no opportunity of appearing ; or at least the fact or recital must be based on the action of such municipal officers. Thus, a statute provided that the holder of certain municipal bonds might have them registered in the office of the auditor of state, whose duty it should then be to notify the town officers issuing them, who in their turn should record the fact of the auditor's registration ; and the bonds should thereafter be considered registered bonds. The mere registration by the auditor, with- out further steps, was held ineffectual and not to estop the town.'' Giving the opinion of the court, Justice Matthews said : "If complete and conclusive effect were, on the contrary, given to the ex parte record of the auditor of state, as is claimed for it, the obvious design and just purpose of the statute would be not secured, but subverted ; and municipal corporations might be subjected to liability for bonds purporting to be issued by them, which, in fact and in law, were not their ob- ligations, by virtue of a proceeding of which they had no notice, resulting in an adjudication which they had no oppor- tunity of contesting. A construction of the statute that neces- sarily leads to that conclusion is not warranted by its terms, and would be repugnant to fundamental principles of common right. If the registration of bonds issued under the act itself is to have the force- of an adjudication by the auditor, the pre- liminary record by the officers of the municipal corporation transmitted to him must be the indispensable foundation of his jurisdiction, without which he cannot lawfully act ; and as to ' 111 U. S. 83, 94. the bonds send a record of their pro- ' Bissell V. Spring Valley Town- ceedings to the auditor, who should do ship, 110 U. S. 162. The court said the final registration, and indorse it on that it would have been otherwise, if the bonds ; citing Lewis v. Commis- the town officers had had to take the sioners, 105 U. S. 739. first steps, and then having registered 282 PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 332. bonds issued as were these now in suit, under previous statutes, the action of the auditor is itself but the preliminary pro- ceeding, of which confirmation by the subsequent record of the ofiicers issuing them is essential to its efficacy as a registration. If these officers refuse to recognize the registry of the auditor, whether rightfully or wrongfully, the holder loses no rights. He has the bonds as he acquired them, and may test the liability of the corporation by judicial proceedings. If, on the other hand, the statute is construed to allow him, by a proceeding before the auditor, conclusively to fix the liability of the muni- cipal corporation, without notice and without a hearing, cer- tainly, in respect to bonds previously issued, it would be open to the gravest objection on constitutional grounds, for, if a law cannot impair the obligation of a contract, neither can it create one, nor, by a mere fiat, take from a party an existing and meritorious defence."' Fourthly : recitals will not estop the county from showing the invalidity of the bonds on grounds not properly covered by them. Thus, a recital in a municipal bond that it was "authorized by the following styled acts," giving their titles and dates, does not estop the municipality from showing that the issue was not authorized by a two-ttirds vote, as required by the state constitution.' In another case' the bonds recited that they were " issued by the board of school directors by au- thority of an election of voters of said school district, held on the thirty-first day of July, 1869, in conformity with the pro- visions of chap. 98 of acts 12th general assembly of the state of Iowa." The constitution of Iowa declares that no muni- cipal corporation " shall be allowed to become indebted in any ' Bissell V. Spring Valley Town- pality is not concluded by the certificate ship, 110 U. S. 162, 173. from denying the facts certified to; When the constitution or a statute Dixon County u. Field, 111 U. S. 83; of a state requires as essential to the see also Crow v. Oxford, 119 U. S. validity of municipal bonds that they 215. Compare Hofi" w. Jasper County, shall be registered by the secretary and 110 U. S. 53. auditor of state, who shall also certify ' Carroll County v. Smith, 1 U U. on them the fact that they have been S. 556. Compare § 329 and authori- issued according to law, yet does not ties cited in the last note to it. give any conclusive effect to such " School District v. Stone, 106 U. registration or certificate, the munici- S. 183. 283 § 333.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. manner, or for any purpose, to an amount in the aggregate exceeding five per centum of the value of the taxable property within such county or corporation, to be ascertained by the last state and county tax lists, previous to the increasing of such indebtedness." The court held that the recital above men- tioned " necessarily implied nothing more than that the bonds were issued by authority of the electors, and that the election was held in conformity with the statute. The statute may have been pursued as to the notice required to be given of the time and place of the election, and as to the manner in which the will of the voters was to be ascertained, and yet it may have been disregarded in respect to the limit it imposes upon dis- trict indebtedness. The declaration, therefore, that the election was held in conformity with the statute, does not with suffi- cient distinctness imply that the indebtedness voted was less than five per cent, on the value of the taxable property of the district, as shown by the state and county tax lists." Accord- ingly, the bonds, having been issued in excess of the constitu- tional limit, were held void. The court concluded with saying, that "where the holder relies for protection upon mere recifals, they should, at least, be clear and unambiguous, in order to estop a municipal corporation, in whose name such bonds have been made, from showing that they were issued in violation, or without authority of law."' § 333. If not restrained by some valid special limitation upon Power of *^® exercise of its taxing power, a county authorized municipal to contract an extraordinary indebtedness by the corporation . . i i . . i to tax. issue 01 negotiable securities, may levy a ta;x to meet mus. principal and interest as they accrue.^ And when a state has authorized a municipal corporation to contract, and to exercise the power of local taxation to the extent necessary to meet its engagements, the power of taxation thus given cannot be withdrawn until the contract is satisfied. The state and the corporation are equally bound to respect the claims of the credi- tors of the latter ; and the power given becomes a trust which 1 106 U. S. 187. Compare with 2 Ealls County Court v. United this decision Marcy v. Township of States, 105 U. S. 733 ; Quincy v. Oswego, 92 U. S. 637, and see § 321. Jackson, 113 U. S. 332. 284 PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 333: the donor cannot annul and the donee is bound to execute. " By the obligation of a contract is meant the means which, at the time of its creation, the law affords for its enforcement. The usual mode by which municipal bodies obtain the funds to meet their pecuniary engagements is taxation. Accordingly, when a contract is made upon the faith that taxes will be levied, legis- lation repealing or modifying the taxing power of the corpora- tion, so as to deprive the holder of the contract of all adequate and efficacious remedy, is within the constitutional inhibition."* Accordingly, a mandamus will issue to a municipal corporation commanding it to levy taxes to the amount requisite to meet its valid engagements.^ It is well established that. after judgment at law for a sum of money against a municipal corporation a'nd the return of execution unsatisfied, mandamus^ not a bill in equity,^ is the proper mode to compel the levy of a tax which the corporation is bound to levy to pay the judgment.* And when judgment has been duly obtained against a county on its bonds or coupons, no defence questioning their validity can be pleaded to a mandamus.^ Conversely, when in an action for a ' Nelson v. St. Martin's Parish, 111 U. S. 71.6, 721 ; op'n per Field, J. And see Seibert v. Lewis, 122 U. S. 284, and cases in next note. ' Von Hoffman v. City of Quincy, 4 Wall. 535 ; United States u. New Orleans, 98 U. S. 381 ; Brodie v. McCabe, 33 Ark. 690: Columbia County V. King, 13 Fla. 461. As long as a city exists laws are void which withdraw or restrict her taxing power so as to impair the obligation of her contracts made upon a pledge ex- pressly or impliedly given that it shall be exercised for their fulfilment. Man- damus will lie, notwithstanding such laws. Wolff u. New Orleans, 103 U. S. 358, approving Von Hoffman v. Quincy. Compare Louisiana v. Mayor of New Orleans, 109 U. S. 285; Rahway v. Munday, 44 N. J. L. 395. Where the relator has a judgment, on railway aid bonds, against a township, and is otherwise entitled to a writ of mandamus, a mandamus to compel the levy of a tax lies against all the officers whose co-operation in tax levies is by law required, whether they are town or county officers. La- bette County Commissioners v. Moul- ton, 112 U. S. 217. But judgment on the bonds must first have been had. Davenport v. County of Dodge, 105 U. S. 237; County of Greene v. Daniel, 102 U. S. 187. Regarding mandamus as a remedy of the holder of municipal bonds, see Dillon on Mun. Corps., 3d ed., §§ 849 et seq. ^ Thompson v. Allen County, 115 U. S. 550. * Walkley v. City of Muscatine, 6 Wall. 481. ' Ralls County Court v. United States, 105 U. S. 738. Compare 285 §334.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. mandamus a judgment is rendered against the relator on the ground that the bonds are invalid, that judgment is conclusive of their invalidity as against the vendee of the relator who purchases the bonds after maturity.* If a municipality by the statute authorizing the issue of bonds receives power to levy taxes to a certain amount, the implication arises that the legis- lature did not intend to authorize taxation beyond that amount, and a court has uo power by mandamus to compel a municipal corporation to levy a tax unauthorized by law ; nor to compel it to levy a larger tax than is authorized expressly or by impli- cation." A mandamus can only enforce existing laws ; it confers no new power on those to whom it issues.* § 334. Property held for public uses, such as public build- Municipai ^"S^? Squares, parks, promenades, wharves, landing- property places, fire-engines, hose and hose-carriages, engine- from exe- houses, engineering instruments, and generally every- cution. thing held for governmental purposes, cannot be sub- jected to the payment of the debts of the municipality. The public character of such property forbids this. Upon the repeal of the charter of the city, such property passes under the imme- State V. Mayor of Manitowoc, 52 Wis. 423. A county subscribed for the stock of a railroad corporation, and issued bonds in payment therefor pursuant to a law that authorized the levy of a special tax to pay them, "not to exceed one-twentieth of one per cent, upon the assessed value of taxable property for each year," but which contained no provision that only the fund so derived should be applied to their payment. Held, that the bonds were debts of the county as fully as any other of its liabilities, and that for any balance remaining due on account of principal or interest after the appli- cation thereto of the proceeds of such tax, the holders were entitled to pay- ment out of the general funds of the county. United States v. County of Clark, 96 U. S. 211 ; Knox County y. 286 United States, 109 U. S. 229. Com- pare East St. Louis v. Zebley, 110 U. S. 321. Contra, State u. Macon County, 68 Mo. 29. When the relator has ob- tained judgment on county bonds issued in aid of a railroad, and his only means of obtaining satisfaction is through the levy of a tax, a mandamus from a Federal court to the county officers directing them to levy a tax to pay the interest on the bonds, can in no way be controlled by an injunction from a state court enjoining a levy. Super- visors V. Durant, 9 Wall. 415; Haw- ley V. Fairbanks, 108 U. S. 543. ' Louis V. Brown Township, 109 U. S. 162. 2 United States v. County of Macon, 99 U. S. 582. See Quincy v. Jack- son, 113 U. S. 832, 338. ' United States v. County of Clark, 95U. S. 769. PART III.] ACTS BEYOND THE CORPORATE POWERS. [§ 334. diate control of the state, the power once delegated to the city in that behalf having been withdrawn ; neither can the private pro- perty of individuals within the limits of the territory of the city be subjected to the payment of its debts, except through taxation. The doctrine of some states that such property can be reached directly on execution against the municipality has not been generally accepted.* ' Merriweather v. Garrett, 102 U. may, by common law or immemorial S. 472; Darling w. Mayor, etc. of Bal- usage, be taken on execution upon a timore, 51 Md. 2. In towns in Con- judgment against the town. Bloom- necticut (as in Massachusetts and field v. Charter Oak Bank, 121 U. S. Maine), the property of any inhabitant 121. 287 § 335.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. PART IV. LIABILITY OF A CORPORATION FOR THE TORTS OF ITS AGENTS AND SERVANTS. Corporations liable like natural prin- cipals. Grounds of the principal's liability, § 335. An underlying principle. Application of the doctrines of ultra vires, §§ 336-338. Liability -when corporation is under no special obligation to the injured per- son, § 339. Corporations also liable for torts on principles rendering them liable for contracts, § 340. Summary. Rules, § 341. First rule. Liability resting on agent's authority, § 342. ' Second rule. Liability resting on course of tort-feasor's employment, §§ 343, 344. Third rule. Liability where tort causes violation of duty owed by the corpo- ration, § 345. Violation of special obligation, § 346. Common carriers of passengers, § 347. May make reasonable regulations, § 348, Liability of carriers for negligence, § 349. Carrier's fundamental obligations, § 350. Modification of carrier's common law liability, § 351. Carrier cannot stipulate against lia- bility for negligence, §§ 352-354. Carrier's liability for baggage, § 355. Limitations of carrier's liability in amount, § 356. Telegraph companies, § 357. Evidence of • assent to limitations of carrier's liability, §§ 358, 359. When carrier's liability begins and ceases, § 360. Delay in transportation, § 361. Carrier's liability for losses on connect- ing lines, §§ 362-364. Corporation's liability for injuries to employes, §§ 365, 366. Liability of corporation where it owes no special duty, § 367. Railroad companies, §§ 368, 369, Liability when lessened, § 370. Trespassers, §§371, 372. Contributory negligence, §§ 373-375. Burden of proof, § 376. Damages recoverable. Exemplary damages, §§ 377, 378. § 335. It may be stated as a general rule that corporations are responsible' for the torts" of their agents and servants upon ' That is to say, legal relations oc- casioned by the tort will subsist be- tween the injured person and the corporation. 2 A tort is a fact with legal effect, 288 other than a contract or agreement ; a fact, that is, which occasions legal rules to manifest themselves in legal relations. Such fact may consist in an act or in an omission. PART IV.j LIABILITY FOE TOETS OF AGENTS. [§ 335. the same grounds and to the same extent as individual princi- pals or masters.' The liability of principals or mas- ters for the torts of their agents or servants does not tione liable rest in every respect on the rules which constitute princ^ailt the basis of the responsibility of principals for the ^™™^gi°^ contracts of their agents. The liability of a principal pai's lia-i for the contract of his agent depends altogether on whether the contract was within the scope of the agent's actual authority, or of such authority as the other contracting party acting as a careful and honest man was justified in inferring to exist from the course and general scope of the agent's employ- ment. But in regard to the principal's liability on the contract of his agent, the course and scope of the agent's employment are material only in determining whether the other contracting party was justified in relying on the agent's assumed authority. Gn the other hand, in regard to the principal's liability for the torts of his agent or servant, the course and scope of the employment become material in themselves, apart from their materiality as evidence of implied authority : for a principal may be liable for torts of his employ^, committed in the course of the latter 's employment, which the injured person could never have imagined that the principal had authorized. Thus, in Craker v. Chicago and ]!^orthwestern Railway Co.,* a rail- road company was held liable to pay damages to a young lady passenger whom the conductor kissed ; a tort which she was not justified in supposing to have been committed pursuant to instructions from the company. It might, indeed, be suggested that kissing passengers was not pi'operly within the scope of the conductor's employment ; but it is within the scope of his employment and duty to protect them from insult; and if he violates this duty by insulting them himself, the company will I Philadelphia, etc. K. R. Co. v. 32 N. J. L. 328 ; South and North Quigley, 21 How. 202, 209; Fishkill Alabama R. K. Co. v. Chappell, 61 Savings Ins'n v. National Bank, 80 N. Ala. 527 ; Merchants' Bank v. State Y. 162; Denver and R. G. Ry. v. Bank, 10 Wall. 645; Salt Lake City Harris, 122 U..S. 597; Angell and v. HoUister, 118 U. S. 256 ; Ranger Ames on Corp, § 310. See Ramsden v. Great Western R'y Co., 5 H. L. C. V. Boston and Albany R. Co., 104 72, 86. Mass. 117 ; Brokaw v. N. J. R. Co., ^ 36 Wis. 657. 19 289 § 337.] THE LAW OF PKIVATE CORPORATIONS. [CHAP. VII. be responsible. For a railroad company is responsible to pas- sengers even for the wilful and malicious acts of its conductors and train hands committed while they are employed in carry- ing out the contract between the passenger and the company.' § 336. An underlying principle here is this : if the corpora- An under *^°'^' ^^^^^S within the SCOpe of its corporate author- lying prin- ity, employs agents or servants in such a manner as plication of to put it within their power to cause a violation of a trineB°of sor's em- ployment. lege, see also Lawless v. Anglo- Egyp- tian Co., L. R. 4 Q. B. 262. ' Southern Express Co. v. Fitzner, 59 Miss. 581. 2 Lynch v. Metropolitan Elevated E. R. Co., 90 N. Y. 77. ' Williams v. Planter's Ins. Co., 57 Miss. 759 ; Reed v. Home Savings Bank, 130 Mass. 443 ; Woodward v. St. Louis, etc. Ry. Co., 85 Mo. 142 ; Wheeler & Wilson M'f g Co. v. Boyce, 36 Kan. 350 ; Copley v. Grover & Baker Sewing Machine Co., 2 Woods, 494 ; Carter v. Howe Machine Co., 51 Md. 290; Jordan v. Alabama, G. S. R. R. Co., 74 Ala. 85, overruling Owsley V. Montgom.ery, etc. R. R. 298 North Ala. R. R. Co. v. Chappell, 61 Ala. 527 ; see Ricord v. Central Pae. R. R. Co., 15 Nev. 167; Good- speed V. East Haddam Bank, 22 Conn. 530 ; Wheless v. Second Nat. Bk., 1 Baxt. (Tenn.) 469. * Hewitt V. Swift, 3 Allen, 420; Holmes v. Wakefield, 12 Allen, 580. , See §§ 347, 348. ^ Whiteraan's Exr. v. Wilmington, etc. R. R. Co., 2 Harr. (Del.) 514; Hazen v. Boston and Maine R. R. Co., 2 Gray, 574; Mobile, etc. R. R. Co. V. McKellar, 59 Ala. 458. 5 Ford u. Santa Cruz R. R. Co., 59 Cal. 290. ' Mott V. Consumers' Ice Co., 73 N. PART IV.] LIABILITY FOE TORTS OF AGENTS. [§ 346. sault of the servants must in some way be connected with their employment in the business of the corporation. And thus it has been held that a railroad company is not liable for an as- sault and battery committed by its employes on a person who, they thought, had placed obstructions on the railroad track ; the assault being in uo way connected with their employment.* § 345. "We come now to the consideration of the third rule regulating the liability of corporations for the torts ™ , . , . ..,.,, Third rule.' . 01 their servants and agents. A corporation is liable Liability for any wrongful or negligent act or omission on the ^auTeVv^o- part of any of its servants or agents which causes a 1**'°°°^, r J o duty owed violation of any duty or obligation owed by the cor- by corpo- poration ■ to the injured person : and this is true whether the corporation owes to the injured person special duties arising from contract, so that the tort occasions a breach of contract ; Or whether it is a duty owed to the injured person merely as a member of the community ; a duty mainly based on the maxim. Sic utere tuo ut alienum non Icedas. It will be convenient to consider first, the liability of a corporation for the torts of its agents and employes which cause the breach of some special or contractual obligation owing from the corpora- tion to the injured person. The illustrations will be almost entirely drawn from the law relating to common carriers, and in especial to railroad companies ; but of course other classes of corporations will at times have to respond in damages for omis- sions and neglects of their servants and agents, which cause the breach of a duty owing from the corporation. § 346. Thus, a bank is liable for the loss, through the gross negligence of its officers or employes, of a special deposit re- Y. 543 ; Nashville & C. R. R. Co. v. v. C. K. I. and P. R. Co., 59 Iowa, Starnes, 9 Heisk. (Tenn.) 52; Banis- 428. A railroad company is not re- ter V. Pennsylvania Co. , 98 Ind. 220. sponsilale for the acts of its employes A railroad company is liable for the in creating a nuisance by using a cul- wilful acts of its servants in running vert under its railroad, near the plain- a train over a person on the track, tiff's residence, as a privy. Hopkins Terre Haute, etc. R R. Co. v. Gra- v. Western Pac. R. R. Co., 50 Cal. ham, 46 Ind. 239. Contra, Illinois 190. See also Edwards v. London Central R. R. Co. v. Downey, 18 111. and N. W. R'y Co., L. R. 5 C. P. 259 ; Pennsylvania Co. v. Toomey, 445 ; Allen v. London and S. W. R'y 91 Pa. St. 256. Co., L. R. 6 Q. B. 65 ; but compare > Porter v. C. R. I. and P.'R. R. Golf v. Great Northern R'y Co., 8 E. Co., 41 Iowa, 858. See also Marion & E. 672. 299 § 347.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. ceived by it for safe keeping ;* and for the neglect of its officers Violation ^ protest OF present at maturity a promissory note of special deposited with it for collection.^ And a bank will iga ion. ^^ liable if its teller receives a deposit unaccompanied by the customary deposit ticket or pass-book, and credits it by mistake to the wrong person.^ § 347. To the contract of a common carrier of passengers the law from motives of public policy adds certain carriers of implied covenants or obligations ; or it may be said, passengers. ^^ gomewhat different words, the carrier impliedly agrees to do more than simply to carry the passenger. He agrees, as we shall hereafter see in regard to negligence, to use every reasonable precaution for the passenger's safety •* and while a carrier does not insure his passengers against every conceivable danger, he is held absolutely to agree that his own servants engaged in transporting the passenger shall commit no wrongful act against him. Accordingly, any tort committed on a passenger by servants of the carrier who come in contact with him in the ordinary performance of their duties and labors, causes a breach of contract between the passenger and the carrier, for which the latter is liable. Recent cases state this liability in the broadest and strongest language ; and, with- out going beyond the actual decisions, it may be said that the carrier is liable for every conceivable wrongful act done to a passenger by its train-hands and other employes while they are engaged in transporting him ; no matter how wilful and ma- licious the a^t may be, or how plainly may be apparent from its nature that it could not have been done in furtherance of the carrier's business. The rule limiting the responsibility of the master to acts of his servants done within the scope of the ser- vants' employment, does not apply to the relations between common carriers and passengers." ' National Bank v. Graham, 100 U. ' Jackson Ins. Co. v. Cross, 9 Heisk. S. 699; Chattahoochee Nat. Bk. v. (Tenn.) 28.S. Schley, 58 Ga. 369 ; §§ 161, 337. * See § 350. 2 Chapman w. McCrea, 63 Ind. 360; ^ Stewart v. Brooklyn and Cross- Bank of New Hanover v. Kenan, 76 town R. R. Co., 90 N. Y. 588 (prac- N. C. 340 ; Steele v. Russell, 5 Neb. tically overruling Isaacs v. Third Av. 211 ; Capital State Bank v. Lane, 52 R. R. Co., 47 N. Y. 122) ; Pendleton 677. See §161. v. Kinsley, 3 Cliff. 416; Goddard v. 300 PART IV.] LIABILITY FOR TORTS OF AGENTS. [§ 348. A carrier's liability extends even further. He is bound to use every endeavor to protect his passengers, as long as they are under his charge, from the assaults of persons other than his own servants, for instance, fellow-passengers. And if his ser- vants fail to use their best endeavors to protect passengers, the carrier will be responsible.' § 348. A carrier has the right to make reasonable regulations for the management and ordering of his business; and no cause of action will arise against hini for the reasonaWe reasonable acts of his servants done in carrying out reguia- tions such regulations. But a regulation will be no pro- tection to the carrier if it is unreasonable, or if his servants use undue force or violence in enforcing it.^ A regulation by a Grand Trunk Kailway, 57 Me. 202 ; Bryant v. Rich, 106 Mass. 180; Chicago and Eastern R. R. Co. v. Flexman, /103 111. 546; Hanson v. European, etc. R. Co., 62 Me. 84 ; Craker v. Chicago and N. W. R'y Co., 36 Wis. 657 ; Passenger R. R. Co. V. Young, 21 Ohio St. 518 ; Terre Haute and I. R. R. Co. v. Jackson, 81 Ind. 19; JefFersonville R. R. Co. v. Rogers, 38 Ind. 116; Indianapolis, P. and C. R. R. Co. v. Anthony, 43 Ind. 183 ; Terre Haute and I. R. R. Co. v. Fitzgerald, 47 Ind. 79 ; New Orleans, St. Louis, etc. R. R. Co. v. Burke, 53 Miss. 201 ; Nietou. Clark, 1 Cliff. 145 ; Sherley v. Billings, 8 Bush, (Ky.) 147 ; Moore v. Fitchburg R. R. Co., 4 Gray, 465 ; compare Perkins v. Mis- souri, K. and T. R. R. Co., 55 Nev. 201 . But see Allegheny R. R. Co. v. McLain, 91 Pa. St. 442. 1 Pittsburgh, Ft. W. and C. R'y Co.,?;. Hinds, 53 Pa. St. 512; Flint V. Norwich and N. Y. Trans'n Co., 34 Conn. 554 ; Holly v. Atlanta Street R. R. Co., 61 Ga. 215 (a statute af- fected this decision) ; Weeks v. N. Y., N. H. and H. R. R. Co., 72 N. Y. 50; Hendricks v. Sixth Ave. R. R. Co., 12 J. & Sp. (N. Y.) 8; Britton V. Atlanta, etc. R'y Co., 88 N. C. 536 ; New Orleans, Sti L. and C. R. R. Co. V. Burke, 53 Miss. 200 ; Pitts- burgh and C. R. R. Co. v. Pillow, 76 Pa. St. 610 ; Spohn v. Missouri Pac. R'y Co., 87 Mo. 74. See Putnam v. Broadway, etc. E. R. Co., 65 N'. Y. 108; Barrett v. Maiden, etc. R. R. Co.,. 3 Allen, 101. It is said that sleeping-car compa- nies are not liable either as inri-keep- ers or as common carriers for goods stolen from the person of an occupant of a berth in a sleeping-car. Pullman Palace Car Co. v. Smith, 73 111. 360. See Welch v. Pullman Palace Car Co., 16 Abb. Pr. N. S. (N. Y.) 352, and cases below. But it is the duty of a sleeping-car company vigilantly to protect in their persons and property the occupants of berths when asleep ; and the company is liable to them for goods stolen from their persons while asleep through want of care on its part and on the part of its servants. Wood- ruff Sleeping, etc. Co. v. Diehl, 84 Ind. 474. » Peck V. N. Y. C. and H. R. R. R. Co., 70 N. Y. 587 ; Chicago, B. and 301 § 348.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. railroad company setting apart in the first instance a car for females and their escorts, is proper and reasonable, and the company has a right to enforce it.' Likewise, in order to pre- serve order and prevent collisions from well-known race repug- nances, a carrier may seat passengers according to color.* And gamblers and monte-men, who travel on a train to ply their vocation, may be excluded f or a person who is so drunk as to be offensive.^ A regulation by a railroad company requiring passengers to exhibit their tickets whenever requested by the conductor, and directing the ejection from the cars .of those who refuse to com- ply, is reasonable and proper. A passenger is bound to comply, and by refusing forfeits his right to be carried farther." On the Q. E. K. Co. V. Griffin, 68 111. 499 ; Pennsylvania R. K. Co. v. Vandiver, 42 Pa. St. 365 ; Chicago, B. and Q. R. R. Co. V. Bryan, 90 111. 126. A passenger should inform himself of the carrier's regulations. McRae v. Wil- mington, etc. R. R. Co., 88 N. C. 526 ; Britten v. Atlanta, etc. R'y Co., ib. 536. » Peck V. N. Y. C. and H. R. R. R. Co., 70 N. Y. 587. So a regulation that no man, unaccompanied by a ■woman, shall enter the ladies' private room is reasonable. Toledo, Wabash and W. R'y Co. v. Williams, 77 111. 354. See also McRae v. Wilmington, etc. R. R. Co., 88 N. C. 526. " West Chester, etc. R. R. Co. v. Miles, 55 Pa. St. 209. See Derry v. towry, 6 Phila. 30. Changed by act of Pennsylvania legislature in 1867, and such a regulation would perhaps be unconstitutional since the 14th amendment to the Federal constitu- tion. And see, as opposed to the Penn- sylvania decisions, Chicago and N. W. R'y Co. V. Williams, 55 111. 185. A passenger must observe proper de- corum and reasonable rules, and is not justified in resisting every trivial im- 302 position to which he may be exposed, so that his resistance must be overcome by counter-force to preserve subordi- nation. Chicago, B. and Q. R. R. Co. V. Griffin, 68 111. 499. ' Thurston v. Union Pac. R. R. Co., 4 Dill. 321. See also Pearson v. Duane, 4 Wall. )S05. A t-egulation forbidding hackmen, peddlers, express- men, and loafers from coming within a passenger depot is reasonable. Sum- mitt V. State, 8 Lea (Tenn.), 413. * Pittsburgh, C. and St. L. R'y Co. V. Vandyne, 57 Ind. 576. See Railway Co. v. Valleley, 32 O. St. 345; Murphy ». Union R'y Co., 118 Mass. 228. = Hibbard v. N. Y. and Erie R. R. Co., 15 N. Y. 455; Crawford v. Cin- cinnati, etc. R. R. Co., 26 O. St. 580. Carriers may require passengers to purchase and show tickets. Pullman Palace Car Co. v. Reed, 75 111. 125; Lane v. Railroad Co., 5 Lea (Tenn.), 124. A carrier may discriminate be- tween the amount of fare when a ticket is purchased, and when the fare is paid on the train. Swan v. Man- chester, etc. R. R., 132 Mass. 116; Indianapolis, etc. R. Co. v. Rinard, .PART IV.] LIABILITY FOE TORTS OF AGENTS. [§ 349. other hand, it is unreasonable to require that a passenger shall not leave the train or station without showing a ticket or pay- ing his fare; and if in carrying out this regulation a passenger is detained or arrested by the employes of the carrier, the car- rier will be liable for damages in a suit for false imprisonment.^ § 349. The most numerous and on that account the most important class of cases in which carriers are held liable for misfeasance of their employes which earner/for causes a breach of the carrier's obligations, are cases "^gi's™<=e. of negligence. And here we may consider, first, the responsi- bility of carriers for negligence towards persons to whom they owe some special duty,'' and, secondly, their responsibility to persons towards whom they are affected only with the general duty arising under the maxim, Sic utere tuo ut cdienum non Icedas. 46 Ind..293; Toledo, W. and W. E. E. Co. V. Wright, 68 Ind. 586 ; Du Laurens v. First Division St. P. and P. E. E., 15 Minn. 49 ; see Jefferson- ville E. E. Co. v. Eogers, 38 Ind. 116. A regulation requiring stop-over tick- ets is reasonable. Yorton v. Milwau- kee, etc. E'y Co., 54 Wis. 234; Stone V. C. and N. W. E. Co., 47 Iowa, 8^. A regulation requiring the purchase of tickets before entering the cars is unreasonable, unless proper facilities for the purchase of tickets are fur- nished. Evans V. Memphis, etc. E, R. Coi, 56 Ala. 246 ; Du Laurens v. First Division St. P. and P. E. E. Co., 15 Minn. 49 ; St. Louis, A. and C. E. R. Co. V. Dalby, 19 111. 363. Compare Thorpe v. New York C. and H. E. E. E. Co., 76 N. Y. 402. ' Lynch v. Metropolitan Elevated E'y Co., 90 N. Y. 77. Under such circumstances the carrier may have an action to recover the fare, but no right to arrest or imprison the passenger. lb. ' In actions by passengers against railroad companies for personal inju- ries caused by negligence, whether the action is in tort or on contract, the burden is on the plaintiff either to prove negligence of the company or show facts which raise a presump- tion of such negligence. Stokes v. Saltonstall, 13 Pet. 181. A passenger makes out a prima facie case by show- ing that he was injured through a de- fect in the road, in the cars, or in any portion of the apparatus used by the company in carrying passengers. Cur- tis V. Eochester, etc. E. E. Co., 18 N. Y. 534; Meier u. Pennsylvania E. E. Co., 64 Pa. St. 225 ; Pittsburgh C. and St. L. Ey. Co. v. Thompson, 56 111. 138 ; Toledo W. and N. R. R. Co. V. Beggs, 85 111. 80 ; George" v. St. Louis, etc. Ey Co., 34 Ark. 613 ; Yonge V. Kinney, 28 Ga. Ill ; Hig- gins V. Hannibal and St. Jo. E. E. Co., 36 Mo. 418 ; Wilson v. Northern Pac. E. E, Co., 26 Minn; 278; Wall V. Livezay, 6 Col. 465 ; Eailroad Co. V. Walrath, 38 O. St. 461 ; Pittsburgh C. and St. L. E. E. Co. v. Williams, 74 Ind. 462. Proving injury from a 303 § 350.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 350. The primary or fundamental obligations and liabilities of a common carrier are imposed on him by law, on ftfridamen- account of the nature of his employment; and do not tai obiiga- arise exclusively from the expressed contract between the carrier and the person dealing with him ; although these obligations may be modified and limited by contract' The preceding proposition requires explanation. When a common carrier is incorporated, the law, from motives of public policy, imposed on it certain duties. Its primary duty is to carry; and to carry whatever freight is oftered, and whatever passengers present themselves, to the extent of its capacity.* Moreover, common carriers of freight are bound to take what goods are offered, and transport them safely, insuring them against all loss and damage except that arising from the act of God or of the public enemy,' or from the collision of trains raises prima facie presumption of negligence. Iron R. R. Co. V. Mowery, 36 O. St. 418 ; New Orleans J. and G. N. R. R. Co. ». AUbritton, 38 Miss. 242. ' Hannibal R. R. Co. v. Swift, 12 Wall. 262. * A common carrier is bound to carry when called on, and to charge only a reasonable compensation. Wi- nona, etc. R. R. Co. V. Blake, 94 U. S. 180. See § 309, note. In some States this is provided for by statute. But a carrier is not bound to allow a business interfering with his interest to be transacted on his vehicles ; e. g., he may refuse passage to an express agent who persists in transacting express business on his boat. The D. R, Mar- tin, 11 Blatchf. 233 ; Barney v. Oys- ter Bay Steamboat Co., 67 N. Y. 301. Railroad companies are not required by usage or by common law to trans- port the traffic of independent express companies in the manner in which such traffic is usually carried and handled. Express Cases, 117 U. S. 1. See 304 § 309 and notes. Compare Thurston V. Union Pac. R. R. Co., 4 Dill. 321, §348. ' Propeller Niagara v. Cordes, 21 How. 7 ; Merritt v. Earle, 29 N. Y. 115; Colt.w. McMechen, 6 Johns. (N. Y.), 160; Fillobrown v. Grand Trunk R Co., 55 Me. 462 ; South and North Ala. R. R. Co. V. Wood, 66 Ala. 167. A carrier is bound to use due diligence to prevent the destruction of goods by the act of God or the pubtic enemy ; and if his negligence occasions the loss of goods through one of these causes he is liable. Holladay w. Kennard, 12 Wall. 254 ; Michaels v. N. Y. Central R. R. Co., 30 N. Y. 564 ; Read v. Spalding, id. 630; Packard w. Taylor, 35 Ark. 402; Caldwell v. Southern Express Co., 1 Flip. C. Ct. 85; Wal- lace V. Clayton, 42 Ga. 448. Compare Gillespie v. St. Louis, etc. R'y Co., 6 Mo. App. 554. Where liquors were shipped to Maine, and were there seized and destroyed under the Maine laws, the carrier was not held liable. Wells V. Maine Steamship Co., 4 Cliff. PART IV.] LIABILITY FOR TORTS OF AGENTS. [§ 350. inherent damnifying or perishable qualities of the goods them- selves.* And a common carrier of passengers is bound to use every care and precaution for the safety of passengers carried by it.* This duty or obligation on the part of the carrier has its complement in a right on the part of the public and of every in- dividual citizen ; a right by comity extended to persons who are not citizens. In respect of carriers of goods this right of every person is to have carried whatever harmless and lawful goods he may offer for carriage,' and to have them, during the carriage, insured by the carrier against all loss and damage, except such as may arise from one of the causes excepted above ; and in re- spect of carriers of passengers it is the right of every one to be carried, and to have every precaution used to insure his personal safety during the passage. These rights do not depend on any specific agreement, but belong to every person placing himself C. Ct. 228. But the carrier should immediately notify shipper of seizure. Ohio, etc. R. Co. v. Yohe, 51 Ind. 181. • Illinois Central E. R. Co. v. McClellan, 84 111. 58. 2 Philadelphia & Reading R. R. Co. V. Derby, 14 How. 468; Pennsyl- vania Co. V. Roy, 102 U. S. 451 ; Mc- Elroy V. Nashua and Lowell R. R. Co., 4 Cush. 400 ; Meier v. Penn- sylvania R. R. Co., 64 Pa. St. 225 ; Louisville City R'y v. Weams, 80 Ky. 420; Brunswick, etc. R. R. Co. v. Gale, 56 Ga. 322 ; Kansas Pac. R'y Co. V. Miller, 2 Col. 442 ; Sherlock v. Ailing, 44 Ind. 184; Gillen water v. Madison, etc. R. R. Co., 5 Ind. 339; Indianapolis B. and W. R. Co. v. Beaver, 41 Ind. 493 ; Gilson v. Jackson County Horse R'y Co., 76 Mo. 282 ; Taylor v. Grand Trunk R'y Co., 48 N. H. 304 ; Chicago B. and Q. R. R. Co. V. George, 19 111. 510. The rail- road company remains liable although the car in which the plaintiff was injured belonged tp the Pullman Palace Car Co. ^Pennsylvania Co. o. Roy, 20 supra. The care which the carrier is bound to use is not affected by the fact that the person is travelling in a cattle train. Indianapolis, etc. R. R. Co. v, Horst, 93 U. S. 291. See Ohio & M. R. R. Co. II. Dickerson, 59 Ind. 317 ; Edgerton v. New York, etc. R. R. Co., 39 N. Y. 227 ; Dunn v. Grand Trunk Ry. Co., 58 Me. 187 ; Creed u. Pennsylvania R. R. Co., 86 Pa. St. 139. But see Player v. Burlington, etc. Ry. Cb., 62 Iowa, 723. And it is no defence that the plaintiff, a pas- senger, was pregnant, and her injuries were due rather to her condition than to the accident. Sawyer v. Dulany, 30 Tex. 479. ' Pittsburgh, Cincinnati, etc. R. Co. V. Morton, 61 Ind. 539 ; Chicago & A. R. R. Co. V. Erickson, 91 111. 613. See Western Un. Tel. Co. v. Ferguson, 57 Ind. 495 ; Evansville, etc. R. R. Co. V. Duncan, 28 Ind. 441, 446. Compare Pittsburgh, etc. R. Co. v. HoUowell, 65 Ind. 188; Phelps v. Illinois Central R. R. Co., 94 111. 548 ; Illinois Central R. R. Co. v. Cobb. 64 111. 128. 305 § 351,1 THE LAW OF PRIVATE COEPOBATIONS. [CHAP. VII. in regard to the carrier, in the position of shipper or passenger.' The contractual element in the causation of these rights is the voluntary act whereby a person places himself in such a posi- tion. That, without further stipulation, occasions them. § 351. These legal relations are as it were stereotyped ; and from motives of public policy courts hold that with- out the consent of the person dealing with the carrier, they may not be materially varied f and that even with his consent, certain modifications in them may not be made. With the consent of such person the carrier may stipulate that it shall not be responsible for losses arising from fire ;' and indeed for any loss not occasioned by its negligence or that of its employes.* Modifica- tions of carrier's common law liabil- ity. 1 To constitute a passenger it is not necessary that a person should pay fare eo nomine, when he is riding on a train with consent of the company and some form of consideration moves to the company from him. Kailroad Co. V. Lockwood, 17 Wall. 357; Railway Co. u. Stevens, 95 U. S. 655 ; Com- monwealth V. Vermont, etc. R. R. Co., 108 Mass. 7; Yeomans v. Contra Costa Steam Nav. Co., 44 Cal. 71 ; Kentucky Central R. R. Co. v. Thomas, 79 Ky. 160; Pennsylvania Co. u. Woodworth, 26 O. St. 585. " A carrier may by special agreement restrict his liability for goods carried. The consent of the shipper, however, is necessary ; for he can compel the carrier to carry with all responsibili- ties. New Jersey Steam Navigation Co. V. Merchants' Bank, 6 How. 344, 378; HoUister v. Nowlen, 19 Wend. 234 ; Cole v. Goodwin, ib. 251 ; ClaYk V. Faxton, 21 Wend. 153 ; Dorr v. New Jersey Steam Navigation Co., 11 N. Y. 485 ; Western Transn. Co. v. Newhall, 24111. 466; Merchants' Des- patch Trans. Co. v. Theilbar, 86 111. 71 ; Michigan Central R. R. Co. v. 306 Hale, 6 Mich. 243 ; Kansas Pac. Ry. Co. V. Reynolds, 17 Kan. 251 ; York Co. V. Central R. R., 3 Wall. 107. ' Lamb v. Camden and Amboy R. R. Co., 46 N. Y. 271 ; Steinweg v. Erie Railway, 43 N. Y. 123 ; Squire V. N. Y. Central R. R. Co., 98 Mass. 239 ; Grace v. Adams, 100 Mass. 505; Hoadley v. Northern Trans. Co., 115 Mass. 304. When a loss' arises from a cause in respect of which the carrier has stipu- lated for freedom from liability, a per- son damaged may show that had it not been for the negligent or otherwise im- proper conduct of the carrier, that cause would not have operated. Trans- portation Co. V. Downer, 1 1 Wall. 129 ; see Holladay v. Kennard, 12 Wall. 254 ; Railroad Co. v. Reeves, 10 Wall. 176; Propeller Niagaras. Cordes, 21 How. 7 ; Nelson v. Woodruff, 1 Black, 156; Little Rock, etc. R'y Co. v. Talbot, 39 Ark. 523 ; compare Stokes V. Saltonstall, 13 Pet. 181; Railroad Co. u. Pollard, 22 Wall. 341. " York Co. V. Central Railroad, 3 Wall. 107. See Camp v. Hartford, etc. Steamboat Co., 43 Conn. 333. PART IV.] LIABILITY FOR TORTS OF AGBNTS. [§ 352. § 352. But neither a carrier of passengers nor a carrier of goods can competently stipulate for immunity from liability for losses or injuries caused by negligence cannot for which it is responsible. Such a stipulation is againsifua- void as against public policy. On this point the wiityfor ° ■•■ "^ ^ negligence. leading case is Railroad Company v. Lockwood.^ Its reasoning is unanswerable ; and the importance of the matter warrants somewhat extended quotation from the opinion of the court, which was given by Justice Bradley. " As the duties and responsibilities of public carriers were prescribed by public policy, it has befen seriously doubted whether the courts did wisely in allowing that policy to be de- parted from without legislative interference, by which needed modifications could have been introduced into the law. But the great hardship on the carrier in certain special cases, where goods of great value or subject to extra risk were delivered to him without notice of their character, and where losses happened by sheer accident without any possibility of fraud or collusion on his part, such as collisions at sea, accidental fire, etc., led to a relaxation of the rule to the extent of authorizing certain ex- emptions from liability in such cases to be provided for, either by public notice brought home to the owners of the goods or by inserting exemptions from liability in the bill of lading, or other contract of carriage. A modification of the strict rule of responsibility, exempting the carrier from liability for accidental losses, where it can be safely done, enables the carrying interest to reduce its rates of compensation. . . . " The question is, whether such modification of responsibility by notice or special contract may not be carried beyond legiti- mate bounds, and introduce evils against which it was the direct policy of the law to guard ; whether, for example, a modifica- tion which gives license and immunity to negligence and care- lessness on the part of the public carrier, or his servants, is not so evidently repugnant to that policy, as to be altogether null and void ; or at least null and void under certain circum- stances. . . . "It is a favorite argument in the cases which favor the extension of the carrier's right to contract for exemption from 1 17 Wall. 357. 307 § 352.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. liability, that men must be permitted to make their own agree- ments, and that it is no concern of the public on what terms an individual chooses to have his goods carried. . . . ■ " Is it true that the public interest is not affected by the in- dividual contracts of the kind referred to ? Is not the whole business community affected by holding such contracts valid ? If held valid, the advantageous position of the companies exer- cising the business of common carriers is such that it places it in their power to change the law of common carriers in effect, by introducing new rules of obligation. " The carrier and his customer do not stand on a footing of equality.* The latter is only one individual of a million. He cannot afford to higgle or stand out and seek redress in the courts. His business will not admit such a course. He prefers rather to accept any bill of lading, or sign any paper the carrier presents ; often, indeed, without knowing what the one or the other contains. In most cases he has no alternative but to do this or abandon his business. ... If the customer had any real freedom of choice, if he had a reasonable and practicable alternative, and if the employment of the carrier was not a public one, charging him with the duty of accommodating the public in the line of his employment ; then, if the customer chose to assume the risk of negligence, it could with more reason be said to be his private affair, and no concern of the public. " But the condition of things is entirely different, and espe- cially so under the modified arrangements which the carrying trade has assumed. The business is mostly concentrated in a few powerful corporations, whose position in the body politic enables them to control it. They do, in fact, control it, and impose such conditions upon travel and transportation as they see fit, which the people are compelled to accept. . . . "The conclusions to which we have come are: — " First. That a common carrier cannot lawfully stipulate for exemption from responsibility when such exemption is not just and reasonable in the eye of the law. "Secondly. That it is not just and reasonable in the eye of the law, for a common carrier to stipulate for exemption ' See Mobile and Montgomery R'y Co. v. Steiner, 61 Ala. 559. 308 PART IV.j LIABILITY FOR TORTS OF AGENTS. [§ 353. from responsibility for the negligence of himself or his ser- vants. " Thirdly. That these rules apply both to carriers of goods and to carriers of passengers for hire, and with special force to the latter. " Eourthly. That a drover travelling on a pass, such as was ' given in this case, for the purpose of taking care of his stock on the train, is a passenger for hire.* " "We purposely abstain from expressing any opinion as to what would have been the result of our judgment had we con- sidered the plaintiff a free passenger instead of a passenger for hire."" § 853. With one or two exceptions, the reasoning in Rail- road Company v. Lockwood has been followed in every state where decisions conformable to the principles therein stated had not previously been rendered. The authorities for the proposition that a common carrier cannot validly stipulate for exemption from liability for its negligence and that of its ser- vants are given in the note.' • Railroad Co. v. Lockwood, 17 Wall. 357, 384. This case, also, dis- approves distinctions between degrees of negligence. " See also Railway Co. v. Stevens, 95 U. S. 655 ; Bank of Kentucky v. Adams Ex. Co., 93 U. S. 174; Ex- press Co. V. Kountze Bros., 8 Wall. 342. Compare Philadelphia and Read- ing R. R. Co. V. Derby, 14 How. 468 ; Steamboat New World v. King, 16 How. 469 ; Nolton v. Western R. R. Co., 15 N. Y. 444. In Jacobus v. St. P. and Chi. R'y Co., 20 Minn. 125, it was held that a railroad company could not exempt itself from liabilities caused by its negligence to a person travelling on a free pass. ' Alabama : South and North Ala. R. R. Co. V. Henlein, 52 Ala. 606 ; Southern Express Co. v. Crook, 44 Ala. 468 ; Mobile and Ohio R. R. Co. V. Hopkins, 41 Ala. 486 ; Steele v. Townsend, 37 Ala. 247. Arkansas : Taylor & Co. v. Little Rock, etc. R. R. Co., 39 Ark. 148; Little Rock, etc. R'y Co. v. Talbot, ib. 523. Colo- rado : Merchants' Despatch Trans. Co. V. Cornforth, 3 Col. 280. Con- necticut : Welch v. Boston & Albany R. R. Co., 41 Conn. 333. See Camp V. Hartford, etc. Steamboat Co., 43 Conn.' 333. Delaware : See Elinn v. Phila., W. and B. R. R. Co., 1 Hous- ton, 472. Georgia: Borryu. Cooper, 28 Ga. 543 ; Purcell v. Southern Exp. Co., 34 Ga. 315 ; Georgia R. R. Co. V. Gann, 68 Ga. 350. Indiana : Indi- anapolis, etc. R. R. Co. V. Allen, 31 Ind. 394 ; Ohio and Miss. R. Co. v. Selby, 47 Ind. 471 ; Michigan South- ern, etc. R. R. Co. u. Heaton, 37 Ind. 448 ; Rosenfeld v. Peoria, etc. Ry. Co., 103 Ind. 121. (Earlier Indiana cases holding contrary doctrines over- ruled.) A carrier may, however, 309 § 354.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 354. It is also held that when a railroad or an express com- pany agrees to transport a package beyond its terminus, or over limit his extreme common law lia- bility ; Adams Express Co. v. Fen- drick, 38 Ind. 150 ; provided the limi- tation is reasonable ; Adams Express Co. V. Reagan, 29 Ind. 21. See Evansville, etc. R. R. Co. v. Young, 28 Ind. 516. Iowa : Rose v. l)es Moines Valley R. R. Co., 39 Iowa, 246. Kansas : St. Louis K. C. & N. R'y Co. V. Piper, 13 Kan. 505. See Kansas Pac. R. R. Co. v. Reynolds, 8 Kan. 623, 641. Kentucky : Orndorflf u.> Adams Express Co., 3 Bush, 194; Louisville, etc. R. R. Co. v. Brown- lee, 14 Bush, 590. Maine : Willis v. Grand Trunk R. Co., 62 Me. 488 ; Sager v. Portsmouth, etc. R. R. Co., 31 Me. 228. Massachusetts : See Commonwealth v. Vermont, etc. R. R. Co., 108 Mass. 7; School District V. Boston, Hartford and E. R. R. Co., 102 Mass. 552. Minnesota: Shriver V. Sioux City, etc. R. R. Co., 24 Minn. 506 ; Christenson v. American Express Co., 15 Minn. 270 ; Jacobus V. St. Paul, etc. R'y Co., 20 Minn. 125 Mississippi : Mobile and Ohio R. R. Co. V. Weiner, 49 Miss. 725 ; Southern Express Co. v. Moon, 39 Miss. 822. Missouri: Clark v. St. Louis, etc. R'y Co., 64 Mo. 440; Reed v. Same, 60 Mo. 199 ; Ketchum V. American Merch. Union Exp. Co., 52 Mo. 390; Lupe v. Atlantic, etc. R. R. Co., 3 Mo. App. 77. Nebraska: Atchison and Neb. R. R. Co. i-. Wash- burn, 5 Neb. 117. New Hampshire: See Hall v. Cheney, 36 N. H. 26. North Carolina : Smith v. North Caro- lina R. R. Co., 64 N. Cf 235. Ohio : Welsh V. Pittsburgh, Ft. W. and C. R. R. Co., 10 Ohio St. 65; Cleve- land, Painsville, etc. R. R. Co. v. 310 Curran, 19 Ohio St. 1 ; Cincinnati, etc. R. R. Co. V. Pontius, 19 Ohio St. 221 ; Union Exp. Co. v. Graham, 26 Ohio St. 595, 598. Pennsylvania: American Express Co. v. Second Nat. Bk., 69 Pa. St. 394; Camden and Amboy R. R. v. Baldauf, 16 Pa. St. 67; Pennsylvania R. R. Co. v. Hen- derson, 61 Pa. St. 315. See Lancas- ter Co. Nat. Bk. V. Smith, 62 Pa. St. 47 ; Delaware, etc. Tow Boat Co. v. Starrs, 69 Pa. St. 36. South Carolina : Swindler v. Hilliard, 2 Rich. L. 286. Tennessee : Dillard v. L. and N. R. R. Co., 2 Lea, 288. Vermont : Mann V. Birchard, 40 Vt. 326. See Farmers and Mec. Bk. v. Champlain Trans'n Co., 23 Vt. 205. Virginia : Virginia and Tenn. R. R. Co. v, Sayers, 26 Gratt. 328. West Virginia: Maslin V. Bait, and Ohio R. R. Co., 14 West Va. 180; Brown v. Adams. Express Co., 15 West Va. 812. AVisconsin: Black V. Goodrich Trans'n Co., 56 Wis. 319. (Gross negligence or fraud.) Out of accord with the better and generally accepted doctrine are the courts of New York, Illinois, Louisi- ana {semble), and, perhaps, New Jer- sey. New York : A carrier may ex- empt himself from liability for per- sonal injuries occasioned by its negli- gence, to a person travelling gratui- tously or on a drover's pass. Poucher V. New York C. R. R. Co., 49 N. Y. 263 ; Bissell v. N. Y. C. R. R. Co., 25 N. Y. 442 ; Wells v. N. Y. C. R. R. Co., 24 N. Y. 181. See Perkins V. N. Y. C. R. R. Co., ib. 196. Like- wise, carriers of goods may exempt themselves from liability even for neg- ligence. Knell V. U. S. and Brazil Steamship Co., 1 J. & Sp. 423 ; Lee PART IV.j LIABILITY FOR TORTS OP AGENTS. [§ 354. roads belonging to others, it cannot exempt itself from liability for losses arising from the negligence of another carrier over whose road it has contracted to transport the goods.' V. Marsh, 43 Barb. 102; Boswell v. Hudson Kiver R. R. Co., 5 Bos. 699 ; Prentice v. Decker, 49 Barb. 21. But the New York courts have narrowed their decisions down to the smallest possible scope ; and unless exemption from liability for negligence is ex- pressly stipulated for, no general ex- emption, however sweeping, will be held to include losses arising from neg- ligence. Mynard u. Syracuse, etc. R. R. Co., 71 N. Y. 180; Blair v. Erie R'y Co., 66 N. Y. 313; Magnin v. Dinsmore, 56 N. Y. 168; Holsapple V. Rome, etc. R. R. Co., 86 N. Y. 275, 277; Nicholas v. N. Y. Cent, and H. R. R. R. Co., 89 N. Y. 370. Compare Goldey u. Pennsylvania R. R. Co., 30 Pa. St. 242 ; Canfield v. Baltimore & Ohio R. R. Co., 93 N. Y. 532 ; Powell v. Same, 32 Pa. St. 414 ; Pennsylvania R. R. Co. v. Butler, 57 Pa. St. 335 ; Empire Trans'n Co. v. Wamsutta Oil Co., 63 Pa. St. 14. And exemptions cover only losses aris- ing from lack of ordinary care ; not those arising from gross negligence or fraud. Westcott v. Fargo, 63 Barb. 349 ; Heineman v. Grand Trunk R. Co., 31 How. Pr. 430. In Illinois "the doctrine is settled that railroad companies may by con- tract exempt themselves from liability on account of the negligence of their servants, other than that which is gross or wilful." Arnold v. Illinois Cent. R. R. Co., 83 111. 273, 280; Illinois Cent. R. R. Co. V. Read, 37 111. 484 ; Same i'. Morrison, 19 111. 136; Wes- tern Trans'n Co. v. Newhall, 24 111. 466; Illinois Cent. R. R. Co. v. Adams, 42 111. 474 ; Adams Exp. Co. I. Haynes, ib. 89 ; compare, however, Boscowitz V. Adams Exp. Co., 93 111. 523, 534 ; and Adams Exp. Co. v. Stettaners, 61 111. 184. (Illinois de- cisions seem hardly consistent on this point.) When a person rides on a non-transferable free pass issued to another, he commits a fraud that will relieve the railroad company from re- sponsibility for injuries to him, except for such as arise from gross or reckless negligence. Toledo, W. and W. R'y Co. V. Beggs, 85 111. 80. New Jer- sey : A railroad company is not liable for the negligent killing of a person accepting a free pass with a stipulation against liability for negligence. Kin- ney V. Central R. R. Co., 32 N. J. L. 407 ; aff'd 34 N. J. L. 513. But see Ashmore v. Penn. Steam Tow Co., 28 N. J. L. 180, 192. Louisiana: A carrier may stipulate for exemption from liability for personal injuries to a news agent on the train, arising through the negligence of its servants ; provided the servants are guilty of no fraudulent, wilful, or reckless miscon- duct. Higgins V. New Orleans, etc. R. R. Co., 28 La. Ann. 133. • Bank of Kentucky v. Adams Exp. Co., 93 U. S. 174 ; Cincinnati, etc. R. R. Co. V. Pontius, 19 Ohio St. 221 ; Galveston, etc. Ry. Co. v. Allison, 59 Tex. 193. Contra, Gibson v. Ameri- can Merchants' Union Exp. Co., 1 Hun (N. Y.), 387. For liability of a carrier for losses occurring at con- necting lines, see §§ 362-364. 311 § 355.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 355. A carrier maj"^ establish reasonable regulations for the safety of baggage, and is not liable when a passenger, liabiiHy^or knowing of such regulations, loses his baggage taggage. through failure to comply with them.' Giving the opinion of the Federal Supreme Court, in Kailroad Co. v. Fraloff,^ Justice Harlan said : " It is undoubtedly competent for carriers of passengers by specific regulations, distinctly brought to the knowledge of the passenger, which are reasonable in their character, and not inconsistent with any statute or their duties to the public, to protect themselves against liability, as insurers, for baggage exceeding a fixed amount in value, except upon ad- ditional compensation proportioned to the risk. And, in order that such regulations may be practically effective, and the car- rier advised of the full extent of its responsibility, and conse- quently of the degree of precaution necessary on its part, it may rightfully require, as a condition precedent for any contract for the transportation of baggage, information from the passenger as to its value ; and if the value thus disclosed exceeds that which the passenger may reasonably demand to be transported as baggage without extra compensation, the carrier, at its op- tion, can make such additional charge as the risk fairly justifies. And the carrier naay be discharged from liability for the full value of the passenger's baggage, if the latter, by false state- ments, or by any device or artifice, puts off inquiry as to such value, whereby is imposed upon the carrier responsibility beyond that which it was bound to assume in consideration of the or- dinary fare charged for the transportation of the person [so far o}nter\. But in the absence of legislation limiting the responsi- bility of carriers for the baggage of passengers ; in the absence of reasonable regulations upon the subject by the carrier, of which the passenger has knowledge ; in the absence of inquiry of the passenger as to the value of articles carried, under the name of baggage, for his personal use and convenience in trav- elling ; and in the absence of conduct upon the part of the pas- senger misleading the carrier as to the value of his baggage, the court cannot in law declare that the mere failure of the passen- ' Gleason v. Goodrich Trans'n Co., ^ 100 U. S. 24, 27 32 Wis. 85. 312 PART IV.] LIABILITY FOR TORTS OF AGENTS. [§ 356. ger to disclose, unasked, the value of his baggage is a fraud upon the carrier, which defeats all rights of recovery." There is in law no fixed limit to the value of baggage for which the carrier is responsible, when he does_not limit his responsibility by special contract. But his responsibility as insurer is limited to such articles as it is customary or reason- able for travellers of the same class in life to whicTi the pas- senger may belong to take for the journey in hand, and does not extend to those which the caprice of a particular passenger might lead him to take ; and it rests with the jury to determine the special case in accordance with these principles.' § 356. Just as carriers of passengers may place a limit on the value of baggage for which they will be liable, unless D^jja^ the value is disclosed and additional compensation Hons of paid, so carriers of goods may limit their liability in liability lu the same respect. And when the value of goods is *™°™*- agreed on, the railroad company is not liable above that amount even when the loss is caused by its negligence. " Where a con- tract of this kind, signed by the shipper, is fairly made, agree- ing on the valuation of the property carried, with the rate of freight based on the condition that the carrier assumes liability ^ Kailroad Co. v. Fraloff, 100 U. S. 379. A carrier is not liable as such 24, supra. In this case the carrier for sixteen thousand dollars' worth ot was held liable for laces stolen from bonds violently taken from the person the baggage of a Russian countess, of a passenger. Weeks v. N. Y., N. and valued by the jury at ten thousand H. and H. R. R. Co., 72 N. Y. 50; dollars. See also Del Valle v. Steam- nor for thirty thousand dollars' worth boat Richmond, 27 La Ann. 90. of jewelry in baggage. Michigan Cen- A carrier is liable for money in bag- tral R. R. Co. v. Carrow, 73 111. 348. gage to an amount bona fide taken for Nor for a loss of merchandise carried travelling purposes, and not more than as baggage. Stirason v. Connecticut a prudent person would deem necessary River R. R. Co., 98 Mass. 83 ; Ailing and proper to take. Jordan v. Fall v. Boston and Albany R. R. Co., 126 River R. R. Co., 5 Cush. 69; Merrill Mass. 121; Pardee w. Drew, 25 Wend. V. Grinhel, 30 N. Y. 594. See Dun- 459. Unless having been advised of lap V. International Steamboat Co., 98 the merchandise, it charges and re- Mass. 371 ; Orange County Bank v. ceives a sum in addition to the passen- Brown, 9 Wend. 85; Hawkins v. ger's fare for the extra weight. Perley Hoffman, 6 HiU (N. Y.), 586 ; Doyle v. N. Y. C. and H. R. R. R. Co., 65 V. Riser, 6 Ind. 242; Toledo, W. and N. Y. 374. W. R. R. Co. V. Hammond, 33 Ind. 813 § 357.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. VII. only to the extent of the agreed valuation, even in cases of loss or damage by the negligence of the carrier, the contract will be upheld as a proper and lawful mode of securing a due propor- tion between the amount for which the carrier may be respon- sible and the freight he receives, and of protecting himself against extravagant and fanciful valuations."' When, however, there is no notice of such limitation, a person delivering goods to a carrier is not bound to state their value.^ Restrictions as to the time within which a loss must be notified to the carrier in order to render him liable, are generally held reasonable and valid.^ Although telegraph companies, according to the gen- erally accepted view, are not common carriers,* they exercise a function of great public importance ;° and the reasoning on which, in Railroad Conapany v. 357. Telegraph companies. ' Hart V. Pennsylvania R. R. Co., 112 U. S. 331, 343 ; op'n of court per Blatchford, J. ; Graves u. Lake Shore, etc. R. R. Co., 137 Mass. 33 ; Harvey V. Terre Haute; etc. R. R. Co., 74 Mo. 538 ; Magnin v. Dinsmore, 70 K. Y. 410; S. C, 62 N. Y. 65. Contra, Chicago, St. L. & N. O. R. R. Co. v. Abels, 60 Miss. 1017. " Little u. Boston and Maine R. R., 66 Me. 239 ; Phillips v. Earle, 8 Pick. 182 ; see also Chicago and Alton R. R. Co. V. Shea, 66 111. 471 ; Houston, etc. R. R. Co. V. Burk«, 55 Tex. 323. But the carrier may inquire as to value, and the shipper is bound by his answer. Same cases. ' Within five days valid, Black v. Wabash, etc. R'y Co., Ill 111. 351 ; within ninety days valjd. Express Co. V. Caldwell, 21 Wall 264; within thirty days, United .States Express Co. V. Harris, 51 Ind. 127 ; Weir V. Express Co., 5 Phila. 355. Con- tra, Southern Exp. Co. v. Caperton, 44 Ala. 101. A stipulation in a bill of lading that damage must be adjusted before the articles are taken 814 from the station, and a claim presented within thirty days to " a trace-agent," is unreasonable and void. Capehart V. Seaboard, etc. R. R. Co., 81 N. C. 438. ■ ' Leonard v. N. Y., etc. Tel. Co., 41 N. Y. 644 ; Brease v. U.S. Tel. Co., 48 N. Y. 132; Schwartz v. At- lantic, etc. Tel. Co., 18 Hun, 157 ; Pinckney v. Western Un. Tel. Co., 19 S. C. 71 ; Ellis v. American Tel. Co., 13 Allen, 226 ; Birney u. N. Y., etc. Tel. Co., 18 Md. 341 ; Western Union Tel. Co. v. Fontaine, 58 Ga. 433; Same v. Carew, 15 Mich. 525; Western Union Tel. Co. v. Neill, 57 Tex. 283. Contra, Parks v. Tel. Co., 13 Cal. 422. Compare Western Union Tel. Co. V. Meyer, 61 Ala. 158. ^ The right of eminent doihain may properly be granted to a telegraph company ; property taken by such a company is taken for a public use. Pierce v. Drew, 136 Mass. 75. Com- pare Central Union Telephone Co. !>. Bradbury, 106 Ind. 1 ; Hockett v. State, 105 Ind. 250. PART IV.] LIABILITY SOR TORTS OE AGBNTS. [§ 357. Lockwood,' the court based the rule that common carriers can- not validly stipulate for immunity from responsibility for their negligence, applies to telegraph companies with equal force.* Accordingly, the better and more salutary view seems to be, that any stipulation inserted in a telegraph blank, restricting the liability of the company, unless the message is repeated, will not exempt it from responsibility for errors occasioned by the negligence of its employes.^ But many authorities oppose this view, holding that a telegraph company may thus exempt itself, except for such errors as arise from " gross negligence" or wilful misconduct on the part of its employes.* ' § 352. ^ See Telegraph Co. v. Griswold, 37 Ohio St. 301, 313. ' Western Union Tel. Co. v. Blanch- ard, 68 Ga. 299; Telegraph Co. v. Griswold, 37 Ohio St. 301 ; Western Union Tel. Co. v. Fontaine, 58 Ga. 433 ; Sweatland v. 111. and Miss. Tel. Co., 27 Iowa, 433 ; Manville u. Western Union Co., 37 Iowa, 214 ; Western Union Tel. Co. v. Graham, 1 Col. 230 ; Tyler v. Western Union Tel. Co., 60 111. 421 ; S. C, 74 111. 168; United States Tel. Co. v. Gil- dersleeve, 29 Md. 232 ; Western Union Tel. Co. V. Neill, 57 Tex. 283. Even though it be a " night message," com- pany liable for errors from negligence (nothing contained in blank as to re- peating). Bartlett v. Western Union Tel. Co., 62 Me. 209; Hibbard o. Western Union Tel. Co., 33 Wis. 658 ; Candee v. Same, 34 Wis. 471. Contra, Schwartz u. Atlantic, etc. Tel. Co., 18 Hun, 157. Nor can the company stipulate that the damages arising from mistakes in unrepeated messages shall not exceed the price of the message. Western Union Tel. Co. V. Blanchard, 68 Ga. 299 ; Thomp- son u. Western Union Tel. Co., 64 Wis. 581. A telegraph company can- not avoid the penal liability imposed by statute for failure to transmit a message correctly, by a contract fixing its liability at a less sum. Western Union Tel. Co. v. Adams, 87 Ind. 598. See Same v. Young, 93 Ind. 118. Compare Same v. Jones, 95 Ind. 228 ; Same v. Meredith, ib. 93 ; Same v. Pendleton, ib. 12. * Grinnell v. Western Union Tel. i Co., 113 Mass. 299; Breese v. U. S. Tel. Co., 48 N. y. 132 ; Becker u. Western Union Tel. Co., 11 Neb. 87 ; Ellis V. Amer. Tel. Co., 13 Allen, 226 ; Passmgre v. Western Union Tel. Co.,' 78 Pai St. 238; Western Union Tel. Co. V. Carew, 15 Mich. 526; Camp V. Western Union Tel. Co., 1 Mete. (Ky.) 164 ; Wann v. Western Union Tel. Co., 37 Mo. 472; Mac- Andrew V. Electric Tel. Co., 17 C. B. 3. It may be said, however, that in these cases no negligence appeared beyond the fact that there was an error ; and perhaps they are not to be regarded as express authorities for the statement that these stipulations cover negligence on the part of the telegraph company or its employes. A stipula- tion in a telegraph blank that the com- pany will not be responsible for mis- takes in unrepeated messages is reason- 315 § 358.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII, The failure to transmit and deliver the message as received, is frima facie negligence, rendering the company liable ; and the burden of proof rests on it to clear itself from fault. ' § 358. At this point it will be well to consider what evidence r will show an agreement, consent, or acquiescence on o/mS tlie part of a passenger or shipper to limitations on to liraita- ^j^g liabilitv of the carrier. As there is rarely an tions of -' 111 carrier's exprcss assent in such cases, whether there was any ^°' ' ' ■''■ assent at all becomes a question for the jury to guess at under the guidance of the court, unless the circumstances are such as to estop the person dealing with the carrier from deny- ing his assent. The cardinal distinction seems to lie here; the passenger or shipper will be presumed — though the presump- tion will not always be conclusive — to have agreed to whatever lawful terms are expressed on the fac? of a paper received by him from the agent of the carrier, when that paper contains the contract between the carrier and the person dealing with it. If, however, the paper so received does not express the contract of the parties, and is but a mere check, or ticket given by the carrier, there will arise no presumption that the person dealing with the carrier assented to its terms. The general idea is well expressed by Judge Boardman in Kirkland v. Dinsmore •? " When a person, from the nature of the business, the manner in which it is transacted, and all the circumstances surrounding it, knows or has reason to believe, he is receiving a contract that will bind him, he will be bound whether he reads or not. But where he may honestly, and in good faith, suppose he is able ; but would not cover gross neg- 60 111. 421 ; De La Grange v. South ligence or wilful misconduct. Lassiter Western Tel. Co., 25 La. Ann. 383; V. Western Union Tel. Co., 89 N. C. Western Un. Tel. Co. v. Meek, 49 334; Hart v. Western Union Tel. Ind. 53; Turner «. Hawkeyo Tel. Co., 66 Cal. 579. Co., 41 Iowa, 458. Compare Koons ' Telegraph Co. v. Griswold, 37 «. Western Union Tel. Co., 102 Pa. Ohio St. 301; Bartlett v. Western St. 164; Western Union Tel. Co. o. Un. Tel. Co., 62 Me. 209; Kitten- Reynolds, 77 Va. 173. Contra, Aiken house V. Independent Line of Tele- v. Western Union Tel. Co., 69 Iowa, graph, 44 N. Y. 263; Baldwin «. U. 81. S. Tel. Co., 45 N. Y. 744; Western « 2 Hun, 46, 51. See also Blossom Un. Tel. Co. V. Carew, 15 Mich. 525, w. Dodd, 43 N. Y. 264; Madan v. 533 ; Tyler v. Western Un. Tel. Co., Sherard, 73 N. Y. 829. 316 PART IV.] LIABILITY FOB TORTS OF AGENTS. [§ 359. receiving a check, token, receipt, or voucher of some kind, or ticket, as evidence of money paid, he will not be bound by a contract attached thereto, forming no necessary part thereof, to which his attention is not called, and which through ignorance, haste, or inadvertence, he neglects to read or assent to." § 359. In accordance with this rule, a shipper of goods will be presumed to have agreed to the terms of a bill of lading or " receipt" received by him ; as this ordinarily contains the con- tract between the shipper and the carrier.' Indeed, it is held that the terms of a bill of lading cannot be contradicted by parol evidence.^ But there are many authorities adverse to the two propositions last stated.* ' Magnin v. Dinsmore, 70 N. Y. 410 ; S. C, 62 N. Y. 35 ; Cincinnati, etc. R. R. Co. V. Pontius, 19 Ohio St. 221 ; Hill V. Syracuse, etc. R. R. Co., 73 N. Y. 351 ; Grace v. Adams, 100 Mass. 505 ; Louisville, etc. R. R. Co. V. Brownlee, 14 Bush (Ky.), 590; Farnham u.' Camden and Amboy R. R. Co., 55 Pa. St. 53 ; Patterson v. Clyde, 67 Pa. St. 500 ; Fibel v. Livin- stbn, 64 Barb. 179; Belger v. Dins- more, 51 N. Y. 166 ; Newburger v. Howard & Co.'s Express, 6 Phila. 1 74 ; Steers v. Liverpool, etc. Steam- ship Co., 57 N. Y. 1 ; Huntingdon v. Dinsmore, 4 Hun, .66 ; Prentice v. Decker, 49 Barb. 21 ; Knell v. U. S. and Brazil Steamship Co., 1 J. & Sp. (N. Y.) 423 ; Lee v. Marsh, 43 Barb. 102 ; Boswell v. Hudson River R. R. Co.,. 5 Bos. (N. Y.) 699 ; Muser u. Holland, 17 Blatchf. 412 ; Wertheimer V. Pennsylvania R. R. Co., ib. 421 ; Robinson v. Merchants' Despatch Trans. Co., 45 Iowa, 470; Louisville and N. R. R. Co. v. Brownville, 14 Bush (Ky.), 590 ; McMillan v. Michigan Southern, etc. R. R. Co., 16 Mich. 79. See Pemberton Co. v. N. Y. C. R. R. Co., 104 Mass. 144 ; Germania Fire Ins. Co. e. M. and C. R. R. Co., 72 N. Y. 90 ; compare Woodruff i>. Sherrard, 9 Hun, 322. But a bill of lading delivered subsequently to the shipment may not have this effect. Bostwick V. Baltimore, etc. R. R, Co., 45 N. Y. 712; Gaines u. Union Trans. Co., 28 O. St. 418 ; American Express Co. V. Spellman, 90 111. 455. Com- pare Wilde !i. Merchants' Dispatch Trans. Co., 47 Iowa, 272. ' Cincinnati, etc. R. R. Co. v. Pon- tius, 1.9 Ohio St. 221 ; Hill v. Syra- cuse, etc. R. R. Co., 73 N. Y. 351. Compare Madan v. Sherard, ib. 329. Contra, Dillard v. L. and N. R. R. Co., 2 Lea (Tenn.), 288 ; Erie and Wes- tern Trans. Co. v. Dater, 91 111. 195. ' Southern Express Co. v. Arm- stead, 50 Ala. 350 ; Merchants' Des- patch Trans. Co. v. Theilbar, 86 111. 71 ; Same v. Leysor, 89 111. 43 ; Field V. Chicago and' R. I. R. Co., 71 111. 458 ; Erie and N. Trans. Co. v. Dater, 91 III. 195. See Railroad Co. v. Manu- facturing Co. , 3 6 Wall. 319; Verner v. Sweitzer, 32 Pa. St. 208; Erie and Western Trans. Co. v. Dater, 91 III. 195; Merchants' Despatch Transn. Co. V. Joesting, 89 111. 152 ; Dillard. V. L. and N. R. R. Co., 2 Lea (Tenn.), 288. 317 § 360.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. VII. There is no presumption that a shipper knows of or assents to mere published notices ; and accordingly they will not be effectual in limiting the liability of the carrier ;' except as to the amount beyond which he will not be liable when not in- formed of the value of the goods." A notice printed on the back of a passenger ticket is not effectual to limit the value of the baggage for which the carrier will be liable ; at least in the absence of proof that the passenger's attention was called to it ; and reading such a notice after he has entered on his journey does not affect his rights.^ > § 360. The liability of a common carrier, as such, begins as soon as goods are delivered to it for transportation ; When car- ,-, . ■.,■,■, , „ , Tier's liabii- nothing remaining to be done on the part of the and'cfases. shipper. Under such circumstances the carrier's lia- bility is not that of a warehouseman while the goods are waiting in his depot before transportation.^ The carrier's liability, as such, continues until he has performed his duties as carrier ; which in the case of railroad companies, are to carry the goods to the point on the road to which the goods are ' New Jersey Steam Nav'n Co. v. Merchants' Bank, 6 How. 344, 378; Judson V. Western R. R. Co., 6 Allen, 486; Hollister v. Nowlen, IDWend. (N. Y.) 234; Cole v. Goodwin, ib. 251 ; Dorr v. New Jersey Steam Nav. Co., 11 N. Y. 485; Steele v. Town- send, 37 Ala. 247; Mictigan Central R. R. Co. V. Hale, 6 Mich. 243; Pittsburgh, C. and St. L. Ry. Co. j>. Barrett, 36 0. St. 448. SeePerry V. Thompson, 98 Mass. 249; Balti- more and Ohio R. R. Co. v. Brady, 32 Md. 333 ; Camden and Amboy R. R. Co. V. Baldauf, 16 Pa. St. 67. 2 Oppenheimer v. United States Exp. Co., 69 111. 62 ; Erie Ry. Co. v. Wilcox, 84 111. 239. Compare Mag- nin V. Dinsmore, 70 N. Y. 410 ; S. C, 62N. Y. 35; S. C, 56 N. Y. 168; Alabama, Gt. Southern R. R. Co. v. Little, 71 Ala. 611 ; United States Exp. Co. V. Backman, 28 O. St. 144 ; Bos- 318 cowitz V. Adams Exp. Co., 93 111. ,523 ; Kansas City, St. Jo., etc. R. R. Co. V. Simpson, 30 Kan. 645. ' Rawson v. Pennsylvania R. R. Co., 48 N. Y. 212; see Limburger v. Westcott, 49 Barb. 283 ; Sunderland V. Westcott, 40 How. Pr. (N. Y.) 468 ; Brown v. Eastern R. R. Co., 11 Cush. 97; Malone v. Boston, etc. R. R. Co., 12 Gray, 388. Compare Cam- den and Amboy R. R. Co. v. Baldauf, 16 Pa. St. 67. * Grand Trunk M'f g, etc. Co. v. Ullman, 89 111. 244; Clarke w. Needles, 25 Pa. St. 338 ; O'Neill v. N. Y. C. & H. R. R. Co., 60 N. Y. 138; Pittsburgh, C. & St. L. Ry. Co. v. Barrett, 36 O. St. 448. See Gros- venor v. N. Y. C. R. R. Co., 39 N. Y. 34 ; Baron v. Eldredge, 100 Mass. 455 ; Judson v. Western R. R. Co., 4 Allen, 520 ; St. Louis A. & T. H. R. R. Co. V. Montgomery, 39 111. 335. PAKT IV.] LIABILITY FOR TORTS OF AGENTS, [§ 360. directed,' then to deliver them to the consignee if he is present, or notify him of their arrival if he is absent and his address is known ; and if the consignee is not ready to accept the goods, to warehouse them in a proper warehouse. Thus, the liability of the railroad company becomes that of a warehouseman as soon as the consignee has had reasonable time and opportunity to remove the goods.^ In Massachusetts the liability of a rail- road company as a common carrier is held to cease as soon as the transportation is accomplished and the goods have been stored by the railroad company, although the consignee may have had no notice of their arrival, nor opportunity to remove them.' ' Eailroad companies are not h^ld to make a personal delivery. South & North Ala. E. E. Co. v. Wood, 66 Ala. 167 ; Norway Plains Co. v. Bos- ton & M. E. E. Co., 1 Gray (Mass.), 263. Otherwise as to express com- panies. American Un. Exp. Co. v. Eobinson, 72 Pa. St. 274. In the absence of provision in the bill of lading, the usage and custom at the port of delivery will control the mode of delivery of goods carried by water. Eichmond v. Union Steamboat Co., 87 N. Y. 240. ' Fenner v. Buffalo, etc. E. E. Co., 44 N. Y. 505 ; Eoth v. Buffalo, etc, E. E. Co., 34 N. Y. 548 ; McKinney V. Jewett, 90 N. Y. 267 ; Hedges v. Hudson Eiver E. E. Co., 49 N. Y. 223 ; Sprague v. New York Central E. E. Co., 52 N. Y. 637; Pelton u. Eensselaer, etc. E. E. Co., 54 N. Y. 214. Compare Buckley v. Great Western Ey. Co., 18 Mich. 121 : L. L. & G. E. E. Co. V. Maris, 16 Kan.' 333 ; Culbreth v. Phila. W. & B. E. E. Co., 3 Houston (Del.), 392 ; Hirsh- field V. Central Pac. E. E. Co., 56 Cal. 484 ; Jeffersonville E. E. Co. v. Cleveland, 2 Bush (Ky.), 468 ; Louis- ville C. & L. E. E. Co. V. Mahan, 8 Bush (Ky.), 184 ; Gravest. Hartford, etc. Steamboat Co., 38 Conn. 143 ; Alabama & Tennessee Eivers E. E. Co. V. Kidd, 35 Ala. 209 ; Mobile, etc. E. E. Co. V. Prewitt, 46 Ala. 63 ; South & North Ala. E. E. Co. v. Woods, 66 Ala. 167; Butler v. Eail- road Co., 8 Lea (Tenn.), 32 ; Blumen- thal V. Brainerd, 38 Vt. 402; Derosia V. Winona, etc. E. E. Co., 18 Minn. 133 ; Pinney v. First Division St. P., etc. E. E. Co., 19 Minn. 251. ' Norway Plains Co. v. Boston & M. E. E., 1 Gray (Mass.), 263 ; Eice V. Boston & W. E. E. Co., 98 Mass. 212 ; Thomas v. Boston & P. E. E. Co., 10 Met. (Mass.) 472 ; Eice v. Hart, 118 Mass. 201 ; compare Stevens V. Boston & M. E. E., 1 Gray (Mass.), 277. In Illinois the rule is the same as in Massachusetts. Chicago & N. W. Ey. Co. V. Bensley, 69 111. 630 ; Cahn V. Michigan Central E. E. Co., 71 III. 96 ; Eothschild v. Michigan Central E. E. Co., 69 111. 164 ; Illinois Central E. E. Co. v. Friend, 64 111. 303 ; Porter v. Chicago & E. I. E. E. Co., 20 111. 407. See also Bansemer V. Toledo, etc. E. E. Co., 25 Ind. 434 ; Chicago «e C. A. L. E. E. Co. V. McCool, 26 Ind. 140 ; Pittsburgh, 319 § 361.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. VII. Delivery of the goods to a person other than the consignee or owner is a conversion, for which as a general rule the carrier will be liable.* Where, however, the carrier is to deliver the goods to a succeeding carrier for further transportation, it remains liable as carrier until it has actually delivered them to the next carrier ; and its liability does not become that of a warehouseman simply because the next carrier fails for an un- reasonable time to take the goods after notice and request to do so.' § 361. The duty to deliver, and the duty to deliver in due time are distinct obligations. The time of delivery tranBporta- may be made a matter of express contract ;* but when *'°°' this is not so, a carrier must deliver within a reason- able time, i. e. the time within which it can deliver, using all reasonable exertion, and taking all reasonable precaution to avoid delay.^ To excuse a carrier for unusual delay in trans- C. & St. L. Ry. Co. V. Nash, 43 Ind. 423 ; Francis v. Dubuque, etc. R. R. Co., 25 Iowa, 60 ; Mohr v. C. & N. W. R. R. Co., 40 Iowa, 579 ; South- western R. R. Co. V. Felder, 46 Ga. 433. ' Forbes v. Boston and Lowell R. R. Co., 138 Mass. 154; Winslow v. Ver- mont, etc. R. R. Co., 42 Vt. 700; Viner v. N. Y., etc. Steamship Co., 50 N. Y. 23 ; Price v. Oswego, etc. R. R. Co., ib. 213 ; Scheu v. Erie R'y Co., 10 Hun, 498; Little Rock, etc. R'y Co. V. Glidewell, 39 Ark. 487 ; Balto. and Ohio R. R. Co. v. Pumphrey, 59 Md. 890. See Jellett v. St. Paul, etc. R'y Co., 30 Minn. 265. Carrier is liable for a delivery on a forged order. American Merchants' Un. Exp. Co. v. Milk, 73 111. 224 ; Southern Exp. Co. u. Van Meter, 17 Fla. 783. When the carrier knows the goods to be the pro- perty of shipper, it is liable to him for their value, when without his knowl- edge it delivers them at the place of shipment to a third person on the order 320 of the consignee. Southern Exp. Co; V. Dickson, 94 U. S. 549. So a carrier instructed to deliver only C. O. D. is liable to the shipper for damages, if it violates the instruc- tion. Tooker v. Gormer, 2 Hilt. (N. Y.) 71. See Rathbun v. Citizens' Steamboat Co., 76 N. Y. 376. Mis- direction of goods may relieve carrier ; see Southern Exp. Co. v. Kaufman, 12 Heisk. (Tenn.) 161. ' Railroad Co. v. Manufacturing Co., 16 Wall. 819; Goold u. Chapin, 20 N. Y. 259; Irish v. Milwaukee, etc. R'y Co., 19 Minn. 376 ; see Mills V. Michigan Cent. R. R. Co., 45 N. Y. 622 ; Pratt v. Railway Co., 95 U. S. 43 ; compare Louisville, etc. R. R. Co. V. Campbell, 7 Heisk. (Tenn.) 253 ; Van Lindley u. Richmond, etc. R. R., 88 N. C. 547. ' See Place v. Union Exp. Co., 2 Hilt. (N. Y.) 19. * Philadelphia, W. and B. R. R. Co. V. Lehman, 56 Md. 209 ; Wibert i'. New York" and E. R. R. Co., 12 N. PART IV.] LIABILITY FOR TORTS OF AGENTS. [§ 361. porting goods, the cause of delay must be something which the law regards as, beyond the carrier's control.^ A strike of its locomotive engineers is not such an excuse,^ nor an increased charge by a connecting carrier.' But a carrier is not respon- sible for delay occurring without its fault, when there is no ex- press agreement to transport within a specified time.^ In the absence of special contract and notice to the carrier of special circumstances, the measure of damages for delay in the trans- portation of merchandise is the difference between its value at its destination at the time when it ought to have been delivered in the ordinary course of transportation, and its value there at the time when actually delivered." The ordinary measure of dam- Y. 245 ; Cobb v. Illinois Central R. R. Co., 38 Iowa, 601 ; Rome R. R. Co. V. Sullivan, 32 Ga. 400. Similar ob- ligation exists towards passengers. Weed V. Panama R. R. Co., 17 N. Y. 362. For measure of damages for failure to deliver, see Balto. and Ohio R. R. Co. V. Pumphrey, 59 Md. 390. 1 See Tierney v. N. Y. C. and H. R. R. R. Co., 76 N. Y. 305. But if a railroad company knows of any cause of delay on its lines beyond its, control, in order to free itself from liability, it must inform the shipper and stipulate against liability from delay. Illinois Central R. R. Co. v. Cobb, 54 111. 128; Same v. Same, ib. 143 ; Illinois Cen- tral R. R. Co. V. Ashmead, 58 111. 487 ; Cobb v. 111. Central R. R. Co., 88 111. 394. ^ Blackstock v. N. Y. and Erie R. R. Co., 20 N. Y. 48 ; Read v. St. Louis, etc. R. R. Co., 60 Mo. 199; compare Pittsburgh, etc. R. R. Co. v. HoUowell, 65 Ind. 188 ; Pittsburgh, Ft. W. and C. R. R. Co. v. Hazen, 84 111. 36. For the liability of a telegraph com- pany for delay in transmitting a mes- sage, see Logan v. Western Un. Tel. 21 Co., 84 111. 468 ; Mackay v. Same, 1 6 Nev. 222, ' Condict 0. Grand Trunk R. Co., 54 N. Y. 500. « Wibert V. N. Y. and Erie R. R. Co., 12 N. Y. 245; see Pittsburgh, Ft. W. and C. R. R. Co. v. Hazen, supra. For damages arising from a mere delay occasioned by a temporary excess of business, a carrier is not re- sponsible ; if he is not in fault regard- ing the equipment of his road and facilities for doing the ordinary busi- ness. Galena and C. N. R. R. Co. v. Rae, 18 111. 488 ; Michigan Central R. R. Co. V. Burrows, 33 Mich. 6 ; Thayer v. Burchard, 99 Mass. 508. But temporary excess of business is no excuse when a carrier has contracted to deliver within a specified time. Deming v. Grand Trunk R. R. Co., 48 N. H. 455. In regard to the eifect of. time tables, see Gordon v. Man- chester, etc. R. R., 52 N. H. 596 ; Le Blanche v. London, etc. Railway Co., 24 W. R. 808. 5 Ward V. New York Central R. R. Co., 47 N. Y. 29 ; Cutting v. Grand Trunk Ry. Co., 13 Allen (Mass.) 381 ; Ingledew v. Northern Railroad, 7 Gray (Mass.) 86 ; Galena and C. N. 321 § 363.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. ages when goods are lost or injured is their value at the place of destination, deducting freight, if unpaid.' § 362. Prima facie a railroad company or other carrier is re- . , sponsible only for the negligence and misfeasance of liability for its own servants, and consequently is liable only for losses on , ... . • , i connecting losses or injuries occurring on its own road, or on a "°^^" road which it leases or otherwise controls.^ But it may contract to transport passengers or goods to a point beyond its terminus,* and having made such a contract will be liable as carrier. for the whole trip, whether the loss occur on its own or on a connecting line.* § 363. So far the authorities may be regarded as unanimous. But in regard to the evidence from which a jury may be allowed to infer a contract on the part of the carrier to transport beyond R. R. Co. V. Rae, 18 111. 488 ; Sher- man V. Hudson River R. R. Co., 64 N. Y. 254 ; see Devereux v. Buckley, 34 O. St. 1 6 ; Illinois Central R. R. Co. V. Cobb, 72 111. 148. Compare Priestley v. Northern Indiana, etc. R. R. Co., 26 111. 205. See as to per- ishable goods, Place v. Union Exp. Co., 2 Hilt (N. Y.), 19 ; American Exp. Co. V. Smith, 33 O. St. 511; Michigan Central R. R. Co. v. Bur- rows, 33 Mich. 6. ' Northern Trans. Co. v. McClary, 66 111. 2S3 ; Ringgold w. Haven, 1 Cal. 108; Taylor v. Collier, 26 Ga. 122; Michigan Southern, etc. R. R. Co. v. Caster, 13 Ind. 164 ; McGregor v. Kil- gore, 6 Ohio, 359 ; Robinson v. Mer- chants' Dispatch Trans. Co., 45 Iowa, 470 Compare Winne v. Illinois Cen- tral R. R. Co., 81 Iowa, 583 ; Breed V. Mitchell, 48 Ga. 533. " Compare Nashville, etc. R. R. Co. V. Carroll, 6 Heisk. (Tenn.) 347 ; Mallory v. Tioga R. R. Co., 39 Barb. 488; Ue Mott V. Laraway, 14 Wend. 225 ; Macon, etc. R. R. Co. v. Mayes, 322 49 Ga. 355 ; Illinois Central R. R. Co. V. Kanouse, 39 111. 272, and §170. ' This proposition is universally ac- cepted in the United States. Rail- road Co. V. Pratt, 22 Wall. 123; Wheeler v. San Francisco, etc. R. R. Co., 31 Cal. 46 ; Peet v. Chicago and N. W. Ry. Co., 19 Wis. 118; Kyle V. Laurens R. R. Co., 10 Rich. L. (S. C.) 382 ; Baltimore, etc. Steamboat Co. V. Brown, 54 Pa. St. 77; St. Louis and I. M. R. R. Co. v. Lamed, 103 111. 293. Unless perhaps in Con- necticut. See Hood v. N. Y. and N. H. R. R. Co., 22 Conn. 502. « Railway Co. v. McCarthy, 96 U. S. 258 ; Railroad Co. v. Androscoggin Mills, 22 Wall. 594. Cases in the following notes. Compare Wilson v. Harry, 32 Pa. St. 270. A railroad company is liable as a common carrier to another railroad company for a car of the latter, and the contents hauled by the former over its road. Peoria and P. N. Ry. Co. V. Chicago, etc. Ry. Co., 109 111. 135. PART IV.J LIABILITY FOR TORTS OF AGENTS. [§ 363. its terminus, there is a difference of judicial opinion.' In Eng- land and a few of the states, it is held that from the mere re- ceipt of goods directed to a point beyond its own line, a con- tract to carry the whole distance maj' be inferred.^ , This is not, however, the prevailing doctrine in this country ; where the rule generally followed is as stated by Justice Field delivering the opinion of the Supreme Court of the United States in My- rick V. Michigan Central R. E. Co.' " A railroad company is a carrier of goods for the public, and, as such, is bound to carry safely whatever goods are in- trusted to it for transportation, within the course of its business, to the end of its route, and there deposit them in a suitable place for their owners or consignees. If the road of the com- pany connects with other roads, and goods are received for transportation beyond the termination of its own line, there is superadded to its duty as a common carrier that of a forwarder by the connecting line ; that is, to deliver safely the goods to such line, — the next carrier on the route beyond. This forward- ing duty arises from the obligation implied in taking the goods for the point beyond its own line. The common law imposes no greater duty than this. If more is expected from the com- pany receiving the shipment, there must be a special agreement ' When a carrier receives express tern and Atlantic R. R. Co. v. Mc- goods, the question whether he con- Elwee, ib. 208 ; Mosher v. Southern tracts to carry them to their destina^ Exp. Co., 38 Ga. 37; Southern Exp. tion, or only to deliver safely to the Co. v. Shea, 38 Ga. 519; Cohen v. next carrier, is one of fact for the Southern Exp. Co., 45 Ga. 148. If jury, dependent on the circumstances, goods are delivered to a carrier to Phila. and Reading R. R. Co. v. Ram- be carried to a place beyond its ter- ser, 89 Pa. St. 474. Compare Penn. minus, and no receipt is taken, but R.' R. Co. V. Berry, 68 Pa. St. 272. freight is paid for the whole distance, " Muschamp v. Lancaster Ry. Co., the carrier will be liable for a loss oc- 8 M. & W. 421 ; Webber v. Great curring beyond its own line. Adams Western Ry. Co., 3 H. & C. 771; Exp. Co. r. Wilson, 81 111. 339. Acar- Wabash, St. L. & P. Ry. Co. v. Jag- tier checking baggage beyond his line german, 115 111. 407; Mobile and remains liable as insurer if he forwards Girard R. R. Co. v. Copeland, 63 baggage by a route other than that by Ala. 219 ; Louisville, etc. R. Co. v. which he has agreed. Isaacson v. N. Weaver, 9 Lea (Tenn.), 38. See also Y. C. & H. R. R. R. Co., 94 N. Y. East Tenn. and Va. R. R. Co. v. 278. Rogers, 6 Heisk. (Tenn.) 143 ; Wes- » 107 U. S. 102. 323 § 363,] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. for it. This is the doctrine of this court, though a different' rule of liability is adopted in England and in some of the states. . . . The general doctrine, then, as to transportation by connecting lines, approved by this court, and also by a ma- jority of state courtB,-amounts to this: that each road confining itself to its common-law liability is only bound, in the absence of a special contract, to safely carry over its own route and safely to deliver to the next connecting carrier, but that any one of the companies may agree that over the whole route its liability shall extend. In the absence of a special agreement to that effect such liability will not attach, and the agreement will not be inferred from doubtful expressions or loose language, but only from clear and satisfactory evidence."' The same general doctrine is also clearly stated by Judge Rapallo, of the New York Court of Appeals, in Root v. Great "Western E. E. Co.* " The receipt of goods marked for a place beyond the terminus of the carrier's route does not import a contract to carry them to their final destination ; but, in the absence of a special con- tract, and of a partnership between the connecting lines, the carrier is only responsible to the extent of his own route, and for the safe delivery to the next succeeding carrier ; in such a case the carrier is merely a forwarder from the terminus of his own line, and where goods thus marked are delivered to a carrier, unaccompanied by any particular directions, except such as might he inferred from the marks themselves, the carrier is only bound at the terminus of his own line, to deliver them according to the established usage of the business in which he is engaged."' On the other hand, from the bill of lading taken 1 Myricku. Michigan Central R. R. etc. R. R. Co., 15 Minn. 390; Irish u. Co., 107 U. S. 102, 106. Milwaukee, etc. R. R. Co., 19 Minn. ' 45 N. Y. 524, 530. 376. See Mullarkey v. P. W. and B. ' Accord Van Santvoord v. St. R. R. Co., 9 Phila. 114 (with which John, 6 Hill, 1 58 ; Railroad Co. v. last case compare St. Louis and I. M. Pratt, 22 Wall. 123; Jenneson v. R. R. Co. v. Larned, 103 111. 293); Railroad Co., 4 Am. Law. Reg. 234 Skinner v. Hall, 60 Me. 477; Hadd v. and note; Rome R. R. Co. v. Sulli- U. S. and Can. Exp. Co., 52 Vt. 335; van, 25 Ga. 228 ; Piedmont M'f g Co. Clyde u. Hubbard, 88 Pa. St. 358 ; V. Columbia, etc. R. R. Co., 19 S. C. Penn. R. R. Co. v. Schwarzenberger, 353 ; Brintnall v. Saratoga, etc. R. R. 45 Pa. St. 208 ; Burroughs v. Nop- Co., 32 Vt. 665; Lawrence u. Winona, wich, etc. R. R. Co., 100 Mass. 26; 324 PART IV.] LIABILITY FOR TORTS OF AGENTS. [§ 364. in connection witli the circumstances of the case, a court may- allow a jury to find a contract for through transportation, which will render liable the carrier who received the goods, no matter where the loss occurs.^ § 364. Where several carriers owning connecting lines make general agreements, under which they act in concert and as each other's agents in receiving and forwarding freight and passengers, any one of them over whose route have been trans- ported the goods which are lost or damaged, may be held liable ; or they may all be sued jointly.'' Mitting V. Conn. River R. R. Co., 1 Gray, 502 ; Montgomery, etc. R. R. Co. V. Moore, 51 Ala. 394 ; Crawford V. Southern R. R. Ass'n, 51 Miss. 222; Gray v. Jackson, 51 N. H. 9 ; Darling v. Boston and Worcester R. R. Co., 11 Allen, 295; Washburn, etc. M'f g Co. V. Providence, etc. R. R. Co., 113 Mass. 490. Compare Newell V. Smith, 49 Vt. 255 ; Good- rich V. Thompson, 44 N. Y. 324. 1 See Railroad Co. v. Pratt, 22 Wall. 123 ; Clyde v. Hubbard, 88 Pa. St. 358 ; Feet v. Chicago and N. W. Ry. Co., 19 Wis. 118; Kyle v. Lau- rens K. R. Co., 10 Rich. L. (S. C.) 382. Compare Insurance Co. v. Rail- road Co., 104 U. S. 146 ; Philadelphia and R. R. R. Co. v. Ramsey, 89 Pa. St. 474 ; Washburn M'f g Co. n. Provi- dence, etc. R. R. Co., 113 Mass. 490; Hill M'f g Co. V. Boston and L. R. R. Co., 104 Mass. 122; Cincinnati H. and D. R. R. Co. v. Pontius, 19 O. St. 221 ; Clyde v. Hubbard, 88 Pa. St. 358 ; Baltimore and P. Steamboat Co. V. Brown, 54 Pa. St. 77 ; Pennsylvania R. R. Co. V. Berry, 68 Pa. St. 272. But compare Converse v. Norwich, etc. Trans. Co., 33 Conn. 166 ; El- more V. Naugatuck R. R. Co., 23 Conn. 457 ; Lawrence v. New York, • etc. R. R. Co., 36 Conn. 63. The way-bill also is admissible as evidence of a through contract. Railroad Co. V. Androscoggin Mills, 22 Wall. 594. The doctrine of a number of cases is that the acceptance of goods for car- riage marked for a point beyond the terminus of the carrier's line, is prima facie evidence of a contract for through transportation ; but the carrier may limit its responsibility to its own line, e. (/., by a clause in the receipt given for the goods, although not signed by the shipper. Erie Ry. Co. v. Wilcox, 84 111. 239 ; Illinois Central R. R. Co. V. Frankenberg, 54 111. 88 ; Illinois ' Central R. R. Co. v. Johnson, 34 111. 389; Field u. Chicago and R. I. R. R. Co., 71 111. 458; Adams Exp. Co. v. . Wilson, 81 111. 339; Mulligan v. Illi- nois Central Ry. Co., 36 Iowa, 181 ; Angle V. Mississippi, etc. R. R. Co., 9 Iowa, 487. Compare Merchants' Despatch Trans. Co. v. Moore, 88 111. 136 ; Berg v. Atchison, etc. R. R. Co., 30 Kan. 561. ' Barter v. Wheeler, 49 N. H. 9 ^ Wyman v. Chicago and Alton R. R. Co., 4 Mo. App. 35 ; Hart v. Rensse- laer, etc. R. R. Co., 8 N. Y. 37; Monellu. Northern Central R. R. Co., 67 Barb. 531. See Quimby v. Van- derbilt, 17 N. Y. 306 ; Nashua Lock Co. V. Worcester, etc. fi,. R. Co., 48 325 § 365.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. Corpora- tion's lia- bility for Injuries to employes. § 365. A railroad or other corporation owes special duties to its employes; and if these duties are not fulfilled, and injury occurs to an employe in consequence, the corporation will ordinarily be liable in damages. To render a corporation liable to one of its servants for a personal injury sustained by the latter, the injury must have resulted from a breach of one of the following duties which the corporation owes its servants : first, to use reasonable care in selecting co-servants and to employ a reasonably sufficient num- ber of them to make the employment safe ;' secondly, to use reasonable diligence and care in supplying the servants with N. H. 339 (contains review of author- ities by Judge Perley) ; Cincinnati, H. and D. R. R. Co. v. Spratt, 2 Duv. (Ky.) 4. Compare Insurance Co. v. Railroad Co., 104 U. S. 146 ; Milnor V. N. Y. and N. H. R. R. Co., 53 N. Y. 863 ; Ricketts v. Bait, and O. R. R. Co., 69 N. Y. 637; Sb-ifFu. N. Y. C. and H. R. R. R. Co., 16 Hun, 278 ; Darling v. Boston and AVorcester R. R. Co., 11 Allen, 595; Railroad Co. v. Brumley, 5 Lea (Tenn.), 401 ; Gass V. New York, etc. iR. R. Co.. 99 Mass. 220; Ellsworth v. Tartt, 26 Ala. 733 ; Coates v. United States Exp. Co., 45 Mo. 238; Hot Springs R. R. u. Trippe, 42 Ark. 465. Where the combination extends through sev- eral states, the law of the state where the loss occurred is applicable. Bai-- ter V. Wheeler, 49 N. H. 9. Com- pare Hale V. N. J. Steam Nav. Co., 15 Conn. 539. The law of the state where the contract for carriage beyond the state is made must control as to the nature, interpretation, and effect of the contract. Michigan Central R. R. Co. V. Boyd, 91 111. 268 ; McDan- iel V. Chicago and N. W. R'y Co., 24 Iowa, 412. But see Curtis v. Dela- ware, etc. R. R. Co., 74 N. Y. 116. It is only where the contract is for 326 through transportation that the suc- ceeding carriers will be entitled to the benefits and exemptions of the contract between the shipper and the first car- rier. Merchants' Despatch Trans'n Co. V. BoUes, 80 111. 473 ; Camden and Amboy R. R. Co. v. Forsyth, 61 Pa. St. 81. See Halliday v. St. Louis, etc. R'y Co., 74 Mo. 159 ; Manhattan Oil Co. v. Camden and Amboy R. R. Co., 54 N. Y. 197; Whitworth v. Erie Ry. Co., 87 N. Y. 413; Mtna Ins. Co. v. Wheeler, 5 Lans. (N. Y.) 480 ; Maghee v. Cam- den, etc. R. R. Co., 45 N. Y. 514 ; Railroad Co. v. Androscoggin Mills, 22 Wall. 594. Compare Taylor v. Little Rock, etc. R. R. Co., 39 Ark. 148. ' Wabash Ry. Co. v. McDaniels, 107 U. S. 454; Laning v. N. Y. Cent. R. R. Co., 49 N. Y. 521 ; Chicago and Alton R. R. Co. v. Sullivan, 68 111. 293 ; Harper v. Indianapolis, etc. R. R. Co., 47 Mo. 567 ; Besel v. N. Y. C. and H. R. R. R. Co., 70 N. Y. 171, 173 ; Boothu. Boston and Albany R. R. Co., 73 N. Y. 38; Huntington, etc. R. R. Co. V. Decker, 82 Pa. St. 119 ; see Atchinson, etc. R. R. Co. v. Moore, 29 Kans. 632; Kansas Pac. Ry. Co. V. Peavey, ib. 169. PART IV.] LIABILITY FOR TORTS OF AGENTS. [§ 365. safe machinery ;' thirdly, to apprise the servants of latent dan- gers connected with their employment, or concealed defects in the machinery used by them, when the corporation knows or is affected with notice of such datogers or defects f fourthly, to protect the servant against the negligence or incompetence of those who as to the servants represent the corporation ; i. e., superior agents who have authority over them f and, fifthly, to protect the servant from the negligent acts of other persons employed by the corporation in an employment different and distinct from that of the injured servant.* » Hough V. Railway Co., 100 U. S. 213 ; Koegan ii. VKestern R. R. Co., 8 N. Y. 175 ; Vosburgh v. Lake Shore and M. S. R. Co., 94 N. Y. 374; Mullan u. Philadelphia, etc. S. S. Co., 78 Pa. St. 25 ; Noyes v. 8mith, 28 Vt. 59. Compare Louisville and Nash- ville R. R. Co. V. Orr, 84 Ind. 50 ; Wonder v. Balto. and Ohio R. R. Co., 32 Md. 411 ; Mobile and Ohio R. R. V. Thomas, 42 Ala. 673 ; Chicago and N. W. R. R. Co. «. Ward, 61 111. 130 ; Atchison, etc. R. R. Co. v. Holt, 29 Kans. 149; Fay v. Minne- apolis, etc. R'y Co., 30 Minn. 231; Lasure v. Graniteville M'f'g Co., 18 S. C. 275. See International, etc. R. R. Co. 13. Kindred, '57 Tex. 491; Missouri Pac. R. R. Co. m. Lyde, ib. 505 ; Vosb"urgh v. Lake Shore and Mich. So. R. Co., 94 N. Y. 374. Although a railroad company employ competent men to inspect its machin- ■ ery, it will be liable for their negli- gent performance of their duty. Kirk- patrick v. N. Y. C. and H. R. R. R. Co., 79 N. Y. 240; Ford v. Fitch- burg R. R. Co., 110 Mass. 240 ; Dry- mala u. Thompson, 26 Minn. 40. Compare Murphy v. Boston and A. R. R. Co., 88 N. Y. 146. ' Keegan v. Western R. R. Co., 8 N. Y. 175; Williams v. Clpugh, 3 H. & N. 258 ; Paulmier v. Erie R. R. Co., 34 N. J. L. 151 ; Malone «. Hawley, 46 Cal. 409 ; Ryan «. Fowler, 24 N. Y. 410. See Baxter v. Rob- erts, 44 Cal. 187. Compare Wonder V. Balto. and Ohio R. B. Co., 32 Md. 411. 3 Hough V. Railway Co., 100 U. S. 213 ; Little Miami R. R. Co. v. Ste- vens, 20 Ohio, 415; see Booth v. Boston and Albany R. R. Co., 73 N. Y. 38 ; Besel v. N. Y. C. and H. R. R. R. Co., 70 N. Y. 171, 173 I com- pare Brabbits ». Chicago and N. W. R'y Co., 38 Wis. 289 ; Bunnell v. St. Paul, etc. R'y Co., 29 Minn. 305. * Nashville and Chattanooga R. R. Co. V. Carroll, 6 Heisk. (Tenn.) 347 ; Chicago, B. and Q. R. R. Co. v. Gregory, 58 111. 272 ; Ryan v. Chi- cago and N. W. R'y Co., 60 111. 171 ; Toledo, W. and W. R'y Co. v. Moore, 77 111. 217; Lewis v. St. Louis, etc. R. Co., 59 Mo. 495 ; Baird v. Pettit, 70 Pa. St. 477 ; Cooper v. MuUins, 30 Ga. 146. See Atchison, etc. R. R. Co. V. Moore, 29 Kans. 632 ; Chicago and N. W. R'y Co. v. Moranda, 93 111. 302 ; Dobbin v. Richmond, etc. R. R Co., 81 N. C. 446. Compare Tunney v. Midland R'y Co., L. R. 1 C. P. 291. 327 §366.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. YII. In riike v. Boston and Albany R. R. Co., giving the opinion of the S'ew York Court of Appeals, Chief Judge Church said : " The true rule, I apprehend, is to hold the corporation liable for negligence or want of proper care in respect to such acts and duties as it is required to perform and discharge as master or principal, without regard to the rank or title of the agent intrusted with their performance. As to such acts the agent occupies the place of the corporation, and the latter should be deemed present and consecLuently liable for the manner in which they are performed."* And these acts and duties which the corporation as master is bound to perform for the safety and protection of employes cannot be delegated so as to exonerate it from liability to the employes for omissions in the discharge thereof.^ This seems the true principle, though many author- ities do not hold to it.' § 366. The corporation will not be liable unless the servant's injury arises from a breach of one of these obligations,^ All other risks connected with his employment, as between himself and the corporation, the servant is held to assume ; as, for instance, the negligence of co-servants who have been properly selected, and the ordinary risks connected with the use of dan- gerous machinery." If, however, negligence imputable to the ' 53 N. Y. 549, 553. 201 ; Little Miami R. R. Co. v. Ste- 2 Fuller V. Jewett, 80 N. Y. 46; vens, 20 Ohio, 415; see Pittsburgh, Northern Pac. E. R. Co.' v. Herbert, Ft. W. and C. Ry. Co. v. L§wis, 33 O. 116 U. S. 642. St. 196. Contra, Lawler v. Andros- ' Some decisions hold that when one coggin R. R. Co., 62 Me. 463 ; O'Con- employ6 is placed under the direction nellu. Baltimore and O. R. R. Co., 20 of another, the two are not co-em- Md. 212 ; Shanek a. Northern Central ployfis, and the corporation is liable Ry. Co., 25 Md. 462. to the inferior employ6 for injuries * Henry v. Lake Shore, etc. Ry. resulting from the negligence of the Co., 49 Mich. 495. Compare Kansas superior employfi. Thus, a railroad Pac. Ry. Co. v. Peavy, 29 Kans. 169. company has been held liable tb an ^ Gibson v. Erie Ry. Co., 63 N. Y. engineer or a brakeman for injuries 449; Coon v. Syracuse, etc. R. R. caused by the negligence of the con- Co., 5 N. Y. 492 ; Randall v. Balti- ductorofthe same train. Chicago and moreandO. R. R. Co., 109 U. S. 478 ; M. R. R. Co. V. Ross, 112 U. S. 377 Morse v. Minneapolis, etc. Ry. Co., (Justices Bradley, Matthews, Gray, 30 Minn. 465 ; Wood v. New Bedford and Blatchford dissenting) ; Cleveland Coal Co., 121 Mass. 252; Kelley v. C. and C. R. R. Co. n. Keavy, 3 O. St. Norcross, ib. 508 ; Ryan v. Cumber- 828 PART IV.] LIABILITY FOR TORTS OF AGENTS, [§ 368. corporation is the cause of the servant's injury, the carelessness of a co-servant in the same matter will be no defence.^ § 367. Hitherto we have been considering the liability of corporations for negligence or misfeasance of their employes, which causes the breach of some special corporatioii duty owing by the corporation. To render a corpo- o^es no ration liable for the negligence of its employes, how- special ever, it is not essential that the duty, a breach of which is caused by the negligence, should be a special duty arising from a contract. Enough, if it be the general duty owed by a corporation to all the world : sic utere tuo ut alienum non Icedas. A corporation will be liable for all injuries and losses occasioned to any one by the negligence of its employes in any matter connected with their employment.* § 368. For instance, it is the duty of a railroad corporation, for a breach of which it will be responsible, to warn persons on a highway crossing its road, by proper and compantes. timely signals, of the approach of trains.' And if a flagman has been uniformly stationed by the company at a street crossing, his neglect to give warnings will be imputable to the company.* Likewise, a railroad company is bound to land Valley K.R. Co., 23 Pa. St. 384; etc. Ry. Co., 46 Wis. 497; S. C. 49 Holden v. Pitchburg R. R. Co., 129 Wis. 609. Mass. 268 ; Farwell v. Boston and N. ' See Denver S. P. and P. R. R Co. R. R. Co., 4 Met. (Mass.) 49 ; How- v. Conway, 8 Ool. 1. land V. Milwaukee, etc. Ry. Co., 54 ^ Dyer v. Erie Ry. Co., 71 N. Y. Wis. 226 ; Osbourne v. Knox, etc. R. 228. It is not enough to absolve the R. Co., 68 Me. 49; Blake v. Maine company in all cases that the signals Central R. R. Co., 70 Me. 60 ; Pitts- required by statute have been given; burgh, Ft. W.andC. Ry. Co. u. Devin- other precautions may be necessary ney, 17 O. St. 197. See Hough v. under the circumstances. lb. Corn- Railway Co., 100 U. S. 213 ; Patter- pare Chicago, B. and Q. R. R. Co. w. son V. Wallace, 1 Macq. 748. Also Stumps, 69 111. 409 ; Continental Im- Wharton on Negligence, 2d ed., §§ 224 provement Co. v. Stead, 95 U. S. 161 ; et seq., and the numerous authorities Railroad Co. u. Houston, ib. 697. But there cited. a failure to give the warning required ' GrandTrunk Railway Co. M. Cum- by statute constitutes negligence. Cen- mings, 106 U. S. 700 ; Keegan v. tral R. R., etc. Co. v. Litcher, 69 Ala. Western R. R. Co., 8 N. Y. 175; 106. Booth V. Boston and Albany R. R. ' Doland v. Del. and Hud. Canal Co., 73 N. Y. 38 ; Stetler v. Chicago, Co., 71 N. Y. 285. 329 § 369.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. use the most approved methods to prevent the escape of sparks from its locomotives ;' and the fact that sparks escaped and set fire to property, has been held prima facie evidence of its negligence.^ But the weight of authority, when no statute aftects the case, places the burden on the plaintiff to show neg- ligence on the part of the railroad company.' § 369. In the absence of statute, a railroad company is not bound to fence its road to keep off cattle ; still, if cattle get on the track and the company's servants negligently run them down, the company will be liable, provided the accident could have been avoided by using due care.^ Common carriers are ' Wiley V. West Jersey R. R. Co., 44 N. J. L. 247 ; St. Louis, A. & T. H. R. R. Co. V. Gilliam, 39 111. 455 ; Illi- nois Central R. R. Co. v. McClelland, 42 111. 355 ; Pittsburgh, C. & St. L. R. R. Co. V. Nelson, 51 Ind. 150. See HofFi). West Jersey R. R. Co., 45 N. J. L. 400. ' Simpson v. Railroad Co., 5 Lea (Tenn.), 456 ; International and G. N. Ry. Co. V. Townsend, 61 Tex. 660; Burke V. Louisville and N. R. R. Co., 7 Heisk. (Tenn.) 451 ; Coates v. Mis- souri, K. and T. Ry. Co., 61 Mo. 88. See Spaulding v. Chicago and N. W. Ry. Co., 30 Wis. 110. But if it ap- pears that the railroad company was not negligent, it will not be liable. Burroughs v. Housatonic R. R. Co., 15 Conn. 124 ; Hinds u. Barton, 25 N. Y. 544 ; Prankford, etc. Turnpike Co. V. Phila., etc. R. R. Co., 54 Pa. St. 345; Vaughan v. Taff Vale Ry. Co., 5 H. &N. 679. " Albert v. Northern Central Ry. Co., 98 Pa. St. 316 ; Railroad Co. v. Yeiser, 8 Pa. St. 366; Huyett v. Phila., etc. R. R. Co., 23 Pa. St. 373 ; Phila. and Reading R. R. Co. v. Yerger, 73 Pa. St. 121 ; Gandy v. Chicago and N. W. R'y. Co., 30 Iowa, 420 ; McCummans v. Same, 33 330 Iowa, 187 ; Burroughs v. Housatonic R. R. Co., 15 Conn. 124; Morris and Essex R. R. Co. v. State, 36 N. J. L. 553 ; Indianapolis and Cin. R. R. Co. V. Passmore, 31 Ind. 143; Smith V. Hannibal, etc., R. R. Co., 37 Mo. 287 ; McCready v. Railroad Co., 2 Strob. L. (S. C.) 356 ; Firo v. Buffalo, etc. R. R. Co., 22 N. Y. 209 ; Ruff- ner v. Cincinnati, etc., R. R. Co., 34 O. St. 96 ; Jefferies v. Philadelphia, etc. R. R. Co., 3 Houston (Del.), 447. See Kans. Pac. R. R. Co. v. Butts, 7 Kans. 308. But see Fitch v. Pacific R. R. Co., 45 Mo. 322; Bedford v. Hannibal and St. Jo. R. R. Co., 46 Mo. 456 ; Palmer v. Missouri Pac. Ry. Co., 76 Mo. 217. But this burden may readily be shifted by circumstances showing that, without negligence, the accident would not have happened. Field V. N. Y. C. R. R. Co., 32 N. Y. 339 ; Garrett v. Chicago and N. W. R'y. Co., 36 Iowa, 121. Compare Lindsay v. Winona, etc. R. R. Co., 29 Minn. 411 ; Woodson v. Milwaukee, etc. R. R. Co., 21 Minn. 60. * Railroad Co. v. Skinner, 19 Pa. St. 298 ; Continental Improvement Co. V. Phelps, 47 Mich. 299 ; Perkins V. Eastern R. R. Co., 29 Me. 307 ; Price V. New Jersey R. R. Co., 31 N. PART IV.] LIABILITY FOR TORTS OF AGENTS. [§ 371. not chargeable, in cases free from suspicion with notice of the contents of packages carried by them, nor are they authorized in such cases to require information as to the contents. Under such circumstances it is not negligence for a carrier to handle a package in the usual way, and when it appears damaged to bring it into his place of business for examination ; accordingly, if a package containing a dangerous substance, of which the carrier has no knowledge, explodes, injuring premises leased by him, he will not be liable for the damage to, his lessor.* The measure of care which should be observed by a carrier against accident to premises leased by him, is the care which a person of ordinary prudence and caution would use in his affairs.^ § 370. The responsibility of a corporation for injuries caused by the acts or omissions of its servants may be les- sened by the fact that the injured person was a tres- when les- passer at the time when the injury occurred ; or by the ^^°^'^' fact that he contributed to his injury by his own negligence. These two facts often conjoin. § 371. Except at public crossings, where the public has a right of way, a railroad company has the exclusive right to its track, trestle-works, and bridges ; and ac- '^^^^^^^^ cordingly (it has been held) any person walking on the track is a trespasser, who cannot hold the company liable for injuries received by him, unless he shows it to have been J. L. 229 ; Knight v. New Orleans, this duty are generally liable for cattle etc. R. R. Co., 15 La. Ann. 105; killed on their tracks. Oilman, etc. R. R. Co. v. Spencer, ' Nitro-Glycerine Case, 15 Wall. 76 111. 192; see Illinois Cent. R. R. 524. Compare Boston and Albany R. Co. V. Phelps, 29 111. 447 ; Galpin v. R. Co. v. Shanly, 107 Mass. 568. Chicagoand N. W. R'y Co., 19 Wis. The defendants, at their own expense, 604 ; Brown u. Hannibal, etc. R. R. repaired the portions of the premises Co., 33 Mo. 309. Compare North occupied by them ; as they were bound Penn. R. R. Co. v. Rehman, 49 Pa. to do under the terms of their lease ; St. 101 ; Munger v. Tonawanda R. and it was for damage done by the ex- R. Co., 4 N. T. 349. Throughout the plosion to other portions of the same States of the Union railroad compa- premises that the court absolved them nies are now required to fence their from liability, roads by statutes, and if they fail in " Nitro-Glycerine Case, supra. 331 § 372.] THE LAW OF PRIVATE COBPORATIONS. [CHAP. VII. guilty of negligence so gross as to amount to wantonness.' A late Pennsylvania decision, Baltimore and Ohio E,. R. Co. v. Schwindling,^ has carried to an extreme the doctrine that a corporation is not liable for the negligence of its employes which causes injury to trespassers. The court held that the company owed no duty to the plaintiff, a child of five years, who was upon the platform of a railroad station when injured, but not as a passenger, nor upon any business connected with the company ; and accordingly that the company was not liable for injuries incurred by him through negligence imputable to it. The court may have overlooked a principle which seems not inapplicable to this case, and which might have altered the de- cision had it been applied. It is this : If a railroad company acquiesces in the custom of the public in using or crossing its stations or track at certain places, it will be held by its acqui- escence or quasi-invitation to have held the premises out as reasonably safe ; and will accordingly be liable to a person for injuries caused by their unsafe condition, if he himself was guilty of no contributory negligence.* A railroad company has a right to exclude the general public from its stations,^ ex- cept such persons as offer themselves as passengers or shippers ; but if it acquiesces — as appears to have been the case in Balti- more and Ohio E. R. Co. v. Schwindling — in the use of its sta- tions by the genera,l public, it should keep them safe." § 372. Undoubtedly, as we have seen, there is authotity for the proposition that a railroad company owes no duty to tres- ' Mason v. Missouri Pac. R'y Co., ton & A. R. R. Co., 133 Mass. 121 ; 27 Kans. 83. See Cauley v. Pitts- Sweeny v. Old Colony, etc. R. R. Co., burgh, C. and St. L. R'y Co., 95 Pa. 10 Allen (Mass.), 368 ; Johnson v. St. 398 ; Omaha, etc. R. R. Co. v. Boston, etc. R. R. Co., 125 Mass. 75 ; JHartin, 14 Neb. 295. Illinois Central R. R. Co. v. Godfrey, ' 101 Pa. St. 258. 71 111. 500. Adverse to the statement » Bennett ^. Railroad Co., 102 D. in the text is Sutton v. N. Y. C. & H. S. 577 ; Barry v. New York Cent. R. R. R. Co., 66 N. Y. 243. and H. R. R. R. Co., 92 N. Y. 289. ■• Commonwealth v. Power, 7 Met. See Brown u. Hannibal, etc. R. R. (Mass.) 596. See Summit v. State, Co., 50 Mo. 461 ; Murphy v. C. R. I. 8 Lea (Tenn.), 413. and P. R. R. Co., 38 Iowa, 539 ; ^ Tobin v. Portland, etc. R. R. Co., Pitts V. Cream City R. R. Co., 59 59 Me. 183 ; Nagel v. Missouri Pac. Wis. 323. Compare Murphy v. Bos- Ry. Co., 75 Mo. 653; Evansich v. G. 332 PART IV.] LIABILITY FOR TORTS OF AGENTS. [§ 372. passers, except not wantonly to injure them.* But the weight of authority seems to be in favor of the rule stated by the Federal Supreme Court as follows : " While a railway company is not bound to the same degree of care in regard to mere strangers who are unlawfully upon its premises that it owes to passengers conveyed by it, it is not exempt from responsibility to such strangers for injuries arising from its negligence or from its tortious acts."^ Accordingly, it would seem that a trespasser who is not guilty of contributory negligence should be allowed to recover if his injuries are caused by the negligence of the servants of the cor- poration. But there must have been negligence imputable to the corporation, for if no duty on its part is violated, there is no cause of action against it. And the circumstances are to be considered. Thus, to run a train rapidly and without signals across a highway crossing is in itself negligent ; but not so to run the train at full speed and without continual whistling along the ordinary track.* Except when crossing a highway, or passing through the streets of a town, the engineer of a train has no reason to expect persons on the track. Moreover, to be walking on a railroad track may itself constitute contributory negligence, barring recovery if the person is an adult.* If, on the other hand, the person injured 'is a child, and its parents are free from fault, still, if it is walking on a railroad track, away from the public crossing, an engineer running over it might be C. &S.F. Ry. Co.,37Tex.l23;S. C, 610; Keffe v. Milwaukee, etc. Rail- 61 Tex. 3; Keffe U.Milwaukee and St. road Co., 21 Minn. 207; Koons tf. P. Ry. Co., 21 Minn. 207 ; Texas and St. Louis, etc., Railroad Co., 65 Mo. St. L. Ry. V. Orr, 46 Ark. 182. But 592 ; T. and P. R'y Co. v. O'Donnell, see Pittsburgh, Ft. W. & C. Ry. Co. 58 Tex. 27 ; Lynch v. Nurden, 1 Q. V. Bingham, 29 O. St. 364. B. 29 ; Williams v. Great Western 1 See also Morrissey v. Eastern R. Railway Co., L. R., 9 Exch. 157. R. Co., 126 Mass. 377; McAlpin v. Compare Opsahl v. Judd, 30 Minn. Powell, 55 How. Pr. (N. Y.) 163; 126; Gradin u. St. Paul, etc. R'y Co., Hughes V. Macfie, 2 H. & C. 744; 30 Minn. 217. Mangan v. Atterton, 4 H. & C. 388. ' See St. Louis, etc. R'y Co. v. 2 Railroad Co. v. Stout, 17 Wall. Payne, 29 Kans. 166. 657, 661 ; Benton v. C, R. I. and P. * Baltimore and Potomac R. R. Co. R. R. Co., 55 Iowa, 496 ; Daley v. v. State, 54 Md. 648 ; Northern Cen- Norwich, etc. Railroad Co., 26 Conn, tral R'y Co. v. State, ib. 113. 591 ; Whirley v. Whiteman, 1 Head. 333 §■374.] THE LAW OF PRIVATE COKPOEATIONS. [CHAP. VII. entirely free from negligence under circumstances that would have rendered the conduct of the engineer negligent indeed, had the accident occurred in a place where he was bound to keep a special lookout for travellers.^ § 373. The responsibility of corporations for injuries done by their employes, as diminished by the fact that the Contribu- sr j i • t i i. j tory negii- injured person was a trespasser, is closely connected gence. ^^^^ ^^^^^ liability as released by the contributory negligence of the injured person. The principle is, he whose own negligence occasions his injury cannot recover damages therefor.^ This rule connotes a statement often made as a qualification to it. Between the negligence of the plaintiff and his injury there must be the relation of ordinary and immediate antece- dent and consequent, or what is usually called a causal relation. This qualification is also connoted by the term contributory. The plaintiff's negligence must have been the proximate not the remote cause or occasion of his injury.' § 374. The question of the negligence of the defendant, and the contributory negligence of the plaintiff', is ordinarily for the jury, under the direction of the court, to determine from the ' Philadelphia and Reading R. 'R. v. Direct U. S. Cable Co., 86 N. Y. Co. V. Spearen, 47 Pa. St. 300, 30.S ; 633. Prendergast v. N. Y. C. & H. R. R. Not every degree of negligence, how- R. Co., 58 N. Y. 652. ever slight, will bar a recovery; the 2 " Quod quis ex culpa sua damnum negligence of the plaintiff to have this sentit, non intelligitur damnum sen- effect must amount to an absence of tire," Dig. lib. 50, tit. 17, § 203 ; see ordinary care. Strong w. Sacramento, Wharton on Negligence, 2d ed., §§300 etc. R. R. Co., 61 Cal. 326, Com- et seg., where the subject of contribu- pare Kansas Pac. R'y Co. v. Peavey, tory negligence is fully and satis- 29 Kans. 169. factorily treated. ' Kline v. Central Pac. R. R. Co., Where a telegraph company incor- 37 Cal. 400 ; Flynn v. San Francisco, rectly transmitted a message so that as etc. R. R. Co., 40 Cal, 14 ; Murphy transmitted it was unintelligible jar- v. Deane, 101 Mass. 455 ; Trow v. gon, yet the receiver (the sender's Vermont Cent. R. R. Co., 24 Vt. 487 ; agent) acted on it, the sender cannot . Pennsylvania R. R. Co. v. Richter, 42 hold the company for the loss, which N. J. L. 180; see Indianapolis and St. was due to the negligent act of his own L. R. R. Co. v. Stout, 53 Ind. 143; agent in acting on the message. Hart Houston and T. C. Ry. Co. v. Smith, 52 Tex. 178. 334 PART IV. J LIABILITY FOR TORTS OF AGENTS. [§ 374. circumstances of the case.* The circumstances of negligence cases are so diverse that a discussion of them would he of little practical value unless the greatest detail were gone into. On general principles, a person is not guilty of negligence or of con- tributory negligence for doing what he has a right to do.^ Thus, every one has a right to cross the railroad track at a pub- lic crossing. To do so is not negligence. But if in so doing, a person does not make a vigilant tise of his eyes and ears, he is negligent and cannot recover for injuries which would not have happened had he been vigilant.* ' Railroad Co. v. Stout, 17 Wall. 657; see Hays v. Miller, 70 N. Y. 112 ; Lambert v. Staten Island R. K. Co., ib. 104 ; Thurber v. Harlem, etc. R. R. Co., 60 N. Y. 331. A statute may render inapplicable the general principles of the law of con- tributory negligence. Thus, in Michi- gan it is held that the liability of a railroad company for injuries to cattle resulting from its failure to fence its track, is not affected by the contribu- tory negligence of the owner of the cattle. Grand Rapids, etc. R. R. Co. V. Cameron, 45 Mich. 451. ^ Thus, a person is not guilty of con- tributor)- negligence in pasturing his horses — as he has a right to do — on a town-common, even though it be dan- gerous ; and he may still recover from a railroad company if the latter injures them through its fault. Chicago R. R. Co. V. Jones, 59 Miss. 465 ; compare Lindsay v. Winona, etc. R. R. Co., 29 Minn. 411. Likewise a railroad com- pany has a right to use its own land for any legitimate purpose in the prose- cution of its business. Such a use cannot be regarded as unlawful or negligent because it may obstruct the vision of those crossing the track. Cordell V. N. Y. C. and H. R. R. R. Co., 70 If. Y. 119. A passenger is not ordinarily guilty of contributory negligence in acting on the assumption that the carrier is not negligent. Brassell v. New York C. & H. R. R. R. Co., 84 N. Y. 241 ; Chaifee v. Boston &L. R. R. Co., 104 Mass. 108; Baltimore & O. R. R. Co. v. State, 60 Md. 449. It is not contributory negligence for a passenger in a railroad car, with a headache, to support his head on his hand with his elbow resting on the sill of an open window. Farlow v. Kelly, 108 U. S. 288; Germantown Pas- senger Ry. Co. V. Brophy, 105 Pa. St. 38. But to ride with his arm outside the window is contributory negligence. Todd V. Old Colony, etc. R. R. Co., 3 Allen (Mass.), 18 ; S. C, 7 Allen (Mass.), 207. ' Salter v. Utica, etc. R. R. Co., 75 N. Y. 273 ; Lake Shore and M. S. R. R. Co. V. Miller, 25 Mich. 274 ; International and G. N. Ry. Co. v. Graves, 59 Tex. 330 ; Pennsylvania R. R. Co. V. Richter, 42 N. J. L. 180 ; Terre Haute and I. R. R. Co. v. Clark, 73 Ind. 168; New Orleans, J. and G. R. R. Co. v. Mitchell, 52 Miss. 808. Compare Cleveland, C. and C. R. R. Co. v. Crawford, 24 O. St. 631. If a railroad crosses a common road on the same level, those travelling on either have a leeal right to pass over 335 § 376.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 375. Further, an act will not be negligent if at the time the person doing it was not a free agent ;' or was a little child. This applies to persons who in a panic caused by an imminent collision on a railroad leap from the cars ;" or to any person who instinctively does a sudden act to escape an imminent peril.' In regard to a child, the caution and discretion required are according to its age and capacity.^ But in some instances the pegligence of the persons having him in charge is held to bar a suit by his family, or his personal representatives, or perhaps by the child himself." § 376. Regarding the burden of proof where contributory negligence is relied on by a defendant, the weight of proiff™ °^ authority is, that contributory negligence is matter of defence to .be alleged and proved by the defend- ant.^ But a number of decisions hold a contrary doctrine." the point of crossing, and to require due care from those travelling on the other to avoid collisions. The train has the preference and right of way ; but is bound to give due warning. Continental Improvement Co. v. Stead, 95 U. S. 161. See Railroad Co. v. Houston, ib. 697 ; Shaw v. Boston and W. K. R. Co., 8 Gray (Mass.), 45; Black V. Burlington, etc. Ry. Co., 38 Iowa, 515. ^ ' See Wharton on Neg., 2d ed., §§ 301 et seq. ' Frink v. Potter, 17 111. 406. ' Larrabee v. Sewall, 66 Me. 376 ; Indianapolis, etc. R. R. Co. v. Carr, 35 Ind. 510 ; Stokes v. Saltonstall, 13 Pet. 181. See Eckert v. Long Island R. R. Co., 43 N. Y. 502. ' Railroad Co. v. Gladmon, 15 Wall. ' Murphy v. Deane, 101 Mass. 457 ; Lake Shore, etc. R. R. Co. v. Miller 25 Mich. 274; Daniels v. Clegg, 28 Mich. 33; Tolman v. Syracuse, etc. R. R. Co., 98 N. Y. 198; Button v. Hudson River R. R. Co., 18 N. Y. 336 401; Same v. Stout, 17 Wall. 657; Chicago and A. R. R. Co. v. Becker, 76 111. 25 ; Daniels v. Clegg, 28 Mich. 33 ; Dowd v. Chicopee, 116 Mass. 93 ; Wendell v. New York Cent, and H. R. R. R. Co., 91 N. Y. 420. 5 Fitzgerald v. St. Paul, etc. R'y Co., 29 Minn. 336. Here the authorities are very con- flicting. The question is discussed at length, with a full citation of authori- ties in Wharton on Neg., 2d ed., §§ 310 et seq. ° RailroadCo.i/. Gladmon, 15 Wall. 401 ; Indianapolis, etc. R. R. Co. v. Horst, 93 U. S. 291 ; Durant v. Pal- mer, 29 N. J. L. 544; Penn. Canal Co. V. Bentley, 66 Pa. St. 30 ; Cleve- land and Pittsburgh R. R. Co. v. Rowan, 66 Pa. St. 393 ; Pennsylvania 248 ; Warner v. New York Cent. R. R. Co., 44 N. Y. 465 ; Owens v. Rich- mond, etc. R. R. Co., 88 N. C. 502. See Wheelock v. Boston and Albany R. R. Co., 105 Mass. 203. PART IV.] LIABILITY FOR TORTS OF AGENTS. [§ 377. § 377. In assessing damages against a corporation for per- sonal injuries caused by the negligence or other jj^^^^^ ^^ wrongful acts of its servants, the measure of damages recover- is the same as in actions against individual principals empiary or masters. According to the law as declared in the ^^""^ses- majority of the states, exemplary damages may be allowed against a corporation ;• but only when the wrongful act was done wilfully, or with that indifference to the rights of others which is equivalent to an intentional violation of them.^ R. K. Co. V. Weber, 76 Pa. St. 157 ; Weiss V. Pennsylvauia R. R. Co., 79 Pa. St. 387 ; Freeh v. Phila., W. and B. R. R. Co., 39 Md. 574; State v. Balto. and Potomac R. R. Co., 58 Md. 482; Smoot v. Wetumpka, 24 Ala. 112; Strahlendorf ti. Rosenthal, 30 Wis. 675 ; Kansas Pac. R'y Co. v. Pointer, 14 Kans. 37; Kansas City L. & S. R. R. Co. V. Phillibert, 25 Kan. 582 ; Baltimore and O. R. R. Co. V. Whittington, 30 Grat. (Va.) 805 ; Thompson v. Duncan, 76 Ala. 334; Thompson v. North Missouri R. R. Co., 51 Mo. 190 ; St. Anthony Falls Co. V. Eastman, 20 Minn. 277 ; Mc- Quilken v. Cent. Pac. R. R. Co., 50 Cal. 7 ; MacDougal v. Central R. R. Co., 63 Cal. 431 ; Paducah, etc. R. R. Co. V. Hoehl, 12 Bush (Ky.), 42; Texas and Pac. R. R. Co. v. Murphy, 46 Tex. 356 ; Evansville, etc. R. R. Co. V. Hiatt, 17 Ind. 102 ; Hathaway V. Toledo, etc. B. R. Co., 46 Ind. 25 ; Jackson v. Indianapolis, etc. R. R. Co., 47 Ind. 454 ; Higgins v. Jefferson- ville, etc. R. R. Co., 62 Ind. 110; Galena, etc. R. R. Co. v. Fay, 16 Bl. 558; Baird ». Morford, 29 Iowa, 531 ; Reynolds u. Hindman, 32 Iowa, 146; Patterson v. B. and M. R. R. Co., 38 Iowa, 279 ; Fowler «. Baltimore and O. R. R. Co., 18 W. Va. 579 ; Street R. R. Co. u. Nolthenins, 40 O. St. 376. 22 Compare Hinckley v. Cape Cod R. R., 120 Mass. 257. Circumstances may make out a, prima facie case of contributory negligence, thus throwing on the plaintiff the bur- den of proving due care. See AUyn ij. Boston and Albany R. R. Co., 105 Mass. 77 ; Johnson v. Hudson River R. R. Co., 20 N. Y. 65. ' Phila. W. and B. R. R. Co. v. Larkin, 47 Md. 155; Gasway v. At- lanta, etc. R'y Co., 58 Ga. 216; Western Un. Tel. Co. v. Eyser, 2 Col. 141 ; Hinckley v. Chicago, etc. R'y Co., 38 Wis. 194; Taylor v. Grand Trunk R'y Co., 48 N. H. 304 ; Malecek v. Tower Grove, etc. R'y Co., 57 Mo. 17 ; Beale v. Railway Co., 1 Dill. 568; Singer M'fg Co. o. Holdfodt, 86 111. 455; Atlantic, etc. R'y Co. V. Dunn, 19 Ohio St. 162; Hopkins v. Atlantic, etc. R. R. Co., 36 N. H. 9 ; AUbritton v. J. & G. N. R. R. Co., .18 Miss. 242 ; compare Craker v. Chicago and N. W. R'y Co., 36 Wis. 657 ; Pittsburgh, Ft. W. and C. R. R. Co. V. Slusser, 19 Ohio St. 157 ; Chicago R. R. Co. v. Scurr, 59 Miss. 456 ; Saine v. Jarrett, ib. 470 ; Trigg V. St. Louis, etc. R'y Co., 74 Mo. 147. ' Milwaukee, etc. R. R. Co. v. Arms, 91 U. S. 489; Holmes v. Carolina Central R. R. Co., 94 N. C. 837 § 378.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 378. The doctrine of other cases, however, is to the general effect that to justify the allowance of exemplary damages against a corporation, the superior corporate agents must" either have heen negligent in their choice of employes, or must have ratified the act in some way, e. g., by retaining the servant in the employ of the company. As said by the late Chief Judge Church, giving the opinion of the New York Court of Appeals in Cleghorn v. ^ew York Central Railroad Co. :' " For injuries by the negligence of a servant while engaged in the business of the master, within the scope of his employment, the latter is liable for compensatory damages ; but for such negligence, how- ever gross or culpable, he is not liable to be punished in puni- tive damages, unless he is also chargeable with gross mis- conduct. Such misconduct may be established by showing that the act of the servant was authorized or ratified, or that the master employed or retained the servant, knowing that he was incompetent, or, from bad habits, unfit for the position he occu- pied. Something more than ordinary negligence is required ; it must be reckless and of a criminal nature, and clearly estab- lished. Corporations may incur this liability as well as private persons.^ If a railroad company, for instance, knowingly and wantonly employs a drunken engineer, or switchman, or retains one after knowledge of his habits is clearly brought home to the company, or to' a superintending agent authorized to em- ploy and discharge him, and injury occurs by reason of such habits, the company may and ought to be amenable to the severest rule of damages ; but I am not aware of any principle which permits a jury to award exemplary damages in a case which does not come up to this standard, or to graduate the amount of such damages by their view of the propriety of the conduct of the defendant, unless such conduct is of the character before specified."* 318. See Baltimore, etc. Turnpike ' 56 N. Y. 44, 47. Co. V. Boone, 46 Md. 344 ; Belknap = Citing Caldwell v. N. J. Steam- V. Boston and M. R. R. Co., 49 N. boat Co., 47 N. Y. 282. H. 358; Louisville, etc. R'y Co. u. » Accord, Goddard u. Grand Trunk Shanks, 94 Ind. 598 ; South & North R'y, 57 Me. 202; Perkins v. Missouri, Ala. R. R. Co. V. McLendon, 63 Ala. etc. R. R. Co., 55 Mo. 201 ; Hays v. 266. Houston, etc. R.R. Co., 46 Tex. 272; 338 PART IV.] LIABILITY FOR TORTS OP AGENTS. [§ 378. New Orleans, etc. R. R. Co. «. Burke, 53 Miss. 201 ; Hinckley v. Chicago M. & St. P. R'y Co., 38 Wis. 194. Compare Townsend v. N. Y. C. and H. R. R. R. Co., 56 N. Y. 295; Edieman v. St. Louis Transfer Co., 3 Mo. App. 503. A legislature cannot by statute restrict the amount recover- able from railroad companies for per- sonal injuries caused by their negli- gence. Passenger R'y Co. v. B'oud- rou, 92 Pa. St 475. (Of course, a very different case from that where a legislature creates the right of action for injuries resulting in death and limits the amount of damage recover- able.) 339 § 380.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. PART V. LEGAL EFFECT OF ACTS DONE WITHOUT THE STATE INCORPORATING THE CORPORATION. The two questions, § 379. Legal effect of the act within the limits of the home state, §§ 380-382. Legal effect of the act in the foreign state, § 383. Comity among states, § 384. Limits to this comity, § 385. Foreign corporations cannot exercise special franchises, § 386 ; Nor act contrary to the laws or public policy of the state, §§ 387, 388 ; Nor do acts beyond their powers, §§ 389-391. Actions against foreign corporations, §392. Penal provisions not enforced outside the state enacting them. Statutory liability, § 393. Jurisdiction over assets of foreign cor- porations, § 394. Service on foreign corporations, §§ 395, 396. Statutes regulating service, § 397. New York doctrine, § 398. Proceedings in rem, § 399. Statutes imposing terms on foreign cor- porations, § 400. Effect of non-compliance with these st*atutes,_§401. Statute of limitations, § 402. § 379. This topic relates to the territorial extent of corporate powers, and involves a consideration of two distinct questions questions. "When an act is done by or on b§half of a corporation outside of the state incorporating it, what is the legal efiect of that act (1) in the state incorporating the corporation ; (2) in the state where the act was done ? § 380. Within the limits of the state incorporating the cor- poration, the legal effect of an act done without the of the aor' limits of that state depends primarily on a construc- within the ^ion of the provisions in the corporate constitution the home regarding the corporate powers. The question will be, do the corporate powers authorize the given act to be done beyond the limits of the state ? " It may safely be assumed that a corporation can make no contract, and do no acts, either within or without the state which creates it, exceptsuch as are authorized by its charter ; and these acts must also be done by such officers or agents, and in such manner, as the charter 840 PART v.] CORPORATE ACTS WITHOUT THK STATE. [§ 381. authorizes."' If the corporate powers authorize the act to be done outside the state, it will be valid as to all persons within the jurisdiction of the state."* If they do not authorize the act to be so done, the rules applicable to'uUra vires acts generally will apply ; though the fact that the act was done outside of the state will not prejudice any person, acting on the faith of the act, who had no reason to know that it was done outside the state.* § 381. It may be stated as a proposition of general truth and applicability, that with respect to the jurisdiction of the state incorporating the corporation, acts done on behalf of the cor- poiation, if done outside the state, are valid, in the absence of special restriction ;* for a grant of franchises without restric- tion is equivalent to a specific authority to exercise them wherever the corporation may find it convenient or profitable to do so.* Accordingly, directors may act as a board outside the state limits.* ' Taney, C. J., in Bank of Augusta V. Earle, 13 Pet. 58«. "Its residence in one state creates no insuperable ob- jection to its power of contracting in another." lb. See Ewing v. Toledo S'v'gs Bk., 43 O. St. 31 ; Angell and Ames on Corp. § 104. The two cases of Middle Bridge Co. V. Marks, 26 Mc. 326, and Miller v. Ewer, 27 Me. 509, seem to imply that it is incompetent for a legislature to authorize a corporation to act outside the boundaries of the state. But this seems incomprehensible. Chap. 468 of the New York Statutes of 1881, is en- titled " An act to authorize the forma- tion of corporations for the purpose of acquiring, constructing, and operating railroads in foreign countries." And Merrick v. Van Santvoord, 34 N. Y. 208, holds that the charter of a corpo- ration may confer powers without ter- ritorial limitation, which, accordingly, may be exercised beyond the jurisdic- tion of the sovereign granting the charter. ^ Hutchins v. New England Coal M'g Co., 4 Allen, 580. ' Galveston Railroad «. Cowdrey, 11 Wall. 459. This on principles regu- lating the effect of acts apparently within the scope of the corporate powers, §§ 284-286. * Bank of Augusta r. Earle, 13 Pet. 519, 588; Hutchins v. New England Coal M'g Co., 4 Allen, 580 ; Blair v. Perpetual Ins. Co., 10 Mo. 559 ; New York Floating Derrick Co. v. New Jersey Oil Co., 3 Duer (N. Y.), 648 ; Tombigbee R. R. Co. v. Kneeland, 4 How. 16 ; "Wood Hydraulic Hose M'g Co. V. King, 45 Ga. 34 ; Dodge v. City of Council Bluffs, 57 Iowa, 560 ; see Mumford v. Am. Life Ins., etc. Co., 4 N. Y. 463. ^ Merrick v. Van Santvoord, 34 N. Y. 208 ; Kerchner v. Gettys, 18 S. C. 521 ; Atchison T. & S. F. R. R. Co. V. Fletcher, 35 Kan. 236. ' Galveston Railroad v. Cowdrey, 11 Wall. 459; Bellows v. Todd, 39 Iowa, 209 ; Arms v. Conant, 36 Vt. 341 § 383,] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 382. TJie rule is otherwise in regard to the acts of the body corporate itself. These, when done beyond the limits of the state, are ordinarily held invalid.* It is submitted, however, that the reason of this does not lie in the imaginative notion that a corporation "must dwell in the place of its creation, and cannot migrate to another sovereignty ;"^ but rather in the hard- ship and fraud it might entail on shareholders to permit corpo- rate meetings to be neld outside the state. Accordinglj'^, there seems to be no reason for holding invalid acts done at corpo- rate meetings assembled without the state, if all the shareholders acquiesce in the holding of such meetings.' § 383. A difterent question is the one regarding the legal effect of the act within the limits of the state where of the act' it was done. There the legal effect depends ordina- ete'nstate'. ^^^J °° whether that state will give effect to provi- 745 ; Bassett v. Monte ChristoM. Co., 15 Nev. 293 ; Ohio and Miss. R. R. Co. V. McPherson, 35 Mo. 13; Wright V. Bundy, 11 Ind. 398; McCall v. Byram M'f 'g Co., 6 Conn. 428 ; Wood Hydraulic Hose M'g Co. v. King, 45 Ga. 34 ; Smith v. Alvord, 63 Barb. 415; Reichwald v. Commercial Hotel Co., 106 111. 439, 450. See Franco. Texan Land Co. v. Laigle, 59 Tex. 339 ; Smith v. Silver Valley M'g Co., 64 Md. 86. Compare, however, Hilles V. Parrish, 14 N. J. Eq. 380. To the contrary is an unconsidered dictum in Ormsby v. Vermont Copper M'g Co., 56N.Y. 623, a case not reported in full. 1 Miller v. Ewer, 27 Me. 509 ; As- pinwall V. Ohio, etc. R. R. Co., 20 Ind. 492 ; Freeman v. Machias Water Power Co., 38 Me. 343 ; Ormsby v. Vermont Copper M'g Co., 56 N. Y. 623. Compare Copp v. Lamb, 12 Me. 312. No legal organization of a cor- poration can be effected by action taken outside of the state granting the charter. Freeman v. Machias Water Power Co., supra. Smith v. Silver 342 Valley M'g Co., 64 Md. 86. Com- pare Camp V. Byrne, 41 Mo. 525. Au- thority in charter to transact business at points without the state, does not authorize acts by the corporation di- rectly, such as corporate meetings. An election of directors by a corporate meeting held outside the state is void. A shareholder is not. bound by a by- law passed by directors elected with- out the state, although his own shares were voted, by proxy, at the meet- ing which elected the said directors. Franco-Texan Land Co. v. Laigle, 59 Tex. 839. ^ Bank of Augusta v. Earle, 13 Pet. 519, 588, per Taney, C. J. It is held that a corporation dwells in the place ■where its business is carried on. Taylor v. Gas and Coke Co., 11 Ex. 1 ; see Connecticut and Passumsic Rivers R. R. Co. v. Cooper, 30 Vt., 476, 481 ; Stout V. Sioux City, etc. R. R. Co., 3 McCrary 1 ; but see Plimp- ton t'. Bigelow, 93 N. Y. 592, revers- ing S. C, 12 Abb. N. C. (N. Y.) 202. ' See Camp v. Byrne, 41 Mo. 525. PART V,] CORPORATE ACTS WITHOUT THE STATE. [§ 383. sions in the laws of the state incorporating the corporation. For corporations are not citizens within the meaning of the provision in the Federal Constitution guaranteeing to the citizens of each state all the privileges and immunities of citi- zens in the several states ;* and, accordingly, a state may pro- hibit a corporation incorporated by another state from contract- ing within the limits of the former.* " Every power which a corporation exercises, in another state depends for its validity upon the laws of the sovereignty in which it is exercised, and no corporation can make a valid contract without the sanction, express ,or implied, of such sovereignty ; unless a case should be presented in which the right claimed by the corporation should appear to be secured by the Constitution of the United States."" > Art. IV. § 2. « Paul V. Virginia, 8 Wall. 168; Lafayette Ins. Co. v. French, 1 8 How. 404, 407 ; Ducat v. Chicago, 10 Wall. 410; Liverpool Ins. Co. o. Massachu- setts, ib. 566 ; Doyle v. Continental Ins. Co., 94 U. S. 535; Warren M'f g Co. V. Mtna Ins. Co., 2 Paine, 601 ; Home Ins. Co. v. Davis, 29 Mich. 238 ; Commonwealth v. Milton, 12 B. Mon. (Ky.) 212; Phoenix Ins. Co. V. Commonwealth, 5 Bush (.Ky.), 68 ; Gill's Adm. v. Kentucky, etc. Gold M'g Co., 7 Bush, 635 ; Matthews V. Trustees, 2 Brewst. (Pa.) 541 ; Fire Dept. v. Noble, 3 E. D. Smith (N. Y.), 449 ; Slaughter t'. Common- wealth, 13 Gratt. (Va.) 767 ; Western Union Tel. Co. v. Mayer, 28 Ohio St. 521. See Milnor v. N. Y. and N. H. R. R. Co., 53 N. Y. 363 ; People «. Fire Ass'n, 92 N. Y. 311 ; Tatem v. Wright, 23 N. J. L. 429 ; also § 480. But it is doubtful, when congress has conferred on a railroad corporation created by a state the power to con- struct its road within an organized ter- ritory, whether such territory after it has become a state can impose any im- pediment to the full enjoyment of the right thus conferred. Van Wyck v. Knevals, 106 U. S. 360, 369 ; Railroad Co. V. Baldwin, 103 U. S. 426. "It could only do this on the same terms that it could refuse a recognition of its own previously granted right, for in such matters the state would succeed only to the authority of congress over the territory." Railroad Co. v. Bald- win, 103 U. S. 426, 431. ' Runyan v. Coster's Lessee, 14 Pet. 122, 129. A state cannot deny to a corporation any right protected by the Fedwal constitution ; see Erie R. Co. V. State, 31 N. J. L. 531 ; State V. American Exp. Co., 7 Biss. 230 ; and see § 400. Nor can state legisla- tion restrict foreign corporations when by so doing it interferes with Federal powers, as, e. g., the power to regu- late interstate commerce. See Pensa- cola Tel. Co. v. Western Un. Tel. Co., 96 U. S. 1 ; American Un. Tel. Co. V. Western Un. Tel. Co., 67 Ala. 26 ; also § 480. 343 § 384.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 384. The right, however, of a state to exclude foreign cor- Comity porations and prevent them from making contracts or among transacting business within the state is not ordinarily ■ states exercised; and the general rule may be stated, subject to qualifications hereafter to be mentioned, that the various states of the Union will permit foreign corporations, which are not ^ expressly or impliedly forbidden by their respective constitutions to transact business outside of the state incorporating them, to contract and transact such business as their constitutions author- ize them to execute ; and to resort to the state courts for the enforcement of their rights.* This general rule was first au- thoritatively expressed in Bank of Augusta v. Earle,* as follows: " We think it is well settled that by the law of comity among nations, a corporation created by one sovereignty is permitted to make contracts in another, and to sue in its courts ; and that the same law of comity prevails among the several sovereignties of this Union. The public and well-known and long-continued usages of trade, the general acquiescence of the states, the particular legislation of some of them, as well as the legislation of congress, all concur in proving the truth of this proposition." In Christian Union v. Yount,^ the rule was restated thus: ''In harmony with the general law of cotuity, obtaining among the states composing the Union, the presumption should be indulged that the corporation of one state, not forbidden by the law of its being, may exercise within any other state the general powers conferred by its own charter, unless it is prohibited from so doing either in the direct enactments of the latter state, or by its public policy to be deduced from the general course of its legislation, or from the settled adjudications of its highest court."* ' A foreign corporation in suing need ^ 13 Pet. 519, 592, per Taney, C. not set out in its pleading the terms of J. its charter showing its capacity to ' 101 U. S. 352, 356, per Harlan, maintain the action. Smith v. Weed J. Sewing Machine Co , 26 Ohio St. 563. * In accordance with these princi- It is not against public policy to organ- pies are the following authorities : ize a corporation to act as the agent Tombigbee R. R. Co. v. Kneeland, 4 within the state of a foreign corpora- How. 16 ; Cowell v. Spring Co., 100 tion. Day v. Postal Telegraph Co., U. S. 55; Williams v. Creswell, 51 66 Md. 356. Miss. 817; Silver Lake Bank v. North, 344 PART v.] CORPORATE ACTS WITHOUT THE STATE. [§ 385. § 385. The general rule is subject to the following qualifica- tions : The comity between states does not extend so far that 4 Johns. Ch. (N. Y.) 370; Bard «. Poole, 12 N. Y. 495 ; Merrick v. Van Santvoord, 34 N. Y. 208 ; British Am. Land Co. v. Ames, 6 Mete. 391 ; Martin v. Mobile, etc. K. R. Co., 7 Bush (Ky.), 116 ; Guaga Iron Co. v. Dawson, 4 Blacfcf. (Ind.) 202 ; Lea- sure V. Union Mut. Life Ins. Co., 91 Pa. St. 491 ; Dodge v. City of Council Bluffs, 57 Iowa, 560; Life Ass'n v. Levy, 33 La. Ann. 1203 ; Kennebec Co. V. Augusta Ins. Co., 6 Gray, 204 ; Flash V. Conn, 16 Fla. 428 ; Newburg Petroleum Co. v. Weare, 27 Ohio St. 343 ; Bank of Washtenaw v. Mont- gomery, 3 111. 422 ; Lycoming Fire Ins. Co. V. Langley, 62 Md. 196. See Mut. Ben. Life Ins. Co. v. Davis, 12 N. Y. 569 ; Eslava v. Ames Plow Co., 47 Ala. 384. A foreign corporation may sue as administrator in Delaware when authorized by the state creating it (Pennsylvania) to administer dece- dents' estates. Deringer's Adm'r v. Deringer's Adm'r, 5 Houst. (Del.) 416. When there is nothing to the con- trary in the policy of the state as de- clared by its legislature, a foreign corporation may purchase real estate. Cowell V. Springs Co., 100 U. S. 55 ; Christian Union v. Yount, 101 U. S. 352 ; States. Boston, Concord, etc. R. E. Co., 25 Vt. 433 ; Claremont Bridge Co. V. Royee, 42 Vt. 730 ; Thompson V. Waters, 25 Mich. 214 ; Lumbard v. Aldrich, 8 N. H. 30; Santa Clara Female Academy «. Sullivan, 116 111. 375. See Runyan v. Coster's Lessee, 14 Pet. 122; Whitman M'g Co. v. Baker, 3 Nev. 386. A foreign cor- poration may take a lease of premises for its business. Steamboat Co. v. McCutcheon, IB Pa. St. 13 ; Northern Traps'n Co. v. Chicago, 7 Biss. 46 ; Black V. Delaware and R. Canal Co., 22 N. J. Eq. 130, 422. Or a mort- gage on real estate. National Trust Co. V. Murphy, 30 N. J. Eq. 408 ; Lebanon Savings Bank v. Hollenbeck, 29 Minn. 322; American Mut. Life Ins. Co. V. Owen, 15 Gray, 491 ; Silver Lake Bank v. North, 4 Johns. Ch. 370; Lathrop v. Commercial Bank, 8 Dana (Ky.), 114; New York Dry Dock V. Hicks, 5 McLean, 111; Farmers' Loan and Trust Co. v. Mc- Kinney, 6 McLean, 1 ; Life Ins. Co. V. Overholt, 4 Dill. 287. See Leasure V. Union Mut. Life Ins. Co., 91 Pa. St. 491. A foreign corporation, in whose favor a foreclosure decree is rendered, may hold and convey real estate purchased under the decree, when there is no prohibitory statute. Elston V. Piggott, 94 Ind. 14. This rule does not enable a corpora- tion to exercise in a foreign state powers ^ not granted to it by its constitution. Pierce v. Crompton, 13 R. I. 312. See Thompson i\ Waters, 25 Mich. 214, and §§ 389-391 post. The comity of a state does not ex- tend so far as to allow a foreign cor- poration, authorized by its constitution to do business in any state except the state incorporating it, to transact busi- ness within the limits of the former state. Land Grant R'y Co. v. Com- missioners, 6 Kans. 245 ; compare Hanna v. International Petroleum Co., 23 Ohio St. 622. 345 § 387.] THE LAW OF PBIVATB CORPORATIONS. [CHAP. VII. a state will allow a foreign corporation to (1) exercise any extraordinary franchises, or (2) do any act contrary tihUcomity ^'^ ^^^ laws, ov the public policy of the state as indi- / cated by its legislation, or (3) any act unauthorized ^ by the constitution of the corporation. Moreover, in applying general principles of corporation law to contracts made or to be 1 performed by a foreign coi*poration within the state, its courts will not necessarily. follow the decisions of the state that incor- porated the corporation.' § 386. (1) It has never been held or intimated that a state would permit a foreign corporation to exercise any corpora- extraordinary franchise or special privilege granted nb"exer'' ^^ *^^ state incorporating it ; as, for instance, the else special right of eminent domain, or the privilege of exemp- ' tion from taxation. Rather, it may be stated with confidence, that the direct contrary is the law.* It has even been said that a contract of a foreign corporation to be valid " must be one which would be valid if made at the same place by a natural person not a resident of the state."* § 387. (2) The act or contract must not be contrary to the laws of the state. Accordingly, if those laws forbid contrary to devises to Corporations, a devise to a foreign corpo- pubiicToU- "^^tion is invalid, although by its constitution it may cy of the be authorized to take in that manner.* On similar principles foreign corporations in transacting business must conform to the usury laws of the state; although by their constitutions they are permitted to take a higher rate of interest." Likewise a foreign corporation - Milnor v. N. Y. and N. H. R. R. corporation cannot carry on a business Co., 63 N. Y. 363. not open to individuals. People v. " Foreign railroad company cannot Howard, 50 Mich. 239. exercise iSie right of eminent domain ; * Starkweather v. Am. Bible Soe'y, Holbert v. St. L. R. C. and N. R. 72 111. 50; Boyce v. St Louis, 29 Co., 45 Iowa, 23. See State v. Bos- Barb. 650; White v. Howard, 46 N. ton, Concord, etc. R. R. Co., 2a Vt. Y. 144 ; United, States v. Fox, 94 U. 433, 442; Middle Bridge Co. v. Marks, S. 315. Compare § 391. 26 Me. 326. 5 Hitchcock's Heirs v. United States 3 Bard v. Poole, 12 N. Y. 495, 505. Bank, 7 Ala. 386, 485. Without express permission a foreign 346 PART v.] - CORPORATE ACTS WITHOUT THE STATE. [§ 389. ■ is subject to the penal laws of the state in which it carries on its operations.* § 388. l^either will a state permit foreign corporations by their acts to contravene its public policy as evinced by its legis- lation.* But this public policy must be clear and positive. " If the policy of the state or territory does not permit the business of the foreign corporation within its limits, or allow the corporation to acquire or hold real property, it must be ex- pressed in some affirmative way ; it cannot be inferred from the fact that its legislature has made no provisions for the forma- tion of similar corporations, or allows corporations to be formed only by general law."* § 389. (8) The third qualification is often stated thus: "The contract must be one which the foreign corporation y is permitted by its charter to make."* It will be ^3700^"*' noticed that the word " charter" is used here in a *''^i'' pow- ers. manner to imply that any disability imposed on a foreign corporation by the general laws of the state creating it, would be disregarded by the courts of another state. And, indeed, this distinction is expressly taken in Hoyt v. Shelden,* where it is said : " There is a plain distinction between acts of the foreign corporation, which the charter does not authorize, 1 McGregor qui tarn v. Erie R'y money on real estate securities. Co., 35 N. J. L. 115 ; Hines v. Wil- United States Mortgage Co. v. Gross, mington, etc. R'. R. Co., 95 N. C. 434. 7 Central L. J. 226 (1878). See ^ See Ewing v. Toledo Sav'gs Bk., also cases in the next note. 43 O. St. 31. Illinois decisions afford ' Cowell v. Spring Co., 100 U. S. illustrations of this principle. In that 65, 59 ; approved in Christian Union state the public policy is declared v. Yount, 101 U. 8. 352, 356. Ac- against perpetuities in lands, and the cord Stevens ». Pratt, 101 111. 206 ; Illinois courts hold that a foreign cor- Commercial Union Assurance Co. v. poration, which is authorized by its Scammon, 102 111. 46. And see Car- charter to buy and sell lands, without roll v. East St. Louis, 67 111. 568. any provision to compel it to sell within * Bard v. Poole, 12 N, Y. 495, 605 ; a certain time, cannot purchase land Hitchcock'-s Heirs v. United States in Illinois, as that might tend to create Bank, 7 Ala. 386, 435; Morris v. a perpetuity. Carroll «. East St. Louis, Hall, 41 Ala. 510. See also Pierce 67 111. 568; United States Trust Co. v. Crompton, 13 R. I. 312; Thomp- V. Lee, 73 111. 142. But it has since son v. Waters, 26 Mich. 214. See been held by the Illinois Supreme Deringer v. Deringer, 5 Houston Court that this rule does not apply (Del.), 416, ante, last n. to § 384. to corporations incorporated to loan * 3 Bos. (N. Y.") 267, 299. 347 § 390.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. or -which it may forbid, and acts which upon the face of the charter are authorized, but which the general laws of the for- eign state may prohibit." Prom the context, however, it is apparent that the court did not mean to lay down any general rule to the effect that courts would not recognize restrictions on the powers of foreign corporations contained in the general laws of the state incorporating them ; but only that persons dealing with the corporation would not be affected with notice of such provisions. The court continue, as follows : " Our citi- zens acting here in dealing with or in relying upon the acts of such a corporation, are bound to notice and regard the provisions of such charter, hut are not affected by or bound to notice the general laws of the foreign state, although they may restrain the powers of such corporations under the charter."' An ex- amination of the same case on appeaP will show that if the citizen of ISTew York, in this instance, had had notice of the foreign law, the ITew York court would have given full effect '^ to it, and would have recognized the disabilities imposed by it on the foreign corporation.^ § 390. Admitting it to be proper for the courts of a state to protect its own citizens from the hardships they might suffer were they bound to know the laws of a foreign state,^ it is sub- mitted that the distinction indicated above is neither convenient nor correct on principle. It is not convenient, for nowadays the vast majority of corporations are incorporated under general ' lb. A court will not take judicial contract in New York, which, by its y notice of the powers of a foreign cor- terms, is to be performed in New poration. Chapman v. Colby, 47 York and is legal under New York Mich. 46. The corporation must laws, prohibitions in the charter which prove its powers. Diamond Match would render the contract illegal in v Co. V. Powers, 51 Mich. 145. the state incorporating the company, ' 19 N. Y. 207, 222, sub nom. Hoyt do not render it illegal in New York ; V.' Thompson's Executor. Compare biit operate only as restrictions on the Hoyt V. Thompson, 5 N. Y. 320, 353. power of the corporation and its offi- ' The New York Court of Appeals cers. seems not to have adhered to the * See § 389. But compare Relfe v. above distinction in the case of Ells- Kundle, 108 U. S. 222, 224 ; and worth V. St. Louis, etc. R. K. Co., 98 Bockover v. Life Association, 77 Va. N. Y. 563. There it was decided 85, which holds that every one dealing that when a railroad company incor- with a corporation, even in a foreign porated by another state enters into a state, must take notice of its powers. 348 PART v.] CORPORATE ACTS WITHOUT THE STATE. [§ 391, statutes, and have no " charters" properly speaking ; so the dis- tinction is fast losing its applicability. And the distinction seems incorrect on principle; it being a curious comity which will recognize in corporations powers which, under their own constitutions, they do not possess. The constitution of a cor- poration is composed of all the laws affecting the corporation ; and embraces just as much statutes affecting corporations gene- rally, as the particular statute — enabling act or special charter — immediately under which the corporation was organized.' § 391. The correct distinction seems rather as follows : If the validity of an act, forbidden by the legislature of the state in- corporating the foreign corporation on whose behalf or in regard to which the act was done, is to be passed on by the court of another state, by the true rule of comity the court should give effect to the prohibition according to the intent of the legisla- ture enacting it. If the prohibition were apparently intended to inhere in the corporation, and to apply to all its acts wherever done, the court should give effect to it. But if it was rather part of the local policy of the state enacting it, of local policy which there is no reason for extending beyond state limits, nor even any reason for supposing the legislature would have desired to see thus extended, then the prohibition should not be eiafor<*ed by the courts of other states, at least in regard to acts and matters outside of the state enacting it.* The true rule was stated by Justice Christiancy in Thompson v. Waters,* to the effect that a court will recognize in a foreign corporation " no powers or capacities which would not be recognized and / sustained by the courts of" the state incorporating it, " had the same question of capacity to take these lands come before them for adjudication." ' Relfe V. Rundle, 103 U. S. 222. presume authority to do any reason- Compare Canada Southern R. R. Co. able act, until absence of authority be V. Gebhard, 109 U. S. 527, 537. shown. Charleston, etc. Turnpike Co. The ordinary presumptions in favor v. Willey, 16 Ind. 34. See also Ex- of the legality of actions, however, press Co. o. Railroad Co., 99 U. S. apply to foreign corporations. Thus, 191, 199. where a court has no judicial knowl- ^ See Ohio Life Ins. Co. v. Mer- edge of the constitution of the foreign chants' Ins. Co., 11 Humph. (Tenn.) corporations, as, e. g., when it is char- 1, 24. tared by a private law, the court will ' 25 Mich. 214, 218. 349 § 392.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. This latter distinction finds illustration in decisions constru- ing the validity of devises of lands to foreign corporations. If, for instance, in Ohio, certain corporations are allowed to take land by devise, a prohibition in the laws of the state incorpo- rating the foreign corporation will not invalidate a devise to it of Ohio land.* Indeed, is there any reason to suppose that the courts of the ' state incorporating the corporation would apply its own statute forbidding devises to corporations, to invalidate a devise to the corporation of land situated in a state where no such prohibition existed ? Would they not rather apply the law of the state where the land was situated ? assuming such a question to be brought before them, which is improbable. § 392. As the courts of a state will enforce contracts at the suits of a foreign corporation, so they will entertain against an action against it.^ But the subject-matter of the porafionr" ^'^^* ^^^^ ^^^ ^^ ^"^'^ *^** *^^ court will decline to assume jurisdiction, as, for instance, on account of its inability to do complete justice in the matter." In 'New York, section 1780 of the Code of Civil Procedure ' Am. Bible Soc'y v. Marshall, 15 Ohio St. 537; White v. Howard, 38 Conn. 342. Compare § 386. " N. O. J. and G. N. R. Co. v. "Wallace, 50 Miss. 244; North Mis- souri R. R. Co. V. Akers, 4 Eans. 453 ; City Fire Ins. Co. v. Carrugi, 41 Ga. 660; Bushel v. Commonwealth Ins. Co., 15 S. & R. 176; St. Louis Perpetrial Ins. Co. v. Cohen, 9 Mo. 416, 441; Newby v. Colt's Patent Fire Arms Co., L. R. 7 Q. B. 293; Libbey v. Hodgdon, 9 N. H. 394 ; Equitable Life Ass. Soc. v. Vogel's Executrix, 76 Ala. 441 ; Selma, etc. R. R. Co. V. Tyson, 48 Ga. S51. The stock (j. e., shares) of a foreign corporation having its office and prin- cipal business within this state (New York), is not subject here to attach- ment as property within this state, the owner being a non-resident, and his 350 certificate never having been within this state. Plimpton v. Bigelow, 93 N. Y. 592, reversing S. (J., 12 Abb. N. C. (N. Y.) 202. Compare Schmid- lapp V. La Confiance Ins. Co., 71 Ga. 246. Contra, Young v. Iron Co., 85 Tenn. 189. Foreign corporations are sftbject to garnishment only where an original action could be begun against them in the same courts to recover the debt garnisheed. Myer v. Liverpool, etc. Ins. Co., 40 Md. 595. See Brause V. New England. Fire Ins. Co., 21 Wis. 509. A foreign corporation having no property of the debtor within the state, nor owing money to him payable within the state, cannot be garnisheed in the state. Wright v. Chicago, etc. E. R. Co., 19 Neb. 175. ' Kansas and E. R. R. Cons. Co. v. Topeka, etc. R. R. Co., 135 Mass. 34. PART v.] CORPORATE ACTS WITHOUT THE STATE. [§ 392. provides that a foreign corporation may be sued on any cause of action by a resident of the state or a domestic corpo- ration, but, when the plaintiff is a non-resident or a foreign corporation, only in the following cases: (1) when the action ist brought to recover damages for th^ breach of a contract made within the state, or relating to property situated within thei state at the time when the contract was made ; (2) when the' action is brought to recover real property situated within the state, or a chattel replevied within the state ; (3) when the cause of action arose within the state, except where the object of the action is to affect the title to real property situated without the state. Before the passage of this, and other and former statutes which it supplements or is a substitute for, a foreign corporation could not be brought in invitum into a N^ew York court.* But, even in eases where the statute does not confer jurisdiction, if the foreign corporation defendant appears voluntarily and pleads to the issue, the court will not decline jurisdiction.* Under Michigan statutes, one foreign corporation may sue another in that state if the cause of action arose there, and both corporations are doing business there.' In Massachusetts a non- resident may sue a foreign insurance company, which does busi- ness in that state, on a contract made in another state, where the subject-matter of the contract is also situated, although the only service made is on the insurance commissioner, whom all foreign insurance companies are required to appoint as their attorney for service of process.^ ' See Gibbs v. Queen Insurance had appointed the commissioner in Co., 63 N. Y. 114 ; and compare accordance with the statute.) And Ervin V. Railway Co., 28 Hun (N. see Abell v. Penn Mutual Life Ins. Y.), 269. Co., 18 W. Va. 400 ; Desper v. Con- ' Root V. Great Western R'y Co., tinental Water Meter Co., 187 Mass. 65 Barb. 619; aff'd 55 N. Y. 636; 252. It is held, on the Other hand, Downes i'. Phcenix Bank, 6 Hill (N. that a court will not take jurisdiction Y.), 297. of an action for personal injuries 8 Emerson, Talcott & Co. v. Mc- caused by a foreign corporation in its Cormick Harvesting Machine Co., 51 own state, although the corporation Mich. 5. ' operates a railroad in the state where * Johnston ». Trade Ins. Co., 182 the suit is brought. Central R. H., etc. Mass. 432. (The insurance company Co. v. Carr, 76 Ala. 388. 351 § 393.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. Courts will not, however, determine controversies relating to the internal management of a foreign corporation, arising between one set of shareholders and persons claiming to be the officers, as well as shareholders, of the' corporation.* But the legal relations between a corporation and its shareholders are to be determined by the law of the home state ; and accordingly a state will recognize and apply a statute of the home state giving a corporation a lien on its shares for debts due to it from shareholders.'* § 398. As a general rule, penal provisions will not be enforced „ , outside of the iurisdiction of the state enacting them.^ visions not Some courts, however, will enforce the individual outside the liability of the shareholders in an insolvent foreign inff*the"m'^'' Corporation of a contractual nature arising under the Statutory statutes incorporating it, if the company does busi- ness within the state,^ or if the shareholders reside there.* But a court will not enforce such liability when it can reach no corporate assets, and none of the shareholders reside within the state; although, the corporation may have done business there.^ It is, however, held in Massachusetts that a ' Wilkins v. Thome, 60. Md. 258 ; North State Copper, etc. Co. u. Field, 64 Md. 151. ' Bishop V. Globe Co., 135 Mass. 182. ' See Story, Conflict of Laws, §§ C20, 621 ; Wharton's Conflict of Laws, § 833. A statute of Indiana giving a right to recover a penalty for the failure of a telegraph company to transmit a mes- sage, has no extra-territorial force,' and therefore is not applicable to messages delivered to the company in another state to be sent to this state (Indiana). Carnahan v. Western Un. Tel. Co., 89 Ind. 526. But if the message is delivered to the telegraph company within the state, to be sent to a point without, the fact that the act of negli- gence preventing the message from 352 reaching its destination occurred out- side of the state will not defeat a re- covery. Western Un. Tel. Co. v. Hamilton, 50 Ind. 181. The deter- mining circumstance, according to these two cases, is whether the con- tract with the telegraph company was entered into within the state. ' Flash V. Conn., 16 Fla. 428 ; S. C. 109, U. S. 371. ^ Aultman's Appeal, 98 Pa. St. 505. Semhle contra, Erickson v. Nesmith, 4 Allen, 233 ; see Same v. Same, 15 Gray 221 . Compare Lowry v. Itiman, 46 N. Y. 119. ^ Rice V. Hosiery Co., 56 N. H. 114. The bill in this case was faultily drawn, the remedy under the foreign statute not being stated. See also Smith V. Mutual Life Ins. Co., 14 Allen, 336. A court of equity will PART V.J CORPORATE ACTS WITHOUT THE STATE. [§ 395. f foreign corporation may maintain in the Massachusetts courts a bill against the officers of another foreign corporation, against which it holds a judgment obtained in the state where both corporations were organized, for discovery of the names of its stockholders and the number of shares held by each, when the officers of the debtor corporation reside in Massachusetts and its books are kept there, the ultimate object of the bill being to enable the plaintiff by a suit in its home state, to enforce the statutory liability of the stockholders of the debtor corpora- tion.* § 394. A court has no jurisdiction either to dissolve a foreign . corporation,^ or compel a distribution of its assets, j^risdic even though its trustees are residents;' or to enioin tiouover assets of the directors of such a corporation from paying a foreign cor- dividend, where no debt is due the plaintiff, and his p°''«'«o"s- ground of complaint is merely a supposed error on the part of the directors in declaring the dividend ;^ or to appoint a re- ceiver of a foreign corporation." But it has been held that a court (of chancery) has jurisdiction to wind up the affairs of an insolvent foreign corporation, doing business in the state, so far as to administer its assets within the jurisdiction of the court, and distribute them among the resident creditors.* § 895. In order that a judgment in personam against a foreign corporation shall be valid, so as to obtain recognition in other not entertain a bill by a creditor to en- * Dodge i'. Pyrolusite Manganese force the individual liability of share- Co., 69 Ga. 665. holders of a foreign corporation, where 'Redmond v. Enfield M'fg Co., the suit would entail an adjustment of 13 Abb. Pr. N. S. (N. Y.) 332. See many rights and the corporation would Wilkins v. Thome, 60 Md. 253 ; have to be a party. Nimick v. Mingo North State Copper, etc. Co. v. Field, Iron Works, 25 W. Va. 184. Nor 64 Md. 151. will a court entertain a bill by one * Howell v. Chicago, etc. R'yCo., foreign corporation against the share- 51 Barb. 378. But see Ue Beraer v. holders of another foreign corporation, Drew, 57 Barb. 438; Proutyu. Mich, to compel them to pay the difference So., etc. R. R. Co., 1 Hun, 658. between the par value of their shares ° Stafford v. American Mills Co., and what they paid for them. New 13 R. 1. 310. See Pierce v. Cromp- Haven Horse Nail Co. v. Linden ton, ib. 312. Spring Co., 142 Mass. 349. ' Smith v. St. Louis Mut. Life Ins. ' Post t>. Toledo, etc. R. R. Co., Co., 6 Lea (Tenn.), 564. Compare 144 Mass. 341. Paige >. Smith, 99 Mass. 395. 23 358 § 395.] THE LAW OF PEIVATB CORPORATIONS. [CHAP. VII. states, it is prerequisite that the corporation should have ap- Ser ice on V^^^^^ voluntarily,' or that a valid service of process foreign cor- should have been made within the jurisdiction of the pora ions. ^^^^^^ upon an agent of the corporation representing it in the state. This rule has been recently expressed by the Federal Supreme Court, as follows:^ "We are of opinion that when service is made within the state upon an agent of a foreign corporation, it is essential, in order to support the jurisdiction of the court to render a personal judgment that it should appear somewhere upon the record — either in the application for the writ, or accompanying its service, or in the pleadings or the findings of the court — that the corporation was engaged in business in the state. The transaction of business by the cor- poration in the state, general or special, appearing, a certificate of service by the proper officer on a person who is its agent there would, in our opinion, be sufficient prima facie evidence that the agent represented the company in the business. It would then be open, when the record is offered as evidence in another state, to show that the agent stood in no representative character to the company, that his duties were limited to those of a subordinate employe, or to a particular transaction, or that his agency had ceased when, the matter in suit arose."* ' See Attorney-General v. Guardian poration has a residence in a county Mut. Life Ins. Co., 77 N. Y. 272. where it has an office or agent for 2 St. Clair v. Cox, 106 U. S. 350, transacting business. Hardijig v. Chi- 359, following the principles of Penn- cago, etc. E. E. Co., 80 Mo. 659. oyeru. Neff, 95 U. S. 714. An Illinois statute required foreign ' See also Freeman v. Alderson, 119 insurance companies doing business in U. S. 185; American Exp. Co. v. that state, to app\)int in writing a resi- Conant, 45 Mich. 642 ; Lathrop v. dent attorney on whom process could Union Pac. E'y Co., 1 McArthur, be served. The insured took out a 234 ; Dallas v. Atlantic, etc. E. E. policy in Michigan, died, and an lUi- Co., 2 McArthur, 146 ; Weight v. nois court appointed an administrator, Liverpool, etc. Ins. Co., 80 La. Ann., the policy of insurance being the only Part II., 1186; McNichol u. United assets. fleW, the administrator could States, etc. Agency, 74 Mo. 457; sue the Insurance Co. in Illinois. "In Weymouth v. Washington, etc. E. view of this legislation and the policy E. Co., 1 McArthur, 1 9 ; Georgia embodied in it, when this corporation, Southern E. E. Co., v. Bigelow, 68 not organized under the laws of llli- Ga. 219; Moore v. Wayne Circuit nois, has, by virtue of those laws, a Judge, 65 Mich. 84. A foreign cor- place of business in Illinois, and a 354 PART v.] CORPORATE ACTS WITHOUT THE STATE. [§ 396. § 396. It thus appears that, in order to bind the corporation by the judgment, the person on whom service is made must be the agent of the corporation representing it there within the state whose process is served on him. And the agents of a cor- poration are not its representatives for the purpose of receiving service of process in a state where the corporation transacts no business.' When a foreign corporation has a regular office for the transaction of business within a state, service on the head officer of such office will be a valid service on the corporation in respect of causes of action arising within the jurisdiction;'' but not in respect of causes arising outside of the jurisdiction of the court whose process is served on the resident agent.' general agent there, and a resident attorney there for the service of pro- cess, and can be compelled to pay its debts there by judicial process, and has issued a policy payable on death, to an administrator, the corporation must be regarded as having a domicile there, in the sense of the rule that the debt on the policy is assets at its domicile, so as to uphold the grant of letters of ad- ministration there." New England Mut. Life Ins. Co. v. Woodworth, 111 U. S. 138, 145. ' McQueen v. Middleton M'f g Co., 16 Johns. (N. Y.) 6, 7 ; Peckham v. North Parish, 16 Pick. 274, 286; Newell V. Great Western R'y Co., 19 Mich. 336 ; Latimer v. Union Pac. R'y Co., 43 Mo. 105 ; Moulin v. Ins. Co., 24 N. J. L. 222 ; Camden Roll- ing Mill Co. V. Swede Iron Co., 32 N. J. L. 15 ; State v. District Court, 26 Minn. 233, 234. 2 Newsby v. Colt's Patent Fire Arms Co., L. R. 7 Q. B. 293 ; City Fire Ins. Co. v. Carrugi, 41 Ga. 66, 671 ; Western Un. Tel. Co. v. Pleasants, 46 Ala. 641 ; Atlantic and G. R R. Co. V. Jacksonville P. and M. R. R. Co., 51 Ga. 458 ; see Libbey v. Hodgdon, 9 N. H. 394. ' Bawknight u, Liverpool, etc. Ins. Co., 55 Ga. 194; see National Con- densed Milk Co. V. Brandenburgh, 40 N. J. L. Ill ; Parke p. Commonwealth Ins. Co., 44 Pa. St. 422. A verified answer that defendant is a corporation created by the laws of another state, and not by the laws of the state where suit is brought ; that the person upon whom process was served was its agent only. in the county where the action was commenced, and that the contract sued on was made out of the state; and not by the agent served, and was not connected with the business of his office, is good on demurrer to abate the action for want of jurisdiction of the person of the defendant, ^tna Ins. Co. V. Black, 80 Ind. 513. But when the subject-matter of the suit is one oyer which the court has jurisdic- tion, and the defendant, a foreign cor- poration, appears and goes to trial on the merits, without objection, it can- not except to the jurisdiction of the court over it. North Missouri R. R. Co. V. Akers, 4 Kan. 453. 355 § 398.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. ' § 397. It is customary, however, for state legislatures by statutes statute to designate the persons on whom service shall regulating or may be made in actions against foreign corpora- tions. Service in accordance with the statute will be valid, at least within the jurisdiction of the state ; for by coming within the state to do business, a foreign corporation submits itself to the state laws ; and it may thus submit itself expressly by filing a certificate pursuant to the statute designating an agent on whom service may be made.' § 398. In New York it is held that when a foreign corpora- tion has done business in that state, and suit is brought doctrine'!'^ On a cause of action arising there, service on one of its directors temporarily in the state on his own busi- ness is a valid service on the corporation ; and this, on the ground that " any service must be deemed sufficient which ren- ders it reasonably probable that the party proceeded against will be apprised of what is going on against him, and have an opportunity to defend."' A recent case in New York certainly goes very far in upholding the validity of service on a foreign corporation. Section 1780 of the New York Code of Civil Procedure provides that " an action against a foreign corpora- tion may be maintained by a resident of the state, or by a domestic corporation, for any cause of action." Section 432 provides that personal service of the summons upon a foreign corporation may be made by delivering a copy within the state to the president, secretary, or treasurer. In the case referred to. Pope V. Terre Haute Car Manufacturing Company,' it ap- peared that a foreign corporation had transacted no business within the state, and had neither property nor a place of busi- ness there. The plaintiffs were residents, and the cause of ac- tion arose on contract. The summons was served on the de- fendant's president while he was temporarily within the state op his way to a seaside resort, and not in his official capacity ' See Lafayette Ins. Co. v. French, " Hiller v. Burlington, etc. R. R. 18 How. 404; Gibbs v. Queen Ins. Co, 70 N. Y. 223. See also Gibbs Co., 63 N. Y. 114; Warren M'fg v. Queen Ins. Co., 63 N. Y. 114; La- Co. u. Mtr\a. Ins. Co., 2 Paine, 501 ; fayette Ins. Co. v. French, 18 How. Benwood Iron Works v. Hutchinson, 404, 407. See § 392. 101 Pa. at. 359. 3 87N. Y. 187. 356 PART v.] CORPORATE ACTS WITHOUT THE STATE. [§ 400. nor on any business connected with the corporation. The court held the service sufficient, and that a judgment rendered in the action would be valid for every purpose within the state, and could be enforced against any corporate property within the state at any time. " The object," said the court, " of all service of process for the commencement of a suit or any other legal proceeding is to give notice to the party proceeded against, and any service which reasonably accomplishes that end answers the requirements of natural justice and fundamental law ; and what service shall be deemed sufficient for that purpose is to be determined by the legislative power of the country in which the proceeding is instituted, subject only to the limitation that the service must be such as may reasonably be expected to give the notice aimed at." The court said they did not determine what would have been the effect outside the state of the judgment rendered upon such service, and from the authorities heretofore cited and the principles heretofore stated, it would seem such a service and a judgment rendered thereon would have no validity whatsoever or be recognized in the courts of any other state.' A judgment, however, rendered in a suit in which the foreign corporation is brought within the jurisdiction of the court, must under the Federal constitution be recognized in all the states.^ § 399. Finally, although the defendant foreign corporation is not brought within the jurisdiction of the court, a valid judgment in rem may be entered against any f^°^f^]^_ property attached within the state.^ But no valid personal judgment against the corporation could be rendered in an action commenced in this way.* § 400. In a number of the states exist statutes prescribing the terms upon which foreign corporations shall be gjatutgg permitted to do business. These terms ordinarily are imposing 1 . , „ • 1 ■ 1 n terms oq that a corporation berore commencing business shall foreign cor- file a certificate in the prescribed public office, desig- p°'^^''°°^- ' See Branson v. Trump Bros. Ma- Co. «. jEtna Ins. Co., 2 Paine, 501 ; chine Co., 16 Phila. (Pa.) 112. Latimer v. Union Pac. R'y Co., 43 " Lafayette Ins. Co. v. French, 18 Mo. 105 ; Barnett v. Chiea^go, etc. R. How. 404. R. Co., 4 Hun, 114. » Bushel V. Commonwealth Ins Co., * St. Clair v. Cox, 106 U, S. 350. 15 S. & R. 174; see Warren M'fg 357 § 400.] THE LAW OS PRIVATE COKPORATIONS. [CHAP. VII. nating the principal place of business of the corporation within the state and a resident agent on whom process may be served.' Some states have attempted to impose the further condition that no suit against the corporation brought by a resident of the state shall be removed into the Federal courts. But this is unconstitutional. A state may exclude foreign corporations entirely; but if she admits them to do business within her limits, she cannot impose on them conditions repugnant to the Federal constitution.^ So a state statute which declares that every foreign insurance company before transacting business in the state shall agree not to remove any case into the Federal ' By soliciting and receiving sub- scriptions for a newspaper published by- it in another state, a foreign corpora- tion is not doing business in Alabama within the meaning of the section of the Alabama constitution, which prohibits foreign corporations from doing any business in the state without having at least one known place of business and an authorized agent therein. Beard V. The Union, etc. Publishing Co., 71 Ala. 60. The doing of a single act of business within the state does not bring a cor- poration within the operation of the Colorado statute. Cooper M'f g Co. V. Ferguson, 113 U. S. 727. Com- pare Hacheny v. Leary, 12 Oregon, 40. Where the complaint of a foreign corporation is silent on the subject, the court will presume on demurrer that the statute requirements enabling it to do business in the state have been com- plied with. Sprague v. Cutler, etc. Co., 106 Ind. 242; Cassaday v. American Ins. Co., 72 Ind. 95. A decree and sale on foreclosure by a foreign corporation (which became the purchaser at the sale), is not in- validated by the fact that its agent had not filed a power of attorney, as re- 358 quired by statute. This should have been pleaded in abatement in the fore- closure suit. Elston V. Pigott, 93 Ind. 14. ' Lafayette Ins. Co. u. French, 18 How. 404. Amendment XIV. to the Federal constitution, which forbids a state to deny to any person the equal protection of its laws, does not apply to conditions imposed on foreign corpo- rations on entering the state ; though it may apply to such corporations after they ha e performed the conditions entitling them to come in. People v. Fire Ass'n, 92 N. Y. 811 ; affirmed Philadelphia Fire Ass'n v.^ew York, 119 U. S. 110. See, Phcenix Ins. Co. V. "Welch, 29 Kans. 672, §§ 479-481. A state legislature may lay a fran- chise or license tax on foreign corpora- tions for the privilege of doing business within the state. Commonwealth v. Standard Oil Co.', 101 Pa. St. 119. It is held, moreover, that a person may waive a constitutional provision in his favor. Embury v. Conner, 3 N. Y. 511 ; Sherman v. McKeon, 88 N. Y. 266 ; Vose v. Cockcroft, 44 N. Y. 415 ; Phyfe v. Eimer, 45 N. Y. 103; Matter of the Application of Cooper, 93 N. Y. 507. PART v.] CORPORATE ACTS 'WITHOUT THE STATE. [§ 401. courts, is uncoastitutioaal ; and an agreement filed in pursuance thereof derives no support therefrom and is void.' § 401. In regard to the effect of non-compliance with these statutes the decisions of the different states are not -^g^^^ ^^ harmonious. In Colorado, where the statute provides non-com- that foreign corporations shall file a certificate desig- with, these nating the principal place of business where the ^**'^'^^^- business within the state is to be carried on,* before " they are authorized or permitted to do any business in the state," a cor- poration that has not complied with the statute may still sue for a trespass.' In Indiana it is held that a note executed there to a foreign insurance company is not void because the company V has not complied with the statute, but that the remedy on the note is suspended until compliance.^ In Illinois, however, con- tracts entered into before compliance cannot be enforced." And in Oregon a mortgage taken by a foreign corporation before compliance is void, at least as to all persons other than the mortgagor, having an interest or liens on the premises.* Con- struing this Oregon statute Judge Deady of the Federal Cir- cuit Court, has rendered the most extreme decision of all on this subject. He held that land foreclosed under a mortgage ' Insurance Co. v. Morse, 20 Wall, at the said principal place of business, 445 ; Doyle v. Continental Ins. Co., is the agent upon whom process may 94 U. S. 535 ; reversing State u. Ddyle, be served in all suits that may be com- 40 Wis. 175 ; Barron v. Burnside, 121 menced against said corporation," is a U. S. 186. Compare Home Ins. Co. sufficient compliance with the constitu- V. Davis, 29 Mich. 238 ; and see Rail- tion and laws of Colorado. Goodwin way Co. V. Whitton, 13 Wall. 270; v. Colorado Mortgage Co., 110 U. S. Elston V. Piggott, 93 Ind. 14. 1. 2 A certificate signed and acknowl- ' Utley «. Clark-Gardner M'g Co., edged by the president and secretary 4 Col. 369. of a foreign corporation, and filed with * American Ins. Co. b. Wellman, 69 the secretary of state and in the office Ind. 413 ; Lamb v. Lamb, 13 Bankr. of the recorder of deeds for the county Reg. 17. Compare Union Ins. Co. v. in which it is proposed to carry on Smart, 60 N. H. 458. business, stating that "the principal ' Cincinnati Mut. Health Assurance place where the business shall be car- Co. v. Rosenthal, 55 111. 85. ried on in the state of Colorado shall * Bank of British Columbia v. Page, be at Denver, in the county of Arapa- 6 Oreg. 431. See In re Comstock, 3 hoe, in said state, and that the general Sawyer, 218 ; S. C, 11 Bankr. Reg. manager of said corporation, residing 169. 359 § 403.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. made to a foreign corporation, and bought in by it, might be recovered back by the mortgagor, on the ground that the cor- poration had not complied with the statute.' § 402. A foreign corporation may not itself take advantage of its own non-compliance with one of these statutes ; fimit"a-^°*^ suit may be brought against it notwithstanding." tions. When a foreign corporation has complied with the pre- scribed conditions, it acquires most of the ordinary privileges of doinestic corporations, and for instance, may plead the statute of limitations like a domestic corporation or resident citizen.' It does not follow, however, that a foreign corporation will be entitled to plead the statute of limitations merely because it has continuously through its agents done business in the state.* 2. STATUS OF A BODY OF MEN INCORPORATED BY THE LEGISLATION OF TWO OR MORE STATES. One or two corporations ? §§ 403-408. I Jurisdiction of courts of either state. I Meetings, § 409. § 403. Perplexing questions have arisen and seem likely to arise in regard to corporations incorporated or con- corpora- solidated by the concurrent legislation of more than tions? ^jjg state; and, it is submitted, these questions can ' Semple v. Bank of British Colum- * Hubbard v. United States Mort- bia, 5 Sawyer, 88. It is impossible to gage Co., 14 111. App. 40; Mallory v. agree with a decision sustaining this Tioga R. R. Co., 3 Abb. DecS (N. Y.) dishonest defence. The Wisconsin 139. But in Montana where a foreign court, more in conformity to the view corporation has owned property and thatdebtorsshouldpay their just debts, openly maintained a place of business holds that a foreign insurance corpo- with a managing agent, in the state, a ration which has not complied with personal judgment can be rendered the statute prescribing conditions on against it, and it can plead the statute which it may do business in the state, of limitations, though it has failed to may still take mortgage security for a comply with the Montana statute, by debt due there and enforce it in the filing its charter; such failure merely courts of the state. Charter Oak Life relieving any party sueing the corpo- Ins. Co. V. Sawyer, 44 Wis. 887. • ration from proving its incorporation, ^ Hagerman v. Empire State Co., except by reputation. (The statute is 97 Pa. St. 534. express herein.) King v. National ' Huss V. Central K. R., etc. Co., M. T. E. Co., 4 Montana, 1. 66 Ala. 472. Compare Barr v. King, 96 Pa. St. 485. 360 PART v.] INCORPOKATION BY TWO OR MORE STATES. [§ 405. be properly solved only by applying the analysis of the idea of a corporation given above in Chapter III. The two entirely different Motions conveyed by the term corporation must be borne in mind ; the one, a body of men ; the other, a legal in- stitution or group of laws relating to the corporate enterprise in their manifestation in legal relations. Perhaps the funda- mental question in regard to incorporation by the concurrent legislation of two states, is whether, and. in what respects, there results one or two corporations. It is plain, using the term corporation to denote a body of men, that there is but one cor- poration ; for evidently there is but one body of shareholders who meet and vote ; and this body is the same whether acting in the one state or the other. § 404. But is there one or are there two legal institutions ? i. e., one or two groups of laws which have manifested them- selves in legal relations. A law has no force beyond the limits of the state enacting it. A legal right is the power which a person has through the aid of a law to compel another to do or forbear ; and, as before pointed out, a legal right with its cor? responding liability constitutes a legal relation ; which is the manifestation of a rule of law in operation.^ It is consequently evident that the identical legal relation cannot subsist in two states, except in so far as it is the manifestation of a law operating in both ; i. e., the manifestation of a law of Congress or a provision in the Federal constitution. In so far as a person has a right which is the manifestation of a constitutional pro- vision, or of a law of Congress competently enacted, the identity of the right is not affected by the fact of its possessor being in E"ew York or iN'ew Jersey.'* ' § 405. To illustrate, suppose ISTew York and New Jersey to incorporate a railroad corporation by precisely similar legisla- ' Chap. III. Pa. St. 90. See Eby v. Northern * Accordingly, a corporation created Pac. R. K. Co., 13 Phila. 144, which . by act of congress and doing business holds that a corporation created by act in Pennsylvania is not a "foreign of congress may be sued anywhere in corporation" under the Pennsylvania Pennsylvania where proper service of statutes which provide for the taxation process can be made ; as the corpora^ of foreign corporations. Common- tion exists in Pennsylvania, wealth V. Texas, etc. R. R. Co., 98 361 § 406.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. tion ; each state enacting among other provisions that the share- holders shall be individually liable for debts due the employes of the company. Suppose A. to be an employe, and B. a share- holder. In l^ew Jersey A.'s right against B. depends on the Few Jersey enactment backed by the physical power of the ISTew Jersey government ; and in New York A.'s right against B. dependp on the 'New York enactment. A.'s right in New York is|the manifestation of a law different from the law which manifests itself in A.'s right in New Jersey ; and would be enforced by a different set of courts, whose decrees in their turn would be enforced by different physical backings. How- ever, a right of A. against B. having once vested in respect of a debt due from the corporation, neither state can pass a law depriving A. of his right ; for such an enactment would be void under the Federal constitution, as impairing the obligation of a contract. This further guaranty of A.'s right, that he shall not be deprived of it, is not the manifestation of a state law ; but of a rule of law contained in the Federal constitution, and thus operating in both states; and would in the last resort be enforced in either state by the same power. Consequently, this further right of A., is identical in both states. Accordingly, it may be said, that the legal relations subsist- ing in respect of any corporate enterprise, which extends throughout two or more states, in so far as in each state, they are manifestations of different groups of laws, are different groups of legal relations, and constitute not identicstl, though perhaps precisely similar legal institutions. Thus there may be said to be two corporations. ^ § 406. Justice Breese said, giving the opinion of the.Supreme Court of Illinois in Quincy Bridge Company v. Adams County,^* " But, it is said, by the appellants, this corporation, although ' The same body of persons can, by the Supreme Court has said in a later accepting charters from two states, case that when a corporation is char- become "constituted into two distinct tered under the same name by several corporate entities in the two states, states, it has but one set of share acting in each according to the powers holders, and each shareholder is inte- locally bestowed, as distinctly as though rested in all its property. Graham i- they had nothing in common, either as Boston, etc. R. R. Co., 118 U. S. to name, capital, or membership." 162. Clark V. Barnard, 108 U. S. 436. Yet « 88 III. 615, 619. 362 PART v.] INCORPORATION BY TWO OR MORE STATES. [§ 406. it derived some of its powers, and in part its corporate existence from this state, derived an equal part from the sovereign state of Missouri, and therefore they are not a corporation created under the laws of either state. To this it is answered, and we think satisfactorily, that the legislatures of this state and of Missouri cannot act jointly, nor can any legislation of the last named state have the least effect in creating a corporation in this state. Hence, the corporate existence of appellants con- sidered as a corporation of this state must spring from the legis- lation of this state, which, by its own vigor, performs the act. The states of Illinois and Missouri have no power to unite in passing any legislative act. It is impossible in the very nature of their organization that they can do so. They cannot so fuse themselves into a single sovereignty, and as such create a body politic which shall be a corporation of the two states, without being a corporation of each state or of either state. As argued by appellee, the only possible status of a company acting under charters from two states is that it is an association incorporated in and by each of the states, and when acting as a corporatiop in either of the states, it acts under the authority of the charter of the state in which it is. then acting,and that Only ; the legis- lation of the other state having no operation beyond its terri- torial limits."' Speaking with reference to the consolidation of corporations organized under the laws of different states. Judge Cooley said in a recent Michigan case: — " It is familiar law that each corporation has its existence and domicile, so far as the term can be applied to the artificial person, within the territory of the sovereignty creating it; it comes into existence there by an exercise of the sovereign will ; and though it may be allowed to exercise corporate func- ' See also State v. Northern Central it was said that a corporation created Ey. Co., 18 Md. 193, 213; Farnum by two states receiving similar charters V. Blackstone Canal Co., 1 Sumner, from both "is a single corporation 47 ; Port Royal R. R. Co. v. Ham- clothed with the powers of two cor- mond, 58 Ga. 528 ; County of AUe- porations. It acts under two charters, gheny v. Cleveland, etc. R. R. Co., which, in all respects, are identical, 51 Pa. St. 228. In Covington Bridge except as to the source from which Co. V. Mayer, 81 Ohio St. 317, 325, they emanate." 363 § 406.] THE LAW OF PKIVATB CORPORATIONS. [CHAP. VII. tions within another sovereignty, it is impossible to conceive of one joint act, performed simultaneously by two sovereign states, which shall bring a single corporation into being, except it be by compact or treaty. There may be separate consents given for the consolidation of corporations, separately created ; but when the two unite they severally bring to the new entity the powers and privileges already possessed, and the consolidated company simply exercises in each jurisdiction the powers the corporation there chartered has possessed,' and succeeds there to its privileges. It may well happen, as indeed it often has, that the consolidated company will be a corporation possessing in one state very different rights, powers, privileges, and im- munities to those possessed in another, and subject to very different liabilities. And after the consolidation each state legislates in respect to the road within its own limits, and which was constructed under its grant of corporate power, the same as it did before. And it cannot follow the new organiza- tion with its legislation into another state. It has been said that the consolidated company exists in each state under the laws of that state alone ; and this is the effect of the decision in Delaware Railroad Tax, 18 Wall. 206, and in many other cases. It also follows necessarily from the doctrine maintained by the -Federal Supreme Court in respect to the citizenship of corpora- tions. That doctrine is that a corporation is deemed to be a citizen of the state which has created it, and an organization of members who are citizens of that state. When, therefore, two corporations created in different states consolidate, though for most purposes they are not therefore to be separately regarded, yet in each state the consolidated company is deemed to stand in the place of the corporation to which it there succeeded, and of its members, and consequently to be a citizen of that state for many purposes, while in the other state it would stand in the place of the other corporations in respect to citizenship there."* ' How about inter-state comity ? will be construed " as if made by the ^ Chicago and N. W. Ey. Co. v. corporation of each state in which Auditor-General, 53 Mich. 79, 92. the subject-matter lies ; ut res magis Opinion of the court per Cooley, C. valeat quam pereat." Racine, etc. R. J., citing many cases. R. Co. v. Farmers' Loan, etc. Co., 49 The contracts of such a corporation 111. 331, 352. 364 PART v.] INCORPORATION BY TWO Op MORE STATES. [§ 408. § 407. Still, perhaps, the question whether there is one or two corporations may be regarded as mainly one of definition. Thus, if we define a corporation, meaning a legal institution, as the sum of the legal relations subsisting in respect of a given corpo- rate enterprise, it may be said that this sum includes all the legal relations whether they be the manifestations of the laws of l^ew York or of New Jersey. But the sum of all these legal rela- tions cannot subsist in either state ; part of them subsisting in one and part in the other ; though the two parts, may be so precisely similar that for most purposes they can be regarded as identi- cal. And thus, though there may be said to be but one corpo- ration, it does not subsist in its sum total in either state.' On the other hand, the group of legal relations subsisting in either state may there, if the courts so choose, be regarded as the cor- poration, without reference to the group of legal relations which subsist in respect of the same corporate enterprise in the other state. And viewing the matter in this way, there may be said to be two groups of legal relations, i. e., two legal institutions or corporations.* § 408. The preceding remarks seem to accord with the de- cisions of the Federal Supreme Court. For instance, in Ohio and Mississippi Eailroad Co. v. Wheeler,' it was held that there could not be^a corporation endowed with corporate capacities bj' the co-operating legislation of two states, so as to be one and the same legal being in both ; for a corporation has no legal ex- istence in a state except by the laws of that state. No state can confer corporate existence in another. In accordance with ' In Newport and Cincinnati Bridge full extent of the powers and franchises Co. V. WooUey, 78 Ky. 523, it was conferred and invested in it here in held two states could not by partial New Jersey. A corporation may have legislation create a corporation which a twofold organization, and be, so far should have a complete legal existence as its relations to our state is con- in either. A corporation cannot have cerned, both foreign and domestic. It two domiciles. But see § 409. may have a corporate entity in each ' See Clark v. Barnard, 108 U. S. state, yet in its general character be of 436, and compare Heuen v. Balti- a bifold organization." McGregor, more, etc. R. R. Co,, 17 W. Va. 881. gui tarn, v. Erie R'y Co., 85 N. J. L. "It is true that the Erie Railway 115, 118. Opinion of court per Company is a foreign corporation, yet Bedle, J. at the same time it is domestic to the ' 1 Black, 286. 365 § 409.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. VII. this, a court in either state would limit the range of its legal vision to the group of legal relations subsisting there. To be sure, in Railroad Co. v. Harris,' Justice Swayne said, giving the opinion of the court: "We see no reason why several states cannot by competent legislation unite in creating the same cor- poration, or in combining several pre-existing corporations into one."^ It does not necessarily follow, however, that the whole of such a corporation would exist in any one state. But view- ing the corporation in this light, a court would extend its vision to the legal relations subsisting in all the states through which the corporate enterprise might extend. The point which the court in Railroad Company v. Harris actually decided, was that a railroad corporation chartered by several states and by Con- gress as well, was amenable to the courts of the District of ■ Columbia for personal injuries received on its road in Virginia. In a later case the Supreme Court held that although one cor- poration be consolidated with another incorporated by a differ- ent state, still in its own state it exists under the laws thereof.^ § 409. Corporations owing part of their corporate existence Jurisdic- *° ^ State, and exercising their franchises within its Won of limits, may be there restrained from expending their eitherstate. funds for Other than corporate purposes anywhere.* ee ings. -g^^^ ^ state court of chancery has no jurisdiction to compel a domestic corporation to go into another State, from 1 12 Wall. 65, 82 ; perhaps modify- R. R. Co., 14 Pa. St. 241, 244. But ing the language of the court in Ohio art. 1, sec. 10 of the Federal Constitu- and Miss. R. K. Co. «. Wheeler. But tion forbids compacts between states ; see the latest expression of the Federal hence quaere ? Supreme Court, in note to § 405. * State v. Northern Central R'y " Ace. Bishop !). Brainard, 28 Conn. Co., 18 Md. 193, 213. See Wilmer 289. V. Atlanta, etc. R'y Co., 2 Woods, ' MuUer v. Dows, 94 U. S. 444; 409; Fisk v. Chicago, etc. R. R. Co., Ace. Railway Co. v. Whitton, 13 53 Barb. 513. A Connecticut court Wall. 270. See §§ 411, 412. has jurisdiction to foreclose a mortgage , A charter granted by two states to a made by a consolidated corporation corporation is not only a compact with created by New York and Connecti- it, but also a contract between the two cut, although part of the mortgaged states ; and the same construction property lies in New York. Mead v. must be put on it by both. Cleveland New York H. and N. R. R. Co., 45 and Pittsburgh R. R. Co. v. Speer, 56 Conn. 199. Pa. St. 325; Brocket v. Ohio,- etc. 366 PART v.] CITIZENSHIP OF A CORPORATION. [§ 410. which it may also have received a charter, and there specifically execute a contract, by opening djtehes on the complainant's land, and keeping them open to a certain depth ; and on its failure thus to perform, to enforce the decree by attachment and sequestration of its property in the former state.^ A cor- poration created by charters from two states may competently hold shareholders' meetings in either ;* and a meeting held in one of the states is valid with respect to all the property of the corporation wherever situated. Such a corporation has a domi- cile in each state.* 3. CITIZENSHIP OF CORPORATIONS WITH RESPECT TO THE JURISDICTION OP THE FEDERAL COURTS. Earlier rule, § 410. I Averments in pleading, § 413. Overruled, §§ 411, 412. 1 § 410. The questions just discussed regarding th§ status of a corporation incorporated by two states have, in large measure, arisen with respect to that jurisdiction of fX'^^' the Federal courts which depends on the citizenship of the parties to a suit,* The earliest case in the Supreme Court on this jurisdiction, when a corporation is a party, is 1 Port Royal R. R. Co. v. Ham- tion of legislative intent; t. e., did mond, 58 Ga. 528. See Eaton, etc. the state mean the foreign corporation R. R. Co. V. Hunt, 20 Ind. 457 ; Hart to become a domestic corporation ? V. Boston, H. and E. R. R. Co., 40 Angier v. East Tennessee, etc. R. R., Conn. 524. 74 Ga. 634. Franchises granted by a ' Covington Bridge Co. v. Mayer, state to a foreign corporation will not 31 Ohio St. 319 ; Graham v. Boston, make it a domestic corporation, where etc. R. Co., 14 Fed. Rep. 753. it does not accept the franchises or act " Graham v. Boston, etc. R. R. Co., under them. Philadelphia W. & B. 118 U. S. 162. But authority from a R. R. Co. v. Kent County R. R. Co., state to a foreign railroad corporation 5 Houst. (Del.) 127. to extend its road into such state, does * A corporation may be entitled on not make the corporation a corporation other grounds to sue in a Federal of that state; unless the language of court. See Fed. Cons., Art. III. §2. the statute implies the creation of a Compare Miners' Bank v. Iowa, 12 corporation. Pennsylvania R. R. Co. How. 1. A national bank can, by V. St. Louis, etc. R. R. Co., 118 U. reason of its character as such, sue in S. 290 ; Goodlett v. Louisville, etc. a Federal court. Bank of Omaha v. R. R., 122 U.S. 391. Thisisaques- Douglas County, 3 Dill. 298. 367 § 412.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. Bank of United States v. Deveaux,* which held that, though a corporation aggregate composed of citizens of one state might sue a citizen of another state in a Federal Circuit Court, yet such a corporation could not in its corporate capacity be a citi- zen of the state incorporating it so as to be competent to sue in a Federal Circuit Court without regard to the citizenship of its members.* § 411. This case was overruled in Louisville, Cincinnati, etc. E. E. Co. V. Letson,* where the court said that a cor- poration created by a state to perform its functions under the authority of that state, and only suable there, though it may have members out of the state, seemed to them a person, though an artificial one, inhabiting and belonging to that state, and therefore entitled, for the purpose of suing and being sued, to be deemed a citizen thereof. It was accordingly held, that a citizen of one state could sue a corporation created by another in the Federal Circuit Court for the latter state, although some of the members were not citizens of the state where the suit was brought, and the state itself was a member of the corpo- ration. The last case was followed, after some years, by Eailway Co. V. Whitton,^ where the court again held that, although a cor- poration, being an artificial body created by legislation, was not a citizen within the meaning of several provisions of the constitution, still where rights of action were to be enforced, it would be regarded as a citizen of the state whete it was created, within the meaning of the clause extending the judicial power of the United States to controversies between citizens of different states. § 412. Eailway Co. v. "Whitton was afiirmed in Muller v. DowB," though the reasoning of the court was somewhat modi- fied in the latter case ; where it was said that a corporation could not itself be a citizen of a state in the sense in which the word " citizen" is used in the Federal constitution. But they • 5 Cranch, 61. case in the Supreme Court reports ' Accord Commercial, etc. Bank v. where a railroad corporation was a Slocomb, 14 Pet. 60 ; Irvine v. I^owry, party. 14 Pet. 293. * 13 Wall. 270. » 2 How. 497. This was the first ^ 94 U. S. 444. 368 PART v.] CITIZENSHIP OF A CORPORATION. [§ 412. held that a suit might be brought in a Federal court by or against a corporation, and that in such a case the suit would be regarded as if brought by or against the shareholders, all of whom for jurisdictional purposes would be conclusively pre- sumed to be citizens of the state incorporating the corporation.^ The plaintiff in MuUer v. Dows was a resident of Missouri, and sued the corporation in the United 8.tates Circuit Court for Iowa. The corporation was incorporated by both Missouri and Iowa ; and it was held that as to suits brought in Iowa the Missouri corporation could not be regarded, and the Circuit Court for Iowa had jurisdiction of the suit.* On similar prin- ciples, applied under reversed circumstances, it was held in Ohio and Mississippi R. R. Co. v. Wheeler,' that a corporation created by Ohio and Indiana could not sue a citizen of Indiana in a United States Circuit Court for the district of Indiana. 1 See Steamship Co. v. Tugman, 106 U. S. 118; Maltz ji. American Exp. Co., 1 Flip. 611. Under § 11 of the judiciary act of 1789, a corpo- ration cannot be made a party defen- dant to a civil suit in a Federal Circuit or District Court by original process, in any other district than a district of the state by which it was created. Myers v. Dorr, 13 Blatohf. 22. A corporation by doing business in a state as permitted by the laws thereof, having a resident agent, etc., does not become a citizen of that state for the purposes of Fed- eral jurisdiction. Insurance . Co. v. Francis, 11 Wall. 210. See Brownell •,. Troy, etc. R. R. Co., 18 Blatchf. 243 ; Callahan v. Louisville, etc. R. Co., 11 Fed. Rep. 636; Guinn v. Iowa Cent. Ry. Co., 14 Fed. Rep. 323. But see Balto. and Ohio R. R. Co. V. Wightman's Adm'r, 29 Gratt. (Va.) 431; Same a. -Noell's Adm'r, 32 Gratt. 394; Stout v. Sioux City, etc. R. R. Co., 3 McCrary, 1 ; N. Y. and Erie R. R. Co. v. Shepard, 5 24 McLean, 455. For instance, a rail- road corporation created by Maryland does not become a citizen of Virginia by taking a lease of a Virginia railroad and can still remove to the Federal court a suit brought against it by a citizen of Virginia. Railroad Co. v. Koontz, 104 U. S 5. Where by the local law a foreign corporation is amenable to suit in the courts of the state, service being made upon an agent within the state, the Federal courts may be regarded as courts of the state, and may take ju- risdiction on a service that would be good in a state court. Ex parte Schol- lenberger, 96 U. S. 369 ; Eaton v. St. Louis, etc. M'g Co., 2 McCrary, 362. * See § 408. Also, Marshall v. Bal- timore, etc. R. R. Co., 16 How. 314. 3 1 Black. 286, § 408 ; Accord, Memphis, etc. R. R. Co. v. Alabama, 107 U. S. 581 ; County of Allegheny V. Cleveland, etc. R. R. Co., 51 Pa. St. 228. Compare Railroad Co. v. Harris, 12 Wall. 65. 369 § 413.] THE LAW OF PRIVATE CORPOKATIONS. [CHAP. VII. § 413. In order to give jurisdiction to the Federal court, it Averments ^^ould appear by the pleadings that the corporation in plead- was incorporated by a state other than that of which '°^' the other party is a citizen.' An averment that a drawbridge company were citizens of Indiana is sufficient to give jurisdiction to a Federal Circuit Court, the company having been incorporated by a public statute, of which the court is bound judicially to take notice.'' Likewise, that the defendant " is a foreign corporation formed under and created by the laws of the state of New York," is a sufficient averment of citizen- ship.* But in a suit brought against a corporation by a state, an averment that the defendant is " a body politic in the law of and doing business in" another state is insufficient to give jurisdiction to the Federal Supreme Court.* An averment that the defendant is a " corporation created by an act of the legis- lature of ITew York, located in Aberdeen, Mississippi, and doing business under the laws of the state," is no averment that the defendant is a citizen of Mississippi." ' Mansfield C. and L. M. Ry. Co. ' Covington Drawbridge Co. v. V. Swan, 111 U. S. 379; MuUer v. Shepherd, 20 How. 227. But see Dows, 94 U. S. 444. See Marshall Lafayette Ins. Co. u. French, 18 How. V. Baltimore, etc. R. R. Co., 16 How. 404. 314. Compare N. Y. and Erie R. R. " Express Co. v. Kountze Brothers, Co. V. Shepard, 5 McLean, 455. A B Wall. 342. corporation created by a territorial * Pennsylvania v. Quicksilver Co., legislature is, after the territory be- 1 Wall. 658. „ comes a state, a citizen of that state ' Insurance Co. v. Francis, 1 1 Wall, within the clause defining the juris- 210; N. Y. and Erie K. R. Co. v. diction of the Federal courts. Kansas Shepard, 5 McLean, 455, seems at Pacific R. R. Co. v. Atchison T. and variance with this case. See § 412. S. F. R. R. Co., 112 U. S. 414. Under the act of March 3, 1875, to Corporations created by congress can entitle a party to remove a suit, his remove cases to the Federal courts on citizenship relied on must have existed the ground that the suits against them when the suit was begun and also are suits "arising under the laws of when the petition for removal was the United States." Pacific R. R. filed. Houston and T. C. Ry. Co. v. Removal Cases, 115 U. S. 2. Shirley, 111 U. S. 358. 370 PART v.] SUCCESSION. [§ 415; 4. SUCCESSION. Succession ; consolidation ; dissolution, §414. Succession, wherein dififering from con- solidation, § 415. Property passes subject to restrictions, §416. Successor assumes position of former corporation, § 417 i Special exemptions may not pass, §418. § 414. The are certain transactions or proceedings by which the legal relations subsisting in respect of a corporate g^^^^^ enterprise are affected radically or even as a whole ; sion ; con- the first, a sort of succession, where the rights, fran- dissoiu- ' chises, and property of a corporation are acquired by *''"'■ an individual or by another corporation ;' the second, a con- solidation, where two or more corporations are united ; the third, a dissolution, where a final liquidation of the legal rela- tions subsisting in respect of a corporate enterprise takes place. The three proceedings have much in common, indeed run into each other. A consolidation rarely occurs without a succession as well as a dissolution. Succession, the simplest of these pro- ceedings, may be considered first.^ § 415. What is here called a succession takes place when the property and franchises of a corporation are bought, gucggggjo^ for instance on the foreclosure of a mortgage.* A wherein succession differs from a consolidation in this respect, from con- among others, that the purchaser acquiring the prop- ^oi^^^t'o"- erty and franchises of the corporation, does not become re- sponsible for its liabilities already accrued ;* while, on the other For the rights of creditors when the sumed for the purposes of the present property of an insolvent corporation is transferred, say to another corporation composed of the same shareholders, see §§ 657, 667, 708. 2 For the power of a corporation to transfer its franchises, see §§ 131, 132, 304.- ' For the right of a corporation to mortgage its franchises, see § 304. A power in the corporation to mort- gage or transfer its franchises is as- discussion. * Wright V. Milwaukee, etc. Ry. Co., 25 Wis. 46, and cases in next notes. Compare Pfeifer D. Sheboygan, etc. E. R. Co., 18 Wis. 155; Mc- Lellan v. Detroit File Works, 56 Mich. 579. But by special provision a successor may be liable. New Bed- ford R. R. Co. V. Old Colony R. R. Co., 120 Mass. 397. Thus, a corpora- tion organized under and pursuant to . 371 § 415.J THE LAW OP PRIVATE CORPORATIONS. [CHAP. VII. hand, it is usually held that the consolidated corporation assumes all the liabilities of the corporations of which it is composed.^ Thus, when the property and franchises of a rail- road company are sold out under the foreclosure of a mortgage, the purchasers are not liable on a judgment against the corpo- ration,^ although they organize and form a corporation under the name used by the old company.' And a company which purchases the railroad of another corporation, sold for the pay- ment of its debts, is not responsible for the damages which, at the time of the sale, had already accrued to adjoining lands through failure of the former company to maintain proper drain- age.* So when a railroad company competently purchases at a foreclosure sale the franchises and property of another company, it will be affected only by such contracts of the other as con- stitute a lien upon or otherwise bind the property and franchises thus acquired. The purchasing company will not be bound, for instance, by a cont]*act of the former company not to extend the railroad in a certain direction." On the other hand, a railroad company whose road has been sold out under foreclosure, is not liable for injuries received on the road after it had passed from the control of the company.* an agreement sanctioned by competent 37 Wis. 317; Cook v. Detroit, etc. legislation, is bound by its provisions, Ry. Co., 43 Mich. 349. See Lake and by all the liabilities it imposes in Erie and N. Ky. Co. v. Griffin, 92 favor of third persons. Welsh u. First Ind. 487. Div. St. Paul, etc. E. K. Co., 25 ' Memphis Water Co. v. Magens, Minn. 314. See also St. Louis A. and 15 Lea (Tenn.), 37. T. E. R. Co. V. Miller, 43 111. 199. * Hammond v. Port Eoyal, etc. R. If the succeeding corporation assumes R. Co., 15 S. C. 10; Same v. Same, them, it -will be bound. Island City 16 S. C. 567. See Neffu. Wolf River Savings Bank v. Sachtleben, 67 Tex. Boom Co., 50 Wis. 585. 420. 5 City Qf Menasha v. Milwaukee, 1 Sappington v. L. R. M. R. and etc. R. R. Co., 52 Wis. 414. See T. R. R. Co., 37 Ark. 23. See §§ Tawas, etc. R. R. Co. v. Circuit 425-427. Judge, 44 Mich. 479 ; Morgan County 2 Pennsylvania Transportation Co.'s v. Thomas, 76 111. 120. But see Appeal, 101 Pa. St. 576 ; Vilas v. Rome, etc. E. E. Co. v. Ontario, etc. Milwaukee, etc. E. E. Co., 17 Wis. E. E. Co., 16Hun(N. Y.), 445; and 497 ; Smith o. Chicago and N. W. compare Chicago and A. R. R. Co. v. Ry. Co., 18 Wis. 17; Hatcher v. Chicago, etc. Coal Co., 79 111. 121. Toledo, etc. R. R. Co., 62 111. 477 ; « Western R. R. Co. v. Davis, 66 Gilman v. Sheboygan, etc. E. E. Co., Ala. 578. 372. PART v.] SUCCESSION. [§ 417. § 416. Since the purchaser can acquire no further or more unrestricted franchises than were possessed by the original corporation, in availing himself of its fran- ^ass^eT^^b- chises he will be bound by all the restrictions to jeottore- which they were subject in its hands. Thus, when in pursuance of a statute the railroad of one company is pur- chased by another, unless there is some express provision of law to the contrary, the road passes to the purchaser subject to the restrictions as to the rates chargeable for transportation which attached to it in the hands of the vendor.* And the corpora- tion competently purchasing the property, privileges, rights, and franchises of another railroad company thereby assumes the continuing obligations and responsibilities imposed by the constitution of the other.^ Reversely, when a railroad company takes a lease of another road, it will be subject in regard to the taking of tolls thereon only to the restrictions contained in the charter of its lessor, and not to those contained in its own.' § 417. It is in accordance with these principles that when a corporation or an individual, be he an ordinary pur- g^ chaser or one who receives the property in the car- assumes rying out of some trust, comes into the possession of former'cor- the property and franchises of a corporation, like a p°''*''°°- railroad company, exercises the franchises and uses the prop- erty, he thereby assumes towards outsiders a position and re- sponsibility similar to those of the former company. Thus, trustees under a railroad mortgage, who have bought' in the road on foreclosure, and are operating it for the benefit of the bondholders, will be regarded, as towards the public, as owners ' Campbell v. Marietta, etc. R. K. liabilities of the state bank. Coffey Co., 23 Ohio St. 168. v. National Bank, 46 Mo. 140. When ^ Daniels v. St. Louis, etc. R. R. a state bank is transformed into a na- Co., 62 Mo. 4.3. See Montgomery, tional bank, it is but a continuance of etc. R. R. Co. V. Boring, 51 Ga. 682. the same body under a changed jurLs- When a state bank pays a continuing diction, and the national bank can en- bonus to the state for its privileges and force contracts made with the state franchises the state cannot exact the bank. City Nat. B'k v. Phelps, 97 bonus after the bank has reorganized N. Y. 44. under the national banking act. State " Pennsylvania R. R. Co. v. Sly, 65 V. National Bank, 33 Md. 75. But Pa. St. 205. See § 170. the reorganized bank is liable for the 373 § 418.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. in possession and will be liable as comraon carriers for all goods transported over tlie road during their management.* Like- wise a receiver operating a road, sustains towards the public the relation of common carrier, and will be amenable to the common law courts in actions for negligence.^ § 418. A person purchasing the property of a corporation does not necessarily acquire the special privileges or exemptions,* and franchises possessed by the corpora- tion with respect to its property.^ Especially the franchise of being a corporation may not pass ;* and thus, where certain persons purchased at a sheriff's sale all the rights, privileges, franchises, and property of a railroad corpo- ration, and thten operated the road themselves, they were held jointly liable on an obligation issued by them in the name of the corporation.' Special ex- emptions may not pasB. > Rogers v. Wheeler, 43 N. Y. 598 ; Pearson v. Wheeler, 55 N. H. 41 ; . Sprague v. Smith, 29 Vt. 421. See Farrell v. Union Trust Co., 77 Mo. 475. Compare Beeson u. Lang, 85 Pa. St. 197; Stratton v. European, etc. K'y, 74 Me. 422. 2 Ne-well V. Smith, 49 Vt. 255. Compare Hopkins v. Taylor, 87 111. 436 ; Little v. Dusenberry, 46 N. J. L. 614; Klein v. Jewett, 26 N. J. Eq. 474 ; S. C, 27 N. J. Eq. 550 ; Blumenthal v. Brainerd, 38 "Vt. 402 ; Sloan V. Central Iowa Ky. Co., 62 Iowa, 728. Seems contra Cardot v. Barney, 63 N. Y. 281. A claim for personal injuries sustained while the road is in the hands of a receiver is against the funds of the receivership ; and the receiver is not personally lia- ble after he has turned over such funds to the purchasers and received his dis- charge. Ryan v. Hays, 62 Tex. 42. 374 And it seems that the corporation itself will not be liable for injuries re- ceived on its road, after the road had passed under the control of a receiver duly appointed, and taking active charge. Bell v. Indianapolis, etc. R. R. Co., 53 Ind. 57. But see Indian- apolis, etc. R. R. Co. V. Ray, 51 Ind. 269. See § 170. ^ See §§ 487-491. * Special privileges conferred on a railroad corporation by special charter, e. g., the right to demand special rates of fare, are not so inherent in the road as to pass to any corporation or person authorized to work it. Pittsb., Cin., etc. R'y Co. v. Moore, 33 Ohio St. 384. But compare Detroit v. Mutual Gas Co., 43 Mich. 594. 6 See §§ 131, 132. ^ ChatTe u, Ludeling, 27 La. Ann. 607 ; compare Beeson v. Lang, 85 Pa. St. 197. PART v.] CONSOLIDATION. [§ 420, 5. CONSOLIDATION, No implied power to consolidate, § 419. Authority to consolidate, § 420. Effect of consolidation, § 421. Meaning of phrases, § 422. Essential questions, § 423. Capacities of consolidated corporation, §424. Its liabilities, §§ 425-427. § 419. It ia almost self-evident that a corporation has no implied power to consolidate with another. Special authority from the legislature is necessary.* Reasons poVer to^ for this are twofold. In the first place, since a con- ^ate"^^ solidation ordinarily brings a new corporation into existence," the authority of the legislature is as necessary for the incorporation of a company out of pre-existing corporations as it is under other circumstances. And in the second place, the rights of dissenting shareholders would be impaired ; for the implied agreement made by every one subscribing for shares, that the corporate affairs shall be subject to the will of the majority and of the corporate management, does not extend beyond the doing of acts contemplated in the original consti- tution.* § 420. The authority to consolidate may exist in the original constitution of the corporation ;* or it may be given ^uthoritv by a subsequent statute passed before consolidation ;" to consou- or an unauthorized consolidation may be ratified by statute after it has taken place.' And power given to a cor- poration to consolidate with any other is suflicient to another corporation, if it choose, to unite with the former, although the ' Pearce v. Madison, etc. R. R., 21 may authorize two or more existing How. 442 ; Clearwater v. Meredith, 1 corporations to organize themselves Wall. 25. into a new corporation just as much as * § 421. it may authorize individuals to incor- ' Clearwater v. Meredith, 1 Wall, porate themselves. State Treasurer 25, 40. See § 536 for the right of a v. Auditor-General, 46 Mich. 224, 233. shareholder to prevent a consolidation. ^ Bishop v. Brainerd, 28 Conn. 289 ; * Nugent V. Supervisors, 19 Wall. Mead v. New York, Housatonic, etc. 241. R. R. Co., 46 Conn. 199. See Mc- ' See Black v. Delaware and Rar. Auley v. Columbus, etc. R'y Co., 83 Canal Co., 24 N. J. Eq. 455. A state 111. 348. 375 § 422.] THE LAW OP PRIVATE COKPORATIONS. [CHAP. VII. latter is not named in the statute.* Corporations incorporated by different states may be united by consolidation." § 421. When two or more corporations are consolidated, the Effect of ■'^S^^ relations thereby occasioned depend primarily oonsoiida- on the intention of the legislature as expressed in the statute authorizing the consolidation.* Generally the effect is to dissolve all the corporations consolidating, and to create a new corporation out of their elements.* But consolida- tion does not necessarily work a dissolution of all the consolida- ting corporations ; and one may become merged in the other, the latter continuing its corporate existence.* § 422. The phrases "used in the preceding paragraph require analysis. When it is said, that whether or not a dis- phrases^ °^ Solution of both corporations and a creation of a new one are occasioned, depend on the intention of the legislature, the word " corporation" is obviously used as mean- ing legal institution, or the sum of the legal relations subsisting in respect of the corporate enterprise.* Evidently questions 1 Matter of Prospect Park, etc. R. R. Co., 67 N. Y. 871. See New York and N. E. R. R. Co. v. New York, etc. R. R. Co., 52 Conn. 274. » See MuUer v. Dows, § 408, and generally for status of such a corpora- tion, see §§ 403 et seq. ; also Racine, etc. R. R. Co. V. Farmers' Loan and Trust Co!, 49 111. 831. ' Central R. R., etc. Co. v. Georgia, 92 U. S. 665 ; Railroad Co. v. Georgia, 98 U. S. 359. * Railroad Co. v. Georgia, 98 U. S. 859 ; Clearwater v. Meredith, 1 Wall. 25; McMahon v. Morrison, 16 Ind. 172 ; State u. Bailey, ib. 46 ; Shields v. Ohio, 95 U. S. 319 ; Ridgway Town- ship V. Griswold, 1 McCrary, 151 ; Cheraw, etc. R. R. Co. v. Commis- sioners, 88 N. C. 519 ; Fee v. New Or- leans Gas Light Co., 35 La. Ann. 413. ' Philadelphia, etc. R. R. Co. v. Maryland, 10 How. 376; Central R. R., etc. Co. V. Georgia, 92 U. S. 665. 376 "When the rights, franchises, and effects of two or more corporations are by legal authority and agreement of the parties combined and united into one whole and committed to a single corporation, the shareholders of which are composed of those (so far as they choose to become such) of the com- panies thus agreeing, this is in law and according to common understanding a consolidation of such companies, whether such single corporation, called the consolidated company, be a new one then created, or one of the original companies continuing in existence with only larger rights and capacities and property." Meyer o. Johnston, 64 Ala. 603, 656 ; opinion of court per Manning, J. Because the consolidated company has a new name does not make it a new corporation, ib. In this case it was held that no new cor- poration was created, 6 See Chap. III. PART v.] CONSOLIDATION. [§ 424. arising on consolidation are questions as to what already sub- sisting legal relations continue, and what new legal relations are occasioned through the consolidation. Hence, by saying that a new corporation is created, is meant that the legal relations are substantially changed as a body ; and that future legal relations will depend on a different corporate constitution. And by say- ing that corporation B. is merged into corporation A., is meant that the constitution of A., as an organic group of laws, remains unchanged ; though it may be modified by bringing into it certain legal rules from the constitution of B. § 423. In accurate and minute discussions, however, of special questions arising on consolidation, usually but small assistance will be derived from considering whether questkJns. or not a new corporation is created. The essential matter will be to determine from the statutes authorizing the consolidation how far the already subsisting legal relations are modified ; and how far are altered the legal rules under which legal relations in respect of the corporate enterprise will come into existence upon the doing of further acts. § 424. All the rights and franchises of the consolidated cor- poration are subject to the provisions of the statute capacities authorizing the proceeding.' Usually, however, all °l^l'^^^^- the franchises of the consolidating companies vest in corpora- the new corporation ; as well as all the rights which before consolidation had accrued or vested in the former corpo- rations under the exercise of their franchises.^ Thus, authority ' Shields v. Ohio, 95 U. S. 319; all the immunities of the former cor- affirming S. C, 26 O. St. 86. porations, its officers will be exempt 2 Payne v. Lake Erie, etc. K. K. from jury duty ; and that they should Co., 31 Ind. 283 ; Miller v. Lancaster, be so is a valuable franchise of the cor- 5 Coldw. (Tenn.) 514 ; Cooper v. Cor- poration. Zimmer v. State, 30 Ark. bin, 105 111. 224. Thus, the new cor- 677. See also Fisher v. N. Y. C. and poration may lawfully use a patent H. R. R. R. Co., 46-N'. Y. 644. It is which the prior companies had been to be presumed, when two or more licensed to use. Lighter v. Boston and railroad companies are authorized to Albany R. R. Co., 1 Lowell, 338 ; consolidate, that the franchises and Ridgway Township v. Griswold, 1 privileges of each continue to exist McCrary, 151. So when the officers with respect to the several roads so of a corporation are exempt from jury consolidated. Authority to consoli- duty, and the corporation consolidates, date "upon such terms as maybe the consolidated corporation receiving deemed just and proper" includes the 377 § 426."! THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. to mortgage the franchises may pass to the consolidated com- pany ;' and likewise the power of eminent domain.^ § 425. On the other hand, the consolidated corporation not only assumes duties and obligations similar to those Its liabili- ties. of the former corporations, but as a general rule will be held liable on the very identical liabilities and obligations incurred by either of the former companies. Ac> cordingly, the new corporation may be held liable for the torts of the consolidated companies committed before consolidation.' § 426. Evidently the consolidated company, by the statutes allowing or ratifying the consolidation, may be made to assume all the liabilities of the former companies to their creditors,* or the terras of the consolidation and the statutes authorizing it may expressly or by implication prevent such liability from arising." In the absence of provision, however, by which the consolidated corporation is made to assume or is kept free from such liabilities, it has been held that where two or more rail- road corporations are consolidated, the consolidated company, so far as the creditors of one of the original companies are con- cerned, is a successor of that particular company only in respect of the property formerly belonging to it ; and in respect of the properties of the other companies, the consolidated company is power to transfer to the consolidated ' Chicago R. I. and Pac. R. R. Co. company the franchises and privileges v. Moffatt, 75 111. 524 ; Coggin v. Cen; connected with the road; if, indeed, tral R. R. Co., 62 Ga. 6»5 ; Texas the law itself did not have that effect, and P. R. R. Co. v. Murphy, 46 Tex. , Green County v. Conness, 109 U. S. 356. See Columbus, Chicago, etc. 104, citing Tomlinson v. Branch, 15 R'y Co. v. Skidmore, 69 111. 566 ; Wall. 460 ; see § 491. Indianola R. R. Co. v. Fryer, 56 Tex. As to whether special exemptions, 609 ; compare Houston, etc. R. R. Co. as, e. g., from taxation, pass to the v. Shirley, 54 Tex. 125; St. Louis consolidated corporation, see §§ 487- and S. F. R. R. o. Marker 41 Ark. 491. As to the o-ight of the consoli- 542. dated corporation to municipal bonds * See Western Un. R. R. Co. v. voted in aid of one of the.former com- Smith, 75 111. 496 ; Warren w. Mobile, panics, see § 323. As to consolida- etc. R. R. Co., 49 Ala. 582. tion releasing subscribers, see § 536. » ghaw v. Norfolk County R. R. ' Mead v. N. Y., Housatonic, etc. Co., 8 Allen (Mass.) 407 ; Whipple R. R. Co., 45 Conn. 199. ti. Union Pac. Ry. Co., 28 Kan. 474. 2 South Carolina R. R. Co. v. Blake, 9 Rich. L. (S. C.) 228, 233. 378 PART v.] CONSOLIDATION. [§ 427. a new and independent company, oh which such creditors have no claim upon their original contracts, but only by virtue of its assumption of the obligations of the old companies.* § 427. The rational^ of these difi'erent cases, and especially of Prouty V. Lake Shore, etc. R. R. Co., will be more apparent if the matter be considered from the point of view of i\\Q rights of the former corporations' creditors as against the consolidated company and the property which it has acquired through con- solidation, rather than from the point of view of that corpora- tion's liability to them. A creditor cannot prevent a corporation which owes him money from consolidating with another ; but, on the other hand, his rights respecting the property of his debtor — which constitutes a trust fund for the payment of its debts — cannot be affected by its consolidation with another corporation.^ He can follow this trust fund into the hands of the consolidated corporation ; and his rights in regard to the property of his debtor are certainly prior to the rights of the creditors of the other consolidating companies. The idea of. consolidation seems to imply responsibility on the part of the consolidated corporation for the debts of the former companies : the rights of the creditors of each consolidating company are .unaffected by the consolidation : the outcome is, that the con- solidated corporation is personally liable for all the debts of the fbrmer companies ; but the equitable lien which each group of creditors has on the property of their debtor corporation pre- ' Prouty V. Lake Shore, etc., K. K. against it for a cause of action aris- Co., 52 N. Y. .363. Similarly, in ing before consolidation should show regard to the officers of the consoli- against what company it arose, and dated company, in so far as the trust aver such facts as will subject the new devolves upon them of managing the company ,to be sued on it. Marquette, property of the old company, they are H. and O. K. R. Co. v. Langton, 32 the successors of its officers and bound Mich. 251. by proceedings against them. Prouty ^ See Shackleford v. Miss. Central V. Lake Shore, etc. R. R. Co., supra. R. R. Co., 52 Miss. 159. Compare Although the (Michigan) law sub- Indianola R. R. Co. v. Fryer, 56 Tex. jects consolidated companies to the 609; Houston, etc. R. R. Co. w. Shir- obligations of their constituents, yet ley, 54 Tex. 125> Whipple v. Union the consolidation creates 4 new and Pacific Ry. Co., 28 Kan. 474; Ham- distinct corporation, and a declaration lin v, Jerrard, 72 Me. 62. 379 § 429..] THB LAW OF PRIVATE CORPORATIONS. [CHAP. VII, serves its validity and priority as against the creditors of the other corporations.' 6. DISSOLUTION. Definition, § 428. Causes, §§ 429, 430. Power to dissolve. Decree of dissolu- tion when necessary, §§ 431, 432. Surrender of franchises, §§ 433, 434. Effect of a dissolution, §§ 435-437. Definition. Causes. 428. The dissolution of a corporation is that condition of law and fact which ends the capacity of the body corporate to act as such, and necessitates a final liqui- dation and extinguishment of all the legal relations subsisting in respect .of the corporate enterprise. The causes and general effect* of a dissolution may be considered in order. § 429. It is obviDns-tbatanany common law rules regarding the causes of the dissolution of the older sorts of cor- porations, municipal, eleemosy»aryiJjld ecclesiastical, have no application to stock corporations at the present day. Thus, the rule that a dissolution is caused by a death of all the members cannot apply to a stock corporation ; in which, if the shareholders die, their shares pass to other persons, either by. bequest or under statutes of distributions.* Likewise are inap- plicable cases' like that in Rolle's Abridgment, in which a cor- poration was said to be dissolved by the loss of an integral part; as when in a corporation composed of brothers and sisters all the latter die.'' ' See Shackleford v. Miss. Central R. R. Co., 52 Miss. 159. See further as to the rights of creditors on consoli-' dation, §§ 665, 666. A consolidated company is affected, with notice of an unrecorded mortgage on the property of the corporations from which it is formed ; and such mortgage will be good as against judgment creditors of the consolidated company who buy the mortgaged premises on execution. Mis- sissippi Valley Co. v. Chicago, etc. R. E. Co., 58 Miss. 846. ^ The particular relations, arising on 380 dissolution between the corporation and the different classes of persons in- terested, and among the members of each class, are noticed in subsequent chapters. See §§ 610, 611, 664, 750, 751, 786. ' Mathis V. Morgan, 72 Ga. 517; Boston Glass Manufactory v. Langdon, 24 Pick. 49, 52 ; Russell v. McLellan, 14 Pick. 63, 69. Compare Newton M'f 'g Co. V. White, 42 Ga. 148. * 1 RoUe, Abr. 514. Likely it would have been otherwise in this case, had the brothers possessed the PART v.] DISSOLUTION. [§ 431. § 430. A stock corporation is dissolved by (1) forfeiture of its franchises ; (2) repeal of its charter or enabling act,' when the power to repeal is reserved to the st.ate ; (3) surrender of its franchises to the state; (4) compliance with whatever statute may exist authorizing a voluntary dissolution ; and (6) expira- tion of the time limited by the charter, or by the enabling act and articles of association for the continuance of the corpora- tion.' The first two, of these causes of dissolution are con- sidered in the chapter on the relations between the corporation and the state.^ Some states, for instance E^ew York* and Massachusetts, have enacted statutes authorizing the voluntary dissolution of corporations; and when such a statute is complied with a judgment of dissolution may be obtained.' ,§ 431. In an ordinary business corporation, where the rights of the public do not intervene, it is within the power of the body corporate, by a vote of the majority of dissolve/ shareholders, to discontinue the corporate business.^ Decree of ' ^ dissolution But, as Will appear by ftference to the cases and in- whenneces- stances hereafter cited, such action in itself would not ordinarily eflect a dissolution so as, for instance, to pre- vent the corporation from being sued. A decree of dissolu- tion from a court of competent jurisdiction is necessary in such cases. capacity of electing further sisters. Ian v. Crawshaw, 5 Mo. App. 337. See Rose v. Turnpike Co., 3 Watts But in its natural signification, when (Pa.), 46. not limited by the context, "perpe- • ' The repeal of a general enabling tual succession" denotes indefinite du- act, however, will not work a dissolu- ration, and the corporation has the tion of existing corporations, "unless right to exist forever. Fairchild v. such an intention be clearly indicated Masonic Hall Ass'n, 71 Mo. 526. in the repealing act. See §504. ' §§457 et seq., and §§496 et seq. ' See Asherville Division v. Aston, See also § 664, for the rights of credi- 92 N. C. 678. Where a statute pro- tors. vided that corporations formed under * N. Y. Code of Civil Procedure, §§ it should have succession for a period 2419 et $eq. See Matter of Pyrolu- of twenty years, when no period was site Manganfese Co., 29 Hun, 429. limited in their charters, and a corpo- ^ For a construction of the New ration was formed with "perpetual York statute, see Herring v. N. Y. succession," it was held only to mean etc. R. R. Co., 105 N. Y. 340. unbroken continuity, and that the cor- ^ Treadwell v. Salisbury M'f'gCo., poration ceased in twenty years. Scan- 7 Gray, 393, 404. See §§ 610, 611. 381 § 432.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 432. If a corporation is dissolved by the repeal of its charter pursuant to an unconditional power of repeal reserved to the state, or if its terih of existence has expired, no judicial decree is necessary to effect a dissolution.^ And when the cor- poration is to cease upon the happening of some contingency, it is held that thereupon a dissolution takes place without any decree.' But to effect this the intention of the statute must be very clear; for, although a certain event may expressly be made a ground of forfeiture, the forfeiture must be judicially declared.^ And, indeed, the better opinion would seem to be that, for most purposes, the happening of the contingency upon which the corporation is to cease should also be judicially de- clared.* Subject to the exceptions already stated, the general rule is that the decree of a court of competent jurisdiction is necessary to effect the dissolution of a corporation." Accordingly, a failure to elect corporate officers,' or a discontinuance of busi- ness by the corporation,' does not effect its dissolution ; nor does ' See § 503. Sturgesg v. Vander- bilt, 73 N. Y. 384 ; People v. Walker, 17 N. Y. 502 ; Bank of Galliopolis v. Trimble, 6 B. Mon. (Ky.) 599, 601; Terry v. Merchants', etc. Bank, 66 Ga. 117 ; Bank of Miss. v. Wrenn, 3 Sm. & M. (Miss.) 791 ; see Lagrange, etc. E. K. Co. V. Kainey, 7 Coldw. (Tenn.) 420. ^ In re Brooklyn, Winfield, etc. R. R. Co., 75 N. Y. 335; Brooklyn Steam Transit Co. v. Brooklyn, 78 N. Y. 524. = La Grange, etc. R. R. Co. v. Eainey, 7 Coldw. (Tenn.) 420. See §153. * § 458, also § 153. = Kineaid v. Dwindle, 59 N. Y. 548; Moore v. Schoppert, 22 W. Va. 282. See § 458. ^ Rose V. Turnpike Co., 3 Watts (Pa.), 46 ; Lehigh Bridge Co. v. Le- high Coal Co., 4 Rawie (Pa.), 8, 23 ; Commonwealth v. CuUen, 13 Pa. St. 382 138; Blake v. Hinkle, 10 Yerg. (Tenn.) 218 ; Nashville Bank v. Pet- way, 3 Humph. (Tenn.) 522 ; Boston Glass Manufactory v. Langdon, 24 Pick. 49; Russell v. M'Lellan, 14 Pick. 63 ; Knowlton v. Ackley, 8 Cush. 93 ; ^Cahill v. Kalamazoo Mut. Ins. Co., 2 Dougl. (Mich.) 124, 140; Philips V. Wickham, 1 Paige (N. Y.) 590 ; Slee v. Bloom, 5 Johns. Ch. (N: Y.), 366, 377; S. C, 19 Johns. 456; People V. Twaddell, 18 Hun, 427; Evarts v. Killingworth M'fg Co., 20 Conn. 447 ; Harris v. Miss. Valley,' etc. R. R. Co., 51 Miss. 602 ; Smith V. Smith, 3 Dessaur. (S. C.) 557 ; St. Louis Domicile, etc. Ass'n v. Augus- tin, 2 Mo. App. 123. ' Kansas City Hotel Co. v. Sauer, 65 Mo. 279, 288 ; Nimmons v. Tap- pan, 2 Sweeny (N. Y.), 652; Mickles V. Rochester City Bank, 11 Paige (N. Y.), 118 ; Moseby v. Burrow, 52 Tex. 896; State v. Barron, 58 N. H. 870. PAKT v.] DISSOLUTION. .[§ 433. its insolvency.* I^feither does a dissolution result where the corporation is insolvent, and has ceased to do business as well f even when it has assigned all its property for the benefit of its creditors,' or a receiver has been appointed.^ It has even been held that the fact that a corporation is insolvent will not author- ize it to apply to a court of equity for a receiver to wind up its affairs, in order to prevent one creditor from acquiring by suit a preference over others ; the court saying, that a receiver might be appointed at the instance of a creditor, but not at the instance of an insolvent debtor.' § 433. It is said very generally in older cases, that a corpo- ration cannot validly surrender its franchises unless the state accepts them. " Charters are in many of fran- respects compacts between the government and the ''*^^^®^- corporators. As the former cannot deprive the latter of their franchises in violation of the compact, so the latter cannot put an end to the compact without the consent of the former. It is equally obligatory on both parties. The surrender of a charter Compare Matter of Jackson Marine Ins. Co., 4 Sand. Ch. (N. Y.) 559 ; Conro V. Gray, 4 How. Pr. (N. Y.) 166 ; Troy and Rutland R. R. Co. v. Kerr, 17 Barb. 581. A railroad com- pany is not dissolved by a sale of its road. State v. Rives, 5 Ired. L. (N. C.) 297. 'Moseby v. Burrow, 52 Tex. 396; Shenandoah Valley R. R. Co. v. Griffith, 76 Va. 913. Cases in the following notes. • ^ Valley Bank v. Sewing Society, • 28 Kan. 423. A national bank in voluntary liquidation under § 5220 of the U. S. Rev. Stat, is not thereby dis- solved as a corporation, but may sue and be sued by name for the purpose of settling disputed claims against its assets, even though the plaintiflf may have filed a creditor's bill to enforce the individual liability of shareholders. National Bank v. Insurance Co., 104 U. S. 54. ' Boston Glass Manufactory v. Lang- don, 24 Pick. 49 ; Town v. Bank of River Raisin, 2 Uougl. (Mich.) 530 ; De Camp v. Alward, 52 Ind. 468; State V. Bank of Maryland, 6 G. & J. 205. * Kincaid v. Dwinelle, 59 N. Y. 548 ; Lea v. American, etc. Canal Co., 3 Abb. Pr., N. S. (N. Y.), 1, 11 ; City Ins. Co. v. Commercial Bank, 68 111. 348 ; Bank of Bethel v. Pah- quioque Bank, 14 Wall. 383 ; Green V. Walkill Nat. B'k, 7 Hun, 63; Moseby v. Burrow, 52 Tex. 396 ; State V. Railroad Commissioners, 41 N. J. L. 235 ; Heath v. Missouri, etc. Ry. Co., 83 Mo. 617. CompareBellu. In- dianapolis, etc. R. R. Co., 53 Ind. 57 ; Indianapolis, etc. R. R. Co. v. Ray, 51 Ind. 269. ^ Hugh V. McRae, Chase's Dec. 466. See Kimball v. Goodburn, 32 Mich. 10; New York Marbled Iron Works V. Smith, 4 Duer (N. Y.), 362 . 383 § 434.J THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. can only be made by some formal act of the corporation ; and will be of no avail until accepted by the government. There must be the same agreement to dissolve that there was to form the compact. It is the acceptance which gives efficacy to the surrender. The dissolution of a corporation, it is said, extin- guishes all its debts. The power of dissolving itself by its own act would be a dangerous power, and one which cannot be sup- posed to exist."* It is also said that " the modes in which a surrender is to be made, and as to what facts constitute a sur- render, have been a fruitful subject of discussion in the courts of this country. In England, the surrender is by deed to the king, by whom corporations are usually created by charter. In this country, corporations are created by an act of the legisla- ture, and it would seem to follow, in the absence of any statute prescribing the mode in which a surrender is to be made, that to become available, it must be accepted by the authority which created the corporation.''^ § 434. The present applicability of the preceding citations to stock corporations is somewhat doubtful. Formerly, corpora- tions usually received special charters; but now stock corpora- tions at least are almost universally organized under general enabling acts. A mode of dissolution is ordinarily provided ; and if no such provision exists, the most experienced legal ad- viser might be puzzled to advise how an acceptance of the surrender of franchises could be brought about, unless by lob- bying a special bill through the legislature. Besides, the idea of the necessity of the aceeptanoe of a surrender of franchises on the part of the authority granting them, seems intimately connected with the old doctrine — now certainly a thing of the past — that on the dissolution Of a corporation all its debts Were extinguished. There seems to be no valid reason why an ordi- nary stock corporation, charged with the performance of no ' Boston Glass M'f y v. Langdon, v. Heard, 37 Ga. 401 ; Wilson v. Pro- 24 Pick. 49, 53. Accord, Town v. prietors, etc. 9 R. I. 590; Norris v. Bank of River Raisin, 2 Dougl. Mayor of Smithville, 1 Swan (Tenn.), (Mich.) 530, 538 ; La Grange, etc. R. 164 ; 2 Kent's Com., 311. R. Co. V. Rainey, 7 Coldw. (Tenn.) » Town v. Bank of River Raisin, 2 420, 438; Revere v. Boston Copper Dougl. (Mich.) 530, 538. Co., 16 Pick. 351 ; Mechanics' Bank 384 PART V.J DISSOLUTION. [§ 436. public duty, should not be allowed to close up its business at any time, and dissolve.* § 435. The consequences of a dissolution are both substantial and formal. The substantial consequences are that XI 1 • • 1 1 n -I 1 1 1 • Effect of a the business is wound up, and all the legal relations diseoiu- subsisting in respect of the corporate funds are liqui- *"'°' dated. The formal consequences are that the corporation can no longer act as such either before the courts or in business transactions.' Accordingly, the liquidation of its affairs will ordinarily have to be conducted by a receiver or other officer appointed for that purpose. After its dissolution the corporar tion can institute no suit, nor be made a party defendant ;' and all suits already brought by, or against it are abated.* And judgment cannot be entered against it.* § 436. It is the legislative policy of some states to prolong the existence of the corporation after the expiration of its char- ter, for the purpose of winding up its affairs, though not for the purpose of continuing its business.* Under such circum- stances, whether any given legal proceeding should be insti- ' If the rights of the public inter- vene, the state would seem at least to have the right to compel the corpora- tion to continue its business ; however impracticable the actual assertion of any such right might be. See §§ 454, 455, and State v. Western, etc. R. R. Co., 95 N. C. 602. 2 Saltmarsh v. Planters', etc. Bank, 17 Ala. 761. See § 504. ' Saltmarsh o. Planters', etc. Bank, 17 Ala. 761 ; City Ins. Co. v. Com- mercial Bank, 68 111. 348 ; Bank of La. V. Wilson, 19 La. Ann. 1 ; Mus- catine Turn Vereinr. Funck, 18 Iowa, 469 ; Miami Exporting Co. v. Gano, 13 Ohio, 269. See Cooper v. Oriental Savings Association, 100 Pa. St, 402. * National Bank v. Colby, 21 Wall. 609; Terry v. Merchants', etc. Bank, 66 Ga. 177 ; Greely v. Smith, 3 Story, 657 ; Merrill v. Suffolk Bank, 31 Me. 57; Ingraham v. Terry, 11 Humph. 25 (Tenn.) 572 ; Mumma u. Potomac Co., 8 Pet. 281 ; Farmers', etc. Bank V. Little, 8 W. & S. (Pa.) 207 ; Bank of Miss. V. Wrenn, 3 Sm. & M. (Miss.) 791 ; May v. State Bank, 2 Rob. (Va.) 56 ; Thornton v. Mar- ginal Freight R'y Co., 123 Mass. 32 ; McCulloch». Norwood, 58 N. Y. 566 ; compare Piatt v. Archer, 9 Blatchf. 559 ; Fisk v. Union Pac. R. R. Co., 10 Blatchf. 518. Contra, Lindell v. Benton, 6 Mo. 361. 5 Dobson V. Simonton, 86 N. C. 492. See cases in last note. Where the answer shows that the plaintiff was a corporation at the date of the con- tract sued on, the fact of its subse- quent dissolution will not avail to re- verse a judgment in its favor. Kan- sas City Hotel Co. v. Sauer, 65 Mo. 279. ^ See Life Ass'n of America v. Fas- sett, 102 111. 315 ; St. Louis, etc. Coal, 385 § 437.] THE LAW OF PRIVATE CORPOEATIONS. [CHAP. VII. tuted in the corporate name, or in the name of a receiver or of trustees appointed to wind up the corporate affiairs, depends on the statutory provisions.* § 437. In regard to the substantial effects of a dissolution, clearly the common law rule that upon the dissolution of a cor- poration, its real estate reverts to the grantor, its personal prop- erty to the sovereign, and all debts due from and to it become extinguished,^ has no longer any application to stock corpora- tions. And that it has no application is the combined result of statutes and equitable principles.* On the dissolution of a stock corporation its assets become a trust fund for the dis- charge of its liabilities, including those not yet matured,^ and the surplus belongs to the shareholders.' Equity will always furnish a means by which debts due a corporation can be col- ■ lected after its dissolution, for the benefit of parties interested, creditors or shareholders," and in equity the general assignee of a defunct corporation can collect its claims.' etc. Co. V. Sandoval Coal Co., Ill 111. 32 ; Folger v. Chase, 18 Pick. 63 ; Herron v. Vance, 1 7 Ind. 695 ; Tus- caloosa Scientific, etc. Ass'n u. Green, 48 Ala. 346. ' See Mariners' Bank v. Sewall, 50 Me. 220 ; Blake v. Portsmouth, etc. R. E,. Co., 39 N. H. 435 ; Tuscaloosa, etc. Ass'n v. Green, 48 Ala. 346 ; Re Independent Ins. Co., 1 Holmes, 103; VonGlahn v. De Rosset, 81 N. C.467; Muscatine Turn Verein v. Funck, 18 Iowa, 469; Pomeroy's Lessee «. State Bank, 1 Wall. 23 ; Lothrop v. Sted- man, 13 Blatchf. 134, 143; Owen v. Smith, 31 Barb. 641 ; Heath v. Bar- more, 50 N. Y. 302'; Wright v. Nos- trand, 94 N. Y. 31 ; State v. Bank of Washington, 18 Ark. 554 ; Cooper v. Oriental Savings Association, 100 Pa. St. 402 ; Gray v. Lewis, 94 N. C. 392. ^ See Ang. and Ames on Corp. § 779 ; Life Ass'n of America v. Fas- sett, 102 111. 315. But this rule was applied in Commercial Bank v. Lock- wood, 2 Harr. (Del.) 8. 386 » See Owen v. Smith, 31 Barb. 641 ; Heath v. Barmore, 50 N. Y. 302; McCoy V. Farmer, 65 Mo. 244. * People V. National Trust Co., 82 N. Y. 283. The dissolution of a corpo- ration does not terminate a lease to it. lb. Compare People v. Flint, 64 Cal. 49. ^ Heman v. Britton, 88 Mo. 549. See St. Louis, etc. Coal, etc. Co. v. Sandoval Coal, etc. Co., 116 111. 170. * See Hightower v. Thornton, 8 Ga. 486 ; Curran v. State of Arkansas, 15 How. 304, 811; Von Glahn v. De Rosset, 81 N. C. 467. ' Lenox v. Roberts, 2 Wheat. 373 ; Lum V. Robertson, 6 Wall. 277. See Bacon v. Cohea, 12 Sm. & M. (Miss.) 516; compare Pox v. Horah, 1 Ired. Eq. (N. C.) 358 ; Asheville Division V. Aston, 92 N. C. 5,78. After payment of debts of thB cor- poration its surplus assets belong to the shareholders. Burrall v. Bush- wick R. R. Co., 75 N. Y. 211 ; Lum v. Robertson, supra, and see §§ 760, 751. CHAP. VIII.] CORPORATION AND STATE. CHAPTER VIII. RELATIONS BETWEEN THE STATE AND THE CORPORATION > INCLUDING RELATIONS BETWEEN THE STATE AND (a) SHAREHOLDERS, (6) OFFICERS, AND (c) CREDITORS OF THE CORPORATION. Dual nature of the constitution of a corporation, § 438. Austin's analysis of a law, § 439. Holland's and Kent's definitions, § 440. The term "command" misleading, §441. Definition of a "legal right," § 442. Definition of a " legal relation," §443. The manifestation of rules of law in legal relations, § 444. Legal effects of an act, § 445. The constitution of a corporation, in what respect a law, § 446. Notion of a contract. Two classes of acts, § 447. How the constitution of a corporation embodies a contract, § 448. Acceptance necessary on the part of the corporators, § 449. Contract between the state and the corporation, § 450. Enabling acts and special charters, §451. Two kinds of relations between the state and the corporation, § 452. A charter a contract : outline of the doctrine, § 453. Consideration moving to the state. Its rights. Mandamus, § 454. Railroads, § 455. Through acceptance of the charter on the part of the corporators the state acquires the right to enforce the ful- filment of the corporate duties. Absolute sovereignty, § 456. Right of the state to restrain an abuse of corporate powers. Forfeiture, §457. Judicial decree necessary, § 458. Grounds of forfeiture, § 459. Grounds of forfeiture not to be taken advantage of collaterally. Waiver, § 460. Rights of the corporation against the state arising from the contract, § 461. How enforceable, § 462. Limitations on the rights acquired by the corporation against the state through contract, § 463. Restrictions in state constitutions on state legislatures, § 464. Other restrictions on legislative powers,. §§ 465, 466. Corporations created by Congress, §467. Jurisdiction of the Federal courts, §468. ' Relations, that is to say, between the state and the organic body of share- holders controlling the corporate en- terprise, and representing all per^ns in any way interested in it. 387 § 438.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. Relations between tlie state and the corporation other than legal relations occasioned by contract, §§ 469-469i. Eminent domain. Restrictions, § 470. " Due process of law," §§ 471, 472. Just compensation, § 473. Police power, § 474. Police power. Commerce clause, §§ 474a-474rf. Police power. Its limits. Property in which the public have interest, §§ 475, 476. Elevator case. Railroad charges, §§ 476a, 476J. The taxing power, § 477. Double taxation, § 477a. Power of Congress, § 478. Power of states. Restrictions, §§479, 480. Restrictions on the power of the states to tax arising from the exigencies of the Federal government, § 481. Federal agencies, § 482. State taxation of national banks, §§ 483, 484. Restrictions on state taxation arising from the power of Congress to regu- late commerce, § 485. Telegraph companies, § 486. § 438. Chartered exemptions from taxation, §§487,488. Never arise by implication, § 489. Immunity from taxation not transfer- able, § 490. Effect of consolidation, § 491. Taxation, due process of law, §§ 492, 492a. Jurisdiction of equity to restrain the collection of a. tax, § 4926. Distinction between "rights" and "remedies," §§493-495. The power reserved to alter and repeal, §496. No vested right in a rule of law, § 497. Effect of the reservation of the right to alter and repeal on the contract between the corporators, § 498. Limits of the reserved power, 499. Illustration. Relations between share- holders and creditors, §§ 500, 501. Further limits on the reserve power, §502. When a judicial proceeding prerequi- site to the repeal, § 503. Effect of a repeal, § 504. Relations between' the state and the individuals interested in the corpo- rate enterprise, §§ 505-507. The constitution of a corporation is of a dual nature; it is law in that it consists of rules for conduct set by Dual na- .... . ,..,.„. -. ,- ture of the apolitical superior to political inferiors, and it embodies a contract the obligation of ■which is the self-same constitution regarded as law. The contract embodied in the constitution always subsists among the corpo- rators as parties thereto, and it may subsist between the corpo- ration and the state, for the state is sometimes a party to it.' constitu- tion of a corpora- tion. ' " A charter is a law, but it is also something more than law, in that it contains stipulations which are terms of compact between the state as the one party, and the corporators as the other, which neither party is at liberty to disregard or repudiate, and which 388 are as much removed from the modify- ing and controlling power of legislatign as would be the contracts of private parties." Flint, etc. Plank Road Co. V. WoodhuU, 25 Mich. 99, 101, per Cooley, J . CHAP. Vlir.J CORPORATION AND STATE. [§ 439. On account of the dual nature of the constitution of a corpo- ration it will be necessary, in order to analyze the relations between the state and the corporation, to determine in what respect this constitution, besides being law, is to be regarded as a contract. To this determination accurate notions of law and contract are prerequisite. § 439, "Every law," says Austin,* "or rule is a command. ... Or rather laws or rules properly so called are a j^ustm's species of commands." Analyzing the nature of a analysis of command, he proceeds : " If you express or intimate a wish that I shall do or forbear to do some act, and if you will visit me w^ith some evil in case I comply not with your wish, the expression or intimation of your wish is a command. . . . The ideas then comprehended by the term command are the following : 1. A wish or desire conceived by a rational being that another rational being shall do or forbear ; 2. An evil to proceed from the former and to be incurred by the latter, in case the latter comply not with the wish ; 3. An expression or in- timation of the wish by words or other signs." Then, continues Austin, when a command " obliges generally to acts or forbear- ances of a class, a command is a law or rule. ... A law properly so called is therefore a command which obliges a per- son or persons, and as distinguished from a particular or occa- sional command, obliges generally to acts or forbearances of a class. . . . Laws and other commands are said to proceed from superiors, and to bind or oblige inferiors, ... the term supe- riority here signifies might." In another part of the same work, Austin, analyzing the nature of sovereignty, says : " Every positive law, or every law simply and strictly so called, is set by a sovereign person or a sovereign body of persons, to the member or members of the independent political society wherein that person or body is sovereign or supreme. . . . The superiority which is styled sovereignty, and the independent political society which sove- reignty implies, is distinguished from other superiority, and from other society by the following marks or characters : 1. The bulk of the given society are in the habit of obedience or ' Province of Jurisprudence. Lecture I. 389 § 441.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. submission to a determinate or common superior, let that com- mon superior be a certain individual person, or a certain body or aggregate of individual persons. 2. That certain individual or the certain body of individuals is not in the habit of obedience to a determinate human superior."' § 440. So far Austin. A later and acute writer. Professor Holland's Holland, gives the following definition of law : " A and Kent's law in the proper sense of the term is a general rule of human action taking cognizance only of external acts, enforced by a determinate authority, which authority is human, and among human authorities is that which is para- mount in a political society. More briefly, a general rule of external human action enforced by a sovereign political au- thority."^ And, finally, the definition given by Kent is this: " Municipal law is a rule of civil conduct prescribed by the supreme power of the state."* In one respect, perhaps, these various definitions may be found fault with. It may be said that they are not universally and historically correct, i. e., that they correspond only to the conception of law,' current among those nations of the Aryan race who have developed their institutions under the influence of the Roman law.* But this objection amounts to little, as any definition of law not so vague as to be useless would be obnoxious to it ; and for the present purpose the objection has no force, as we are only cbncerned with law as conceived to-day in America and England. § 441. Austin's definition of a law, however, as a " command which obliges a person, or persons, to acts or forbear- The term r i » i -i i "com- ances or a class, while, perhaps, unexceptionable "adkig!"'^' when limited in its application to Roman and modern European and American notions of law, and when understood as Austin meant it, is, nevertheless, in respect of laws which manifest themselves in civil rights, somewhat mis- leading. Holland, as we have seen, calls a law "a general rule of external human action enforced by a sovereign political au- ' Province of Jurisprudence. Lee-' ' 1 Com. 507. ture VI. * See Maine's Early History of In- ' System of Jurisprudence, 2d ed., stitutions, chaps. 12 and 18. p. 34. 390 CHAP. VIII.] CORPORATION AND STATE. [§ 442. thority," a definition which resembles Kent's definition of mu- nicipal law as " a rule of civil conduct prescribed by the supreme power of a state.'" If we look closely into Austin's use of the term " command" it will appear that he means by it very much what Holland and Kent mean by the term " rule." But the term " command," except as applied to criminal law, is mislead- ing in this respect, that a law which manifests itself in civil rights and liabilities is not an absolute or unconditional com- mand to do or refrain ; but its effect is merely to enable some one with the aid of the state to compel some one else to do or refrain. Within the field of criminal law it is eminently proper to call a law a command ; for a criminal law — " thou shalt not kill" — is a command pure and simple, sanctioned or enforced by its giver of hiS own motion, and not at the request of some in- dividual. But a civil law creates rights just as much as it im- poses obligations,^ and consequently to regard such, a law as a command is seeing but one side of it. § 442. As Austin says, " Every legal right is the creature of a positive law ; and it answers to a relative duty im- ^ „ . . posed by that positive law, and incumbent on a per- of a "legal son or persons, other than the person or persons in whom the right resides. To every legal right there are, there- fore, three several parties ; namely, a party bearing the right, a party burdened with the relative duty, and a sovereign government setting the law through which the right and the duty are respectively conferred and imposed."* " We may define a legal right," says Holland very clearly, " as* a capacity residing in one man of controlling with the assent and assistance of the state the actions of others. That which gives validity to a ' Holland says, a law is a rule en- proper sense prescribed by the state. forced by the sovereign, while Kent The state recognizes them, sanctions says, it is prescribed by the sovereign, them, i. e., enforces them; as it also Holland's phrase seems preferable, as enforces rules which by legislation it laws may not always, with propriety, properly speaking prescribes, be said to be prescribed by the sove- ^ Or, as I prefer to say, a civil law reign, unless the word "prescribed" is manifests itself in rights and liabilities, used in the sense of recognized ; which i. e., in legal relations. See § 24. is improper. Rul«s of the common ' Province of Jurisprudence. Lec- law, grown up as they have from cus- ture VI. torn, hare been recognized, but in no 391 § 444.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. legal right is in every case the force which is lent it by the state. Anything else may be the occasion, but it is not the cause of its obligatory character."' And Austin says again : " A party has a right when another, or others, are bound or obliged by the law to do or forbear towards or in regard to him."* § 443. A right then, with its corresponding duty or liability, Definition constitutes a legal relation, which, as it was attempt- ofaj'ie^ai ed to show before,' rather than a "creature" may properly be called a concrete instance or manifestation of law, subsisting between persons as to whom correlated con- ditions of fact are predicable. . § 444. How do rules of law manifest themselves in legal re- „, . lations ? Let us illustrate. The following, roughly J The mam- ^ ■ festation of speaking, are rules of law: " to constitute a binding in legal re- agreement there must be a consideration ;" " a contract lations. £^j. ^j^g g^jg ^£ chattels at a price exceeding fifty dol- lars must be in writing." The two rules may be combined into the following proposition : a written agreement to sell, for which there is a consideration, as for instance an agreement to buy, the state will enforce at the request of either party.* This compound rule of law manifests itself in legal relations between A. and B. as soon as the following correlated conditions of fact are predicable of them : that A. has agreed with B. to sell certain chattels to B. for a specified price (over $50) ; that B. has agreed with A. to buy those chattels of A. at that price: ' Jurisprudence, second ed. p. 62. perhaps, hard to see how a right in * "Pervading Notions Analyzed." personam can be a " permission to ex- Another writer, viewing a right more ercise certain natural powers." The exclusively from the standpoint of the author seems rather to have in view possessor of it, says : " A legal right is rights in rem . nothing but a permission to exercise ' See § 24, note, certain natural powers, and upon cer- " For simplicity's sake all reference tain conditions to obtain protection, as to how the state will enforce the restitution, or compensation by the aid agreement, as by awarding damages or of the public force. Just so far as the specific performance, is omitted ; as is aid of the public force is given a man, also omitted reference to conditions he has a legal right, and this right is precedent, which either party may the same whether his claim is founded have to perform before he can compel in righteousness or iniquity." Holmes, the other to perform. "The Common Law," p. 214. It is, 392 CHAP. VIII.] CORPORATION AND STATE. [§ 446. and that this mutual agreement has been put in writing. With reference to its operation on A. and B. this rule may now be expressed thus : A. having agreed to sell to B., and B. having agreed to buy of A. certain goods for a certain price, and this agreement having been put in writing, at the instance of either party, the state will compel the other to perform as agreed. The last proposition may be separated into the follow- ing propositions expressing the rights and liabilities — the legal relations — between A. and B., in which the general rule of law before stated has manifested itself. A.'s right is with the aid of the state to compel B. {i. e., A. can compel B.) to pay the price agreed on, and B.'s corresponding liability is to pay that price, A.'s right and B.'s liability constituting a legal relation between them. On the other hand, B.'s right is with the aid of the state to compel A. to deliver the chattels: and A.'s liability is to de- liver them ; B.'s right and A.'s liability again constituting a legal relation between them. § 445. It thus appears that rules of law which manifest themselves in private or civil rights and liabilities, are no unconditional commands from the state ; the of f^ a^ct!''' state merely standing ready to aid the person possess- ing the right. And it appears, moreover, that the only legal eflEect of an act (except in criminal or public law) is to bring the actor within the operation of rules of law, which thereupon manifest themselves in legal relations between the actor, and other persons affected by the act.' § 446. As a conclusion of the foregoing remarks, a definition of law adequate for the purposes of this chapter may be submitted. A law is a rule for conduct which tution°ofa" manifests itself in a right and a liability — a legal rela- l°^^°l^' tion — between persons of whom correlated conditions what re- of facts are predicable, and is enforced by the state at the instance of the person in whose favor it has manifested itself in a right. And, in accordance with this definition, the constitution of a corporation may be said to be law, or to con- ' As to the legal effect of acts, see entitled, " Rechtsnorm und Subjec- HoUand's Jurisprudence, 2d ed., tives Recht," chap. 1. "Die Norm chap. 12; and an interesting discus- und die Rechtsfolgen ihrer Uebertre- sion in a work by Dr. August Thon, tung." 393 § 448.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. sist of rules of law, in so far as it is a rule, or consists of rules, for conduct manifesting itself orthemselves in legal relations between persons of whom correlated conditions of fact are predicable. § 447. It remains to determine on some proper notion of a Notion of contract, which shall be consistent with the notion aeon- reached of law. For the present purpose, all acts classes of may be divided into two classes : (a) acts whose effect ^''*^' is to bring the actors within the operation of rules of law, which thereupon manifest themselves in legal relations; acts, in other words, which occasion (not cause) legal relations ; (b) all other acts. Acts of the first clk.ss may be called acts having legal effect. I^ow many acts which have legal effect are not done for the purpose of occasioning legal relations. For instance, if A. strikes B., A.'s object is not to occasion legal relations between them, but, nevertheless, such is the result of the blow, for B. thereby acquires a cause of action against A. Certain acts on the other hand are done with the immediate purpose of occa- sioning legal relations. Of these latter acts the chief variety* are called contracts, which are acts whereby the parties express their intention of occasioning legal relations between them. If the contract is what is called valid or binding, it effectuates the expressed intention of the parties, in that it occasions the legal relations which the parties expressed their intention to occasion. By the contract the parties have brought themselves within the operation of rules of law, which at the moment of the ex- ecution of the contract manifest themselves in the presumably desired legal relations.^ § 448. Now may be explained what was meant at the begin- ning of this chapter by saying that the constitution constitu- of a corporation, besides being the group of legal con)ora- ^^^^^ which manifest themselves in legal relations in tion em- respect of the corporate enterprise, alwavs embodies bodies a , . \.i ^ ■, contract, a contract among the corporators, and sometimes a contract between the corporation and the state. To 1 A tort may be committed in order in order to acquire by user a right of to occasion legal relations ; as when way. one man trespasses on another's land * An invalid contract, taken by itself, is not an act having legal effect. 394 CHAP. VIII.] CORPORATION AND STATE. [§ 449. say that it embodies a contract between the corporators means that it embodies the terms of an agreement whereby the parties have expressed their intention of occasioning legal relations which are manifestations of the rules of law composing the very constitution which embodies the contract. The rule of law which ordinarily manifests itself' in legal relations upon the making of a valid contract, is simply that each contracting party may compel the others to perform their parts according to the intent and meaning of the agreement. But in this par- ticular contract that causes incorporation, the terms through incorporation become themselves rules of law ; and thus the constitution of a corporation embodies the expression of the intention of parties which causes these rules to operate. Further, to say that the state, from which emanate most of the rules of law composing the constitution, is a party to the agreement which the constitution embodies, means that the state has done an act whereby it has expressed its intention to bring itself within the operation of some law superior to itself, which thereupon manifests itself in legal relations between the state and the corporation, legal relations which the state cannot alter at its will,' since they are the manifestations of law superior to itself. That paramount law is expressed in the Constitution ot the United States. § 449. The constitution of a corporation is law which the state could not impose on the corporators without Acceptance their consent, and this because of certain restrictions necessary ..,_-,, .on the part on the power of a state contained in the J^ ederai of the cor- Constitution or existing in the common law.^ By P''™'°''^- 1 See Danolds v. State of New drawn before acceptance. State v. York, 89 N. Y. 36. Dawson, 16 Ind. 40; Riddle v. Pro- 2 See § 456, and note, in the present prietors, 7 Mass. 169, 184; Ellis v. chapter. The king could not incorpo- Marshall, 2 Mass. 269, 277 ; Smith v. rate a body of men, except as a muni- Silver Valley M'g Co., 64'Md. 86, cipal corporation, without their con- . But it is not necessary to show a written sent. See Rex v. Passmore, 3 T. R. instrument, or even a note of accept- 199,240. A charter must be accepted ance. Acceptance may be inferred before incorporation can take place, from the exercise of corporate powers A grant of a charter to those who have under the act; e. g., the election of not applied for it is but an offer on the officers, the holding of meetings, the part of the state, which may be with- adoption of by-laws, etc. Acceptance 395 450.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. accepting a charter the corporators subject themselves to duties, which, without their consent, the state could not have imposed upon them. Accordingly, the grant and acceptance of a charter are held to constitute an act whereby the actors have expressed their intention to occasion legal relations between them ; that is to say, a contract has been made to which the state is a -party. § 450. The state cannot alter any of its laws so as to affect legal relations in which the law has already manifested itself, by directors acquiesced in by the cor- poration is sufficient. Bank of United States V. Dandridge, 12 Wheat. 64, 71 ; Mutual Fire Ins. Co. v. Stokes, 9 Phila. (Penn.) 80; Trustees of School District v. Gibbs, 2 Cush. (Mass.) 39 ; Androscoggin Bridge v. Bragg, 1 1 N. H. 102: Sumrall v. Sun Mutual Ins. Co., 40 Mo. 27; Augusta M'fg Co. V. Vertrees, 4 Lea (Tenn.), 75. See State V. Dawson, 22 Ind. 272. Slight irregularities in mode of acceptance by directors, when by the charter they have power to accept an amendment, do not vitiate the acceptance. Dead- erick v. Wilson, 8 Bax. (Tenn.) 108, 126. So no formal acceptance of an amendment or of an act conferring new franchises need be shown. Bangor, Oldtown, and M. K. R. Co. v. Smith, 47 Me. 34; Wetumpka and Coosa R. R. Co. V. Bingham, 5 Ala. 657 ; Illi- nois River R. R. Co. v. Zimmer, 20 111. 654 ; Palfrey u. Paulding, 7 La. Ann. 363 ; Lyons v. Orange, etc. R. R. Co., 32 Md. 18; Cincinnati, Ham- ilton, etc. R. R. Co. V. Cole, 29 Ohio St. 126. See Vermont and C. R. R. Co. V. Vermont Central R. R. Co., 34 Vt. 2, 49, where the action of a stock- holders' meeting in making contracts authorized by the amendment, no one objecting, was held an acceptance of it. But see State v. Accommodation 396 Bank, 26 La. Ann. 288 ; Common- wealth V. CuUen, 13 Pa. St. 133. But a resolution to accept an amendment does not constitute an acceptance, un- less it purport to accept uncondition- ally. MuUoy V. Nashville and Deca- tur R. R. Co., 8 Lea (Tenn.), 427. A corporation already in existence may receive a new charter without relin- quishing its old one, and may act partly under the new and partly the old charter. Woodfork v. Union Bank, 3 Coldw. (Tenn.) 488. Statutes may provide that upon the acceptance by existing corporations of their pro- visions, such corporations shall be held to have abandoned rights under their charters inconsistent with such statutes. Such acceptance need not be formal, but may be inferred from action in ac- cordance with the provisions of such statutes. Cincinnati, H. and D. R. R. Co. V. Cole, 29 O. St. 126. A cor- poration is not estopped by the acts of individual officers or members in pro- curing legislation ; when it does not appear that they had authority to pro- cure such legislation or that the corpo- ration had accepted it. Mississippi, etc. Boom Co. v. Prince, 34 Minn. 79. Compare Baker's Appeal, 109 Pa. St. 461. As to surrender of franchises, see §§ 433, 434. CHAP. VIII.] CORPORATION AND STATE. [§ 450. for such alteration would be unconstitutional, in that it would impair the obligation of a contract," or at least de- contract prive some one of his " vested rights." Therefore, between the state cannot alter the constitution of a corpora- andtbecor- tion regarded simply as law, so as to affect any legal p°™"°°- relations in which it has manifested itself ^ But as to the cor- porators, the state cannot alter this constitution so as to affect legal relations not yet arisen, because on the accepting of the charter by the corporators the state is held impliedly to agree that it will not alter the charter as a law, and this implied agreement is the contract between the state and the corpora- tion. Thus, the corporation acquires a right under the pro- tection of the Federal Constitution, that the rules of law in its own constitution shall remain unaltered ; i. e., it acquires the right that acts in respect of the corporate enterprise, which bring the actors under the operation of rules of law contained in the constitution of the corporation, shall continue to have that effect ; shall continue to bring the actors within the opera- ^ E. g. A state law passed after providihg that no tax shall be levied the execution of a mortgage, which for certain state railway aid bonds, declares that the equitable estate of already negotiated, until the law levy- the mortgagee shall not be extinguished ing the tax be submitted to a vote of for twelve months after a sale under a the people, and be adopted by a ma- decree of chancery, and which prevents jority of those voting, is void, as im- any sale unless two-thirds of the amount pairing the obligation of a contract, at which the property has been valued State v. Young, 29 Minn. 474. But a by appraisers shall be bid therefor, im- retroactive act validating contracts does pairs the obligation of a contract and not impair the obligation of them, is void. Bronson v. Kinzie, 1 How. Canal Co. v. Vallette, 21 How. 414 ; 311 ; ace. McCracken v. Hayward, 2 Gross v. United States Mortgage Co., How. 608 ; compare Curtis v. Whit- 108 U. S. 477 ; see § 325. Thus, a ney, 13 Wall. 68; Connecticut Mut. statute which, by repealing a usury Life Ins. Co. v. Cushman, 108 U. S. law, validates a voidable contract, is 51. A contract between a state and a constitutional. Ewell v. Daggs, 108 party whereby he is to perform certain U. S. 14?. duties for a specific period for a stipu- ' E. g. The state could not abolish lated compensation, is within the pro- the personal liability of shareholders tection of the Federal Constitution, for corporate indebtedness so as to Hall V. Wisconsin, 1 03 U. S. 6 ; see affect legal relations already subsist- Davis V. Gray, 16 Wall. 203 ; Chicago, ing between them and creditors of the etc. E'y Co. v. United States, 104 U. corporation. Hawthorne v. Calef, 2 S. 680. A constitutional amendment Wall. 10. 397 § 450.] THE LAW OF PKIVATB CORPORATIONS. [OHAP. VIII. tion of those same rules of law and occasion the same legal relations. Much confusion seems to have arisen from the omission of courts and law-writers to specify more definitely what the con- tract between the corporation and the state really is. It is said that the charter of a corporation is a contract between the cor- poration and the state. But it is clear that the terms and pro- visions of the charter are not the terms and provisions of a contract between the state and the corporation in the sense in which the terms and provisions of a written agreement between A. and B. are the terms and provisions of a contract between them. Ordinarily in a charter or enabling act the state does not purport to contract with the corporation nor the corporation with the state. The terms and provisions of the charter or enabling act are rather rules of law which will manifest them- selves in legal relations among the corporators, and between them and other persons contracting in respect of the corporate enterprise. The agreement on the part of the state is that it will not alter or repeal these rules of law. Apply the ordinary definition of a (executory) contract — an agreement to do or not to do a particular thing — to a charter or enabling act, and it will appear that the state does not agree to do anything, except (impliedly) not to alter the charter or enabling act as a rule of law, and (impliedly) to enforce it as a rule of law. For instance, a statute authorizing the building of a toll-bridge over a navigable river by a corporation " with two suitable draws, which shall be at least thirty feet wide," was held to constitute when accepted a contract between the state and the corporation, which the state could not constitu- tionally alter by a subsequent statute requiring the corporation to maintain larger draws.' It is apparent that the contract in this case between the corporation and the state was simply that the state would not repeal or modify the former statute. To be sure a state may jnake other and further contracts with a corporation ; e.g., it may agree not-to permit a similar corpora- tion to establish itself near the former. One may well raise the question whether this implied con- ' Commonwealth v. New Bedford Bridge, 2 Gray, 339. 398 CHAP. VIII.] COKPOBATION AND STATE. [§ 451. tract not to alter the constitution of a corporation would be held to exist, did the matter arise as res nova in regard to a general enabling statute. If the right to repeal were not re- served, presumably, under the authority of past decisions, courts would hold that the statute could not be repealed or changed so as to affect the right of existing corporations to continue to carry on their business as under the statute. But would courts so hold in regard to a statute sanctioning limited partnerships ? Is there any implied contract between the state and a limited partnership any more than between the state and an ordinary firm? 1^0 citizen by acting under a statute any more than by acting under a rule of common law acquires a right that the statute shall remain unrepealed so that he may always act unr der it and be protected by its terms.* And why should there be held to exist an implied contract between the state and an ordinary business corporation a>ny more than between the state and a limited partnership 1 Still, who to-day is rash enough to hint that the decision in the Dartmouth College Case was based on the false analogy between a grant of a franchise (?". e., the passage of a special law), and the grant of property ? As Jus- tice Davis said in The Binghamton Bridge :^ " Courts to-day are estopped from questioning the doctrine of the Dartmouth College Case." § 451. That the constitution of a corporation is law is more appEM-ent in respect of corporations formed under general enabling statutes, while the characteristics of aJtt^and a contract appear more prominently where a special ^^J^^^^.^ charter is granted by the state to the corporators.' ' See Munn v. Illinois, 94 U. S. franchises. Colton v. Mississippi, etc. 113, opinion of Waite, C. J. Boom Co., 22 Minn. 372; or from 2 3 Wall. 51, 73. altering the charter of an existing cor- ' A number of state constitutions poration. Attorney-General v. North prohibit the passage of special acts America Life Ins. Co., 82 N. Y. 172; conferring corporate franchises. See St..^Paul Fire, etc. Ins. Co. v. AUis, Atkinson u. Marietta, etc. R. R. Co., 24 Minn. 75; or from changing the 15 O. St. 21 ; School District v. In- name of a corporation. Wallace v. surance Co., 103 U. S. 707. But it Loomis, 97' U. S. 146. Compare is held such a prohibition does not Southern Pac. R. R. Co. v. Orton, 6 prevent a legislature from extending Sawyer, 157, 186. by special act the duration of corporate 399 § 452.] THE LAW OF PKIVATE CORPORATIONS. [CHAP. VIII. The differences between an enabling statute and' a charter are, however, mainly differences in form.' A charter as well as an enabling statute prescribes rules for conduct ; the difference be- ing that these rules in the case of a charter have a more limited application. And an enabling statute, as well as a charter, proffers terms and facilities of action which are accepted by the corporators by filing their articles of association ; only in the case of an enabling statute the terms are offered to the citizens of the state at large, any sufficient number of whom may ac- cept them and incorporate themselves by complying with them." § 452. Accordingly, the constitution of a corporation being of a dual nature — a law embodying a contract — it follows that the relations between the state and the corporation are of two kinds : {a) relations such as exist between the lawgiver and the citizen, and (6) legal relations occasioned by contract.* It will be conve- nient to discuss the latter first. Two kinds of relations between the state and a cor- poration. ' Except that enabling statutes are almost universally subject to altera- tion and repeal, through express reser- vation of that power by the state; ■while many charters exist wherein that power is not reserved. ' A substantial compliance with the terms of an enabling act is necessary to form a corporation thereunder ; e. g., the filing of the certificate is es- sential. Stowe V. Flagg, 72 111. 397 ; Bigelow V. Gregory, 73111. 197 ; Har- ris V. McGregor, 29 Cal. 124. And the articles of association must comply with the statute ; see Reed v. Rich- mond St. E. R., 50 Ind. 342 ; People V. Selfridge, 62 Cal. 331; State v. Central Ohio Relief Ass'n, 29 O. St. 399. Compare In re Spring Valley Water Works, 17 Cal. 132; Eastern Plank Road Co. v. Vaughan, 14 N. Y. 646; Mokelumne Hill M'g Co. i. Woodbury, 14 Cal. 424, and §§ 148, 739. ' Legal relations occasioned by con- 400 tract may subsist between the law- giver and the citizen. " The govern- ment sustains two distinct relations to the railroad company, and in consider- ing her rights under this statute it is important to keep them separate. The company is organized under, and owes its corporate existence to, an act of Congress. The government has all the rights which belong to any other gov- ernment as a sovereign, and legislative power over this creature of that power. That this power should not be too much crippled by the doctrine that a charter is a contract, the eighteenth section declares that Congress may at arty time, having due regard to the rights of the companies named therein, add to, alter, amend, or repeal the act. The power of Congress, therefore, in its sovereign and legislative capacity over this corporation is very great. The government, however, holds an- other very important relation, namely, that of contract. It has loaned to the CHAP. VIII. J CORPORATION AND STATE. [§ 453. § 453. That a grant from a state is a contract within the pur- view of Article I. section 10 of the Federal Consti- ^^,^^61 tution was decided by Fletcher v. Peck;' that the contract, charter of a corporation is a grant and therefore a the doc- contract, was decided by Dai-traouth College v. Wood. *''™^" ward f and that in respect of the constitutional provision against company twenty-seven million dollars, and granted it on certain terms many million acres." United States v. Union Pacific R. R. Co., 98 U. S. 569, 613. It is to be noticed, however, that the contractual relations referred to in this extract arose from a loan by the gov- ernment to the company. ' 6 Cranch, 87. "Is the power of the legislature competent to the anni- hilation of such title, and to the re- sumption of the property held ? The principle asserted is that one legisla- ture is competent to repeal any act which a former legislature was compe- tent to pass, and that one legislature cannot abridge the powers of a succeed- ing legislature. The correctness of this principle, so far as affects general legislation, can never be controverted. But if an act be done under a law, a succeeding legislature cannot undo it. The past cannot be recalled by the most absolute power. Conveyances have been made, those conveyances have vested legal estates, and if those estates may be seized by the sovereign authority, still that they originally vested is a fact, and cannot cease to be a fact. " When, then, a law is in its nature a contract, when absolute rights have vested under that contract, a repeal of that law cannot divest those rights ; and the act of annulling them, if legit- imate, is rendered so by a power ap- plicable to the case of every individual in the community. . . . 26 "What is a contract ? Is a grant a contract? A contract is a compact between two or more parties, and is either executory or executed. An executory contract is one in which a party binds himself to do or not to do a particular thing ; such was the law under which the conveyance was made by the governor. A contract executed is one in which the object of contract is performed ; and this, says Black- stone, differs in nothing from a grant. The contract between Georgia and the purchasers was executed by the grant. A contract executed as well as execu- tory contains obligations binding on the parties. A grant in its own nature amounts to an extinguishment of the right of the grantor, and implies a contract not to reassert that right. A party is therefore always estopped by its own grant. Since then, in fact, a grant is a contract executed, the obli- gation of which still continues, and since the constitution uses the general term ' contracts,' without distinguish- ing between those which are executory and those which are executed, it must be construed to comprehend the latter as well as the former. ... It would be strange if a contract to convey was secured by the constitution, while an absolute conveyance remained unpro- tected." Marshall, C. J., 6 Cranch, 135-7. 2 4 Wheaton, 518. " The objects for which a corporation is created are uni- versally such as the government wishes 401 § 453.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. the enacting of a law by a state impairing the obHgation of con- tracts, the grant is to be construed strictly in favor of the state, and as giving no rights against the public by implication, was decided by The Charles Eiver Bridge v. the "Warren Bridge.' to promote. They are deemed bene- ficial to the country ; and this benefit constitutes the consideration, and in most cases the sole consideration of the grant." Marshall, C. J., 4 Wheaton, p. 637. " The opinion of the court, after mature deliberation, is, that this is a contract, the obligation of which cannot be impaired without violating the constitution of the United States. This opinion appears to us equally supported by reason and by the former decisions of this court." lb., p. 650. Accord, The Binghamton Bridge, 3 Wall. 51, where, at p. 73, Davis, J., says, giving the opinion of the court: "We have supposed, if any- thing was settled by an unbroken course of decisions in the Federal and state courts, it was that an act of incorpora- tion was a contract between the state and the stockholders." It would be a work of supererogation to cite cases in support of the above proposition. Still the following may be referred to : Planters' Bank v. Sharp, 6 How. 301 ; State Bank of Ohio v. Knoop, 16 How. 369; Bank of the State v. Bank of Cape Fear, 13 Ired. (N. C.) Law, 75; Jemison v. Planters' etc. Bank, 23 Ala. 168; Aurora, etc. Turnpike Co. V. Holthouse, 7 Ind. 59 ; Hamilton v. Keith, 5 Bush (Ky.), 458; Regents of the University of Maryland w. Williams, 9 Gill & J. 365 ; Norris v. Trustees of Abington Academy, 7 Gill & J. 7 ; Peo- ple V. Manhattan Co., 9 Wend. 351 ; Commonwealth v. CuUen, 13 Pa. St. 133;. State v. Noyes, 47 Me. 189. Contra, Mechanics and Traders' Bank V. Uebolt, 1 Ohio St. 591 ; Toledo 402 Bank v. Bond, ib. 622 ; Skelly v. Jefferson Branch Bank, 9 Ohio St. 606. The legislature may alter the charter with the assent of all the corporators, Smead v. Indianapolis, P. and C. R. R. Co., 11 Ind. 104. In construing the charter contract between the corporation and the state, reference is also to be had to existing statutes. Thus, a charter granted the franchise to construct a toll-bridge ; at the time, there existed a law forbidding the erection of one toll-bridge within three miles of another. Held, subse- quent legislation permitting another toll-bridge within three miles of the first was unconstitutional. Micou v. Tallassee Bridge Co., 47 Ala. 652; compare The Binghamton Bridge, 3 Wall. 51. '11 Peters, 420; see Hartford Bridge Co. v. Union Ferry Co., 29 Conn. 210 ; Fitch v. New Haven, New London, etc. R. R. Co., 30 Conn. 38; Mills V. St. Clair County, 8 How. 569 ; Fanning v. Gregoire, 16 How. 524; Shorter v. Smith, 9 Ga. 517; Collins u. Sherman, 31 Miss. 679 ; Ruggles V. Illinois, 108 U. S. 526 ; Lake v. Virginia, etc. R. R. Co., 7 Nev. 294. Where a state charters a turnpike company without expressly granting it any exclusive privileges, the state may constitutionally charter a railroad com- pany to run its road by the side of the turnpike, to the damage of the latter. Turnpike Co. v. The State, 3 Wall. 210 ; Lafayette Plank Road Co. v. New Albany, etc. R. R. Co., 18 Ind. 90 ; CHAP. VIII.] CORPORATION AND STATE. [§ 454i These three cases outline the constitutional doctrines on this subject. § 454. The consideration moving from the corporators to the state, is either the supposed public benefit which the state or people acquires from the acts which are to be tion mov- ' performed by the corporation ; or the acting upon the g°fj*° *jjg terms of the charter by the corporation. Thus, the rights. ., « 1. . „ Manaanms. state acquires the right to enforce the application of the corporate property to the attainment of the objects of in- corporation, at least in so far as the public is interested in their attainment. "There is an implied undertaking on the part of every corporation that it will render to the public, so far as it reasonably can, that service for which it was incorporated, and that it will not voluntarily disable itself to serve the purpose for which it was created."' And there is the further implied agreement on the part of the grantees to exercise their fran- chises within a reasonable time.^ Accordingly, a mandamus will issue at the suit of the people of the state to compel a rail- road company to operate its road' or to erect suitable stations,* or to build a drawbridge provided, for in its charter.* , 5 Bush V. Peru Bridge Co., 3 Ind. 21; graph Co; v. Connecticut Telephone Tuckahoe Canal Co. u. Tuckahoe R. R. Co., 49 Conn. 352 ;' Commonwealth Co.,. 11 Leigh (Va.), 42; compare v. Fitchburg R. R. Co., 12 Gray Micou V. Tallassee Bridge Co., ante; (Mass.), 180; Gates v. Boston, etc. similarly, to run alongside of a canal ; R R. Co., 63 Conn. 333 ; People's Illinois and M. Canal v. Chicago and Gaslight Co. v. Chicago Gaslight Co., R. I. R. R. Co., 14 111. 314, or one 20 111. App. 473. railroad to run parallel with a prior 2 Chincleclamouche Lumber Co. v. railroad between the same termini. Commonwealth, 100 Pa. St. 438. Connecting Ry. Co. u. Union Ry. Co., ' State v. Hartford and N. H. R. 108 111. 459. R. Co., 29 Conn. 538 ; see People v. The strict construction in favor of Albany and Vermont R. R. Co., 24 the state is especially exemplified in N. Y. 261. cases of granted immunity from taxa- * Railroad Commissioners u. Port- tion. See §§ 487-491 ; see Wiggins land and Oxford C. R. R. Co., 63 Me. Ferry Co. v. East St. Louis, 107 U. 269, where, at p. 278, Dickerson, J., S. 365. said, giving the opinion of the court : ' Kenton County Court v. Bank Lick " Railroad charters are contracts made Turnpike Co., 10 Bush (Ky.), 529, by the legislature on behalf of every 532. Compare American Rapid Tele- person interested- in anything to be » New Orleans M. and T. Ry. Co. v. Mississippi, 112 U. S. 12. 403 455.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. Bailroads. 455. In a recent ISTew York caBe,^ where the complaint alleged the failure of certain railroads to receive and transport freight (on account of a general freight handlers' strike), Chief Justice Davis said, giving the opinion of the court: "The question presented by this motion is one of signal importance. It is whether the people of the state can invoke the power of the courts to compel the exercise by rail- road companies of the most useful public functions with which they are clothed. ... As bodies corporate, their owner- ship may be, and usually is, altogether private, belonging to the holders of their capital stock, and their management may be vested in such officers or agents as the stockholders and directors under the provisions of law may appoint. In this sense they are to be regarded as trading or private corporations, having in view the profit or advantage of the corporators. But these considerations are in no just sense in conflict with their done under them. In consideration of the franchise they receive from the state, railroad companies agree to per- form certain duties towards the public. The power of determining those duties and enforcing their performance is vested in the appropriate tribunals of the state. Being creatures of the law, intrusted with the exercise of sovereign powers to subserve public necessities and uses, railroad companies are bound to conduct their affairs in furtherance of the public objects of their creation." But in People v. New York, L. E. and W. R. R Co., 104 N. Y. .58, the court refused a mandamus to compel a railroad company to erect a station. And a mandamus will issue at the suit of a private person to enforce a public duty not due to the government as such. Union Pacific R. R. Co. v. Hall, 91 U. S. 343, 355; People v. Manhattan Gas Light Co., 45 Barb. 136 ; State v. Telephone Co., 36 Ohio St. 296 ; State v. Dayton and South- eastern R. R. Co., 36 Ohio St. 434 ; 404 State V. Patcrson, Newark, and N. Y. R. R. Co., 43 N. J. Law, 605. Mandamus lies to compel a railroad company to deliver grain at a particular elevator. Chicago ane state to 1- 1-17 iTi • i restrain an perform, and in which the public have an interest, abuse of or does acts which it is not authorized or is forbidden po^er™*^ to do, the state may forfeit its franchises and dissolve Forfeiture. ' Letter to the Sheriffs of Bristol general the people may enjoin an at- on the affairs of America (1777). tempted illegal consolidation. People * The attorney-general may main- v. Boston, etc. Ry. Co., 12 Abb. N. tain an information in equity to re- C. (N. Y.) 230. The jurisdiction, strain a corporation possessing the however, of a court of equity is ques- right of eminent domain from any tionable, in the absence of special abuse or perversion of its powers that statutory enablement. See Pixley w. might create a public nuisance or en- Roanoke Nav. Co., 75 Va. 320; At- danger public interests. Attorney- torney-General v. Utica Ins. Co., 2 General v. Jamaica Pond Aqueduct, Johns. Ch. (N. Y.) 371. 133 Mass. 361. By their attorney- 409 § 458.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. the corporation by a, proceeding or information, in the nature of a quo warranto,'^ for a grant of corporate franchises is always subject to the implied condition that they will not be abused.' The proper officer to iile the information or make application for the writ is the attorney-general. In New York, for instance, the attorney-general may maintain an action upon his own in- formation, or upon the complaint or relation of a private person, against one or more persons who act as a corporation within the state without being duly incorporated ; or who exercise within the state any corporate rights, privileges, or franchises not granted to them by the law of the state.' § 458. It is a rule generally recognized, that a legislature can- Judicial ^^^ itself declare a forfeiture of the franchises of a decree corporation ; for a forfeiture should be enforced necessary. .,.., ,. _, .. through some judicial proceeding.* But, whereit is expressly provided in the charter of the corporation that unless certain things are done by the corporation within a certain time, the franchises of the corporation shall cease and become forfeited, it has been held that the legislature may declare its franchises forfeited on failure by the corporation to perform within the ' People V. Utica Insurance Co., 15 tify, and the state is bound to show .Johns. 358; People «. Pittsburgh K. nothing." Angell and Ames on Corp. R. Co., 53 Cal. 694 ; Golden Ruk v. § 756 ; State u., Vanderbilt, 37 0. St. People, 118 111. 492. "In its rela- 591. tions to the government, and when ' Chicago Life Ins. Co. v. Needles, the acts or neglects of a corporation, 113 U. S. 574. Compare Chincle- in violation of its charter or the gen- clamouehe Lumber Co, v. Common- eral law, become the subject of public wealth, 100 Pa. St. 438. inquiry with a view to a forfeiture of its ' Code of Civil Procedure, § 1948. charter, the wilful acts and neglects of It is competent for the legislature to its officers are regarded as the acts and confer on private parties the right to neglects of the corporation, and render institute proceedings to forfeit a char- the corporation liable to a judgment ter. State v. Consolidation Coal Co., or decree of dissolution." Angell and 46 Md. 1. Ames on Corp. § 310; see Bank * Bruffett k. Great Western R. R. Commissioners v. Bank of Buffalo, 6 Co., 25 111. 853 ; and a court of law is Paige, 497; Ward v. Sea Insurance the proper court to determine the ques- Co., 7 Paige, 294 ; Bank Commission- tion of the forfeiture. President, Man- ers V. James Bank, 9 Paige, 457. agers, etc. v. Trenton City Bridge Co., " To a writ of quo warranto, or an 13 N. J. Eq. 46 ; Attorney-General u. information in the nature of one, the Utica Ins. Co., 2 Johns. Ch. (N. Y.) defendant must either disclaim or jus- 871. 410 CHAP. VIII.] CORPORATION AND STATE. [§ 45^. time specified, and may grant them to another corporation.' Nevertheless, in accordance with the fundamental principles of our system of government, while it is the province of the legis- lature to make laws, it is the province of the courts to say whether the laws have been observed or violated ; and accord- ingly it would seem proper that a judicial tribunal should de- termine whether or not that condition of fact exists which the legislature has declared shall forfeit the franchises of a corpora- tion.^ § 459. "When a corporation is found guilty of acts which by statute are declared to be a cause of forfeiture of its franchises, a court has no discretion to refuse judgment forfSture"^ o'f ouster therefrom f but in other cases a court has discretion in the matter to refuse a judgment of ouster if in the opinion of the court the interests of the public do not call for it ;* for it is generally held that the state or the public should have some real interest in procuring a forfeiture of corporate franchises.' The following have been held grounds of forfeiture : a constant and wilful violation by a bank of the fundamental articles of its charter, by discouutihg paper at higher rates than 1 Oakland R. R. Co. v. Oakland, etc. ' State v. Building Association, 35 R. R. Co., 45 Cal. 365. See Matter .0. St. 258. of Brooklyn, Winfield, etc. R. R. Co., ■• State v. Building Association, 35 75 N. T. 335 ; Brooklyn Steam Ohio St. 258 ; State v. Essex Bank, 8 Transit Co. v. Brooklyn, 78 N. Y. Vt. 489. See People u. North Chicago 524; Farnsworth v. Minnesota and Ry. Co., 88 111. 537. Pacific R. R. Co., 92 U. S. i9 ; ^ Harris v. Mississippi Valley, etc. Mobile and O. R. R. Co. v. State, 29 R. R. Co., 51 Miss. 602 ; see King v. Ala. 573. Howell, Hardwicke's Cases, 235 ; Ib- " See Flint, etc. Plank Road Co. v. botson's Case, ib. 248 ; Attorney- WoodhuU, 2^ Mich. 99. A charter General b. Tudor Ice Co., 104 Mass. provided that unless a certain road was 239; People v. Bogart, 45 Cal. 73; begun and completed within specified Commonwealth v. Arrison, 15 S. & R. periods "this corporation shall cease 127; Commonwealths. Union Fire and and this act shall be void." It was Marine Ins. Co., 5 Mass. 230. Com- held that this was not intended to de- pare State v. Rio Grande R. R. Co., clare a forfeiture but a cause of for- 41 Tex. 217. As to when a, state has feiture, and that judicial action was such an interest as will entitle it to necessary. Vermont and C. R. R. move in the Federal courts against a Co. V. Vermont Central R. R. Co., 34 corporation, see State of Pennsylvania Vt. 2. "• Wheeling, etc. Bridge Co., 13 How. 518. 411 § 459.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. VIII. those prescribed ;• that the principal office of the corporation and its books and records are k^t out of the state, and that none of its general officers reside within the state ;^ a sale by a turnpike company of a portion of its road, and its neglect there- after to keep that portion in repair ;* non-compliance by a turn- pike company with the requirements of its act in regard to the construction of its road ;' an unauthorized assumption by an insurance company of banking privileges f and, in general, any substantial non-compliance on the part of a corporation, in re- spect of its organization, with the provisions of its enabling act.* The following have been held not to be grounds of forfeiture : insolvency of the corporation f the mere omission of a corporation to use its powers ;' that the corporation has obtained a charter from another state.' ' Commonwealth v. Commercial Bank, 28 Pa. St. 383 ; see Commer- cial Bank v. State of Mississippi, 14 Miss. 599. 2 State V. Milwaukee L. S. and W. E'y Co., 45 Wis. 579. * ' State V. Pawtuxet TurnkpikeCo., 8 R. I. 182. * People V, Kingston, etc. Turnpike Co., 23 Wend. 193; see People v. Fishkill, etc. Plank Road Co., 27 Barb. 445. ^ People V. Utica Ins Co., 15 Johns. 358. ' State V. Central Ohio Relief Asso- ciation, 29 Ohio St. 399 ; State v. Van- derbilt, 37 Ohio St. 591; State u. Hazleton, etc. Ry. Co., 40 O. St. 504 ; People v. Cheeseman, 7 Col. 376. Where the statute requires a specified amount to be subscribed for a railroad company, the subscription must be made in good faith by persons having a reasonable expectation of being able to pay ; or the state may forfeit the franchises, and is not con- cluded by the articles of incorporation filed, showing that the requisite amount 412 has been subscribed for. Holman v. State, 105 Ind. 569. ' Substantial compliance with condi- tions attached to a grant of corporate franchises is all that is necessary. Thus, where a corporation is required by statute to have paid up one-half its capital stock " in lawful money of the United States," it suffices if the cor- poration has received as payment prop- erty whose market value exceeds the par value of the stock. State v. Wood, 84 Mo. 378 (quare?). ' State V. Bailey, 16 Ind. 46 ; but see State v. Real Estate Bank, 5 Ark. 595 ; Commercial Bank of Natchez v. State, 6 Sm. & M. (Miss.) 617. * Attorney-General v. .Bank of Ni- agara, Hopkins Ch. (N. Y.) 354 ; see State V. BaiTon, 58 N. H. 870. 9 Commonwealth v. Pittsburgh and Connellsville R. R. Co., 58 Pa. St. 26. An unauthorized consolidation of two turnpike companies, entered into in good faith, but subsequently de- clared Void, is not a ground of forfeit- ure of the original charters; and the property reverts to the two original CHAP. VIII.] CORPORATION AND STATE. [§ 460. § 460. Grounds of forfeiture cannot be taken advantage of or enforced collaterally or incidentally, or in any other mode than by a direct proceeding for that purpose forfeiture against the corporation.^ And the state may waive teke'nadV a forfeiture by express legislation to that effect or by 'a°'age of legislation recognizing the existence of the corpora- rally. tion.^ But mere lapse of time is not a bar to the en- forcement of a forfeiture by the state.^ " Duties required by companies. State v. Crawfordsville T. P. Co., 102 Ind. 283; Crawfords- ville, etc. T. P. Co. V. State, ib. 435. ' Duke V. Cahawba Navigation Co. , 16 Ala. 372; Briggs v. Cape Cod Ship Canal Co., 137 Mass. 71 ; see Cowell V. Springs Co., 100 U. S. 55 ; Bacon v. Robertson, 18 How. 480 ; and cases in the following note. Ex- cept where the act or omission pro- duces in itself a forfeiture ; Brooklyn Steam Transit Co. v. Brooklyn, 78 N. Y. 524 ; and indeed this last is taking advantage of a forfeiture, not a ground of forfeiture. See, generally, §§ 145 et seq. ' Davis V. Gray, 16 Wall. -203; State V. Mississippi, etc. K. R. Co., 20 Ark. 495 ; People v. Manhattan Co., 9 Wend. 351 ; In re New York Elevated R. R. Co., 70 N. Y. 327 ; Central, etc. Road Co. v. People, 5 Col. 39, 46; People v. Ottawa Hy- draulic Co., 115 III. 281. A statute waiving a forfeiture of corporate rights confers no new rights upon the corpo- ration, but is simply a surrender or waiver by the sovereign of its right to claim the forfeiture. So a statute to extend the time within which corpo- rate rights may be exercised, gives no new substantial rights. In re New York Elevated R. R. Co., supra. Compare Matter of Brooklyn W., etc. R. R. Co., 75 N. Y. 335. Legisla- tive waiver of a forfeiture, by acts of recognition, cures defects in the origi- nal organization of the corporation. Bashor v. Dressel, 34 Md. 503 ; Ka- nawha Coal Co. V. Kanawha and Ohio Coal Co., 7 Blatchf. 391 ; see also Attoruey-General v. Petersburg, etc. R. R. Co., 6 Irted. L. 470; State v. Fourth N. H. Turnpike, 15 N. H. 162. ' State II. Pawtuxet Turnpike Co., 8 R. I. 521. This case may seem not to accord with the English cases, which hold that informations in the nature of a quo warranto cannot be maintained against a person who has enjoyed a corporate office or the privi- lege of being a corporator, for a num- ber of years, The number of years was first fixed at twenty, and subse- quently reduced to six. Winchelsea Causes, 4 Burr. 1962, 2022, 2121; Rex V. Dicken, 4 T. R. (Durn. & East), 282; Rex v. Peacock, ib. 684; but Lord Mansfield, who decided the Winchelsea Causes, intimated that this rule did not apply where the ac- tion was brought by the crown ; as he said: "Indeed no length of usurpa- tion shall affect the crown. Nullum tempus occurrit regi .... the crown may still bring a quo warranto." Rex V. Wardroper, 4 Burr. 1965. In regard to the questions under discussion in the last few pages, see generally the chapters in Angell and Ames on Corp. on "Mandamus" and 413 § 461.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. Eights of the corpo- ration againfit the state aris- ing from the eon- tract. the act of incorporation are in the nature of conditions annexed to the grant of the franchise. Such conditions may be prece- dent or subsequent, and like other conditions ma}' be released by the power granting, or a new grant may be made free from any limitation or condition by the same power. In accordance with well-settled rules, the intent to waive or release conditions, or to make a new grant, must be expressly declared or plainly to be inferred from some act of the granting power.'" § 461. On the other hand, what are the rights of the corpo- ration against the state, occasioned by the contract between them ? In brief, that the state shall pass no law changing the legal effect of acts in respect of the corporate enterprise; i. e., that the state shall not materially alter the constitution of the corporation (unless it has reserved the right to do so), except in As to necessary averments in the pleadings, see Territory v. Virginia Road Co., 2 Montana, 96 ; Chicago City Ry. Co. V. People, 73 111. 541 ; Attorney-General v. Chicago, etc. R. R. Co., 112 111. 520. When to a quo warranto a charter regular on its face is pleaded, it ia competent for the re- lator- to show by way of replication, that the charter has been forfeited by the act of the defendant, or that the charter does not confer upon the de- fendant the particular franchise in dis- pute. State of Ohio v, Pennsylvania and Ohio Canal Co., 23 Ohio St. 121 ; compare State v. Cincinnati, 23 Ohio St. 445. In proceedings for dissolu- tion of a railroad company and the forfeiture of its franchises, one who has taken «, lease of a portion of its road for the term of its corporate ex- istence, should be made a party (under the Code of Civil Procedure). Peor pie V. Albany and Vermont R. R. Co., 77 N. Y. 232. ' State V. Godwinsville, etc. Road Co., 44 N. J. L. 496, 499, opinion of Ct. per Magie, J. "Quo Warranto:" see also State v. Southern Pacific R. R. Co., 24 Tex. 80 ; Danville, etc. Plank Road Co. u. State, 16 Ind. 456; State u. Council Bluffs Perry Co., 11 Neb. 854; Peo- ple V. Improvement Co., 103 111. 491. An action in the nature of a quo war- ranto is in effect a civil not a criminal action. Ames v. Kansas, 111 U. S. 449. When the suit is brought for usurping powers not granted, it should be against the corporation and not against an officer. Smith ,v. The State, 21 Ark. 294. Quo warranto will not lie against the members of the corporation alone ; the corporation must be a party. State v. Taylor, 25 Ohio St. 280. As to the mode in which proceed- ings or informations in the nature of quo warranto are carried on, little of general value can be said here. It is a matter of practice, and usually of local or statutory practice When a statute declares how corporate fran- chises shall be forfeited, this super- sedes the common law mode. Green V. St. Albans Trust Co., 57 Vt. 340. 414 CHAP. VIII.] CORPORATION AND STATE. [§ 462. the exercise of powers which the state cannot alienate or restrict itself in the exercise of. To be sure, the corporation may have other rights against the state occasioned by contract, if the state makes any special contract with it ; as for instance that jthe corporate property shall be taxed only at a certain rate.' And this special contract may be so entered, into as to remain irrevocable by the state, although the state has reserved the general right to alter and repeal the enabling statute or charter of the corporation.^ But ordinarily the only contract between the state and the corporation is the implied one that the state will -not alter the corporate constitution. Of what law are these rights a manifestation ? The Consti- tution of the United States, and especially its provisions that no state shall pass a law impairing the obligation of contracts, nor shall deprive any one of his property without due process of law. Accordingly, the power sanctioning the rights of the corporation against the state differs from that whereby the • rights of the state against the corporation are enforced.' § 462. In what manner are the rights of the corporation against the state enforced? Here a peculiarity in this con- ' See §§ 488-491. So a special monopoly may be granted in such a way as to constitute a contract between the corporation and the state; e. g., an enactment by a state in incorpo- rating a company to build a toll bridge, that it should not be lawful for any person to erect any bridge within two miles of the said bridge, is an inviolable contract between the corporation and the state ; and this though the charter of the corporation is without limit as to duration. The Binghamton Bridge, 3 Wall. 51 ; Bridge Company v. Ho- boken Land and Improvement Co., 13 N. J. Eq. 81, affirmed under the name of Bridge Proprietors v. Hoboken Co., 1 Wall. 116. Compare, however, as to granting a special privilege to a cor- poration, Gordon v. Winchester Build- ing Ass'n, 12 Bush (K'y), 110. 2 See New Jersey v. Yard, 95 U. S. 104 ; and compare University v. People, 99 U. S. 309. ' These two powers differ at least m their immediate source, the one being the power of the state, the other the power of the United States. But ultimately these two powers may bfr^ come united ; for, if the power of a state is insufficient, it will be supported by that of the United States; and the power of the United States is but the power of the people of all the states. The states are part and parcel of a nation, of which the Federal government exercises some of the pow- ers. Compare License Cases, 5 How. 588 ; Ableman v. Booth, 21 How. 516; Tarble's Case, 13 Wall. 406; United States v. Cruikshank, 92 U. S. 542. 415 § 462.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. How en- forceable. tract is encountered; for these rights often can be enforced only negatively as it were ; and this on account of the inability of private individuals or incorporated bodies to sue a state or enforce a judgment against it.^ Accordingly, the corporation can defend its rights, not through a suit brought directly against the state, but by an action against any one acting, pursuant to the unconstitutional state law, in violation of the rights of the corporation. To such a person, whether acting as agent of the state, or as a private individual, the unconstitutional state law, being void, will be no protection. And a state officer may be enjoined from executing a state law in conflict with the Constitution or laws of the United States.^ A late decision in regard to the right of an individual to sue the officers and agents of the Federal government, is United States V. Lee.* There the defendants, making no claim as indi- ' Where a state provides for a suit against itself in its own courts, a sub- sequent statute nullifying such provi- sion cannot impair the obligation of a contract, because there never was any power to enforce such suit in the court, and so the provision was no remedy in the legal sense of the term. Railroad Co. v. Tennessee, 1 01 U. S. 387 ; Railroad Co. v. Alabama, 101 U. S. 832 ; see Beers v. Arkansas, 20 How. 627. And one state cannot sue another state in the United States Supreme Court when the former is merely the assignee, for the purposes of bringing suit, of debts owing by the latter state to citizens of the former state. New Hampshire v. Louisiana, 108 U. S. 76. A state, without its consent, cannot be sued by an individual ; and a court may not substitute its own discretion for that of executive officers in matters belonging to the proper jurisdiction of the latter. But when a plain official duty, requiring no exercise of discre- tion, is to be performed, and perform- ance is refused, any person who will 416 sustain personal injury by such refusal may have a mandamus to compel its performance; and when such duty is threatened to be violated by some positive official act, any person who will sustain personal injury thereby, for which adequate compensation can- not be had at law, may have an in- junction to prevent it. Board of Liquidation v. McComb, 92 U. S. 531 ; compare Louisiana v. Jumel, 107 U. S. 711, infra. A state Waives its immunity from suit by appearing and intervening as a party defendant in a suit brought in a Federal court. Clark v. Barnard, 108 U. S. 436. 2 Davis V. Gray, 16 Wall. 203. In this case the receiver of a railroad company restrained by injunction the governor and certain other officers of the state of Texas from issuing patents for lands which had been granted to the company. Davis v. Gray was questioned in Cunningham v. Macon and Brunswick R. R. Co., 109 U. S. 446. 3 106 U. S. 196. CHAP. VIII.] CORPORATION AND STATE. [§ 462. viduals, held as agents for the Federal government by a title arising from a defective tax sale, lands which the government had converted into a national cemetery. The defendants as- serted, and it was asserted by the attorney-general on behalf of the United States, that, though it had been ascertained by a verdict of a jury, in which was no error, that the plaintiff had the title to the land in controversy, and that what was set up on behalf of the United States was no title at all, the court could render no judgment in favor of the plaintiff against the defendants in the action, because the latter held the property as officers and agents of the United States, and the property was appropriated to lawful public uses. This proposition, say the majority of the court through Justice Miller, rests on the principle that the United States cannot be lawfully sued without its consent in any case, and that fao action can be maintained against any individual with- out such consent, where the judgment must depend on the right of the United States to property held by such persons as officers or agents for the government. "The first branch of this proposition is conceded to Toe the established law of this country and of this court at the present day ; the second, as a necessary or proper deduction from the first, is denied."* " The doctrine [that the United States or a State cannot be sued] if not absolutely limited to cases in which the United States are made defendants by name, is not permitted to inter- fere with the judicial enforcement of the established rights of plaintiffs when the United States is not a necessary partj-^ to the suit."^ When a citizen in a court " of competent jurisdic- tion has established his right to property, there is no reason why deference to any person, natural or artificial, not even the United States, should prevent him from using the means which the law gives him for the protection and enforcement of that right."* Then Justice Miller, after examining numerous cases, continues : " This examination of the cases in this court estab. lishes clearly this result, that the proposition that when an individual is sued in regard to property which he holds as an ' 106 U. S. 204. ' » 106 U. S. 208. 2 106 U. S. 207. 27 41T § 462.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. officer or agent of the United States, his possession cannot be disturbed when that fact is brought to the attention of the court, has been overruled and denied in every case where it has been necessary to decide it."' And the court added, that it made no difference that the property was devoted to a public use ; as, indeed, such an objection would be repugnant to the fifth amendment to the Constitution, that no person shall be deprived of property without due process of law and just compensation. " Courts of justice are established, not only to decide upon the controverted rights of the citizens as against each other, but also upon rights in controversy between them and the govern- ment."'' Justice Gray (with whom concurred Justices "Waite, Bradley, and Woods) dissented, saying : " The sovereign is not liable to be sued in any judicial tribunal without its consent. The sovereign cannot hold property except by agents. To maihtain an action for the recovery of the possession of property held by the sovereign through its agents, not claiming any right or title in themselves, but only as the representatives of the sove- reign and in its behalf, is to maintain an action to recover pos- session of the property against the sovereign ; and to invade such possession of the agents, by. execution or other judicial pro- cess, is to invade the possession of the sovereign, and to disre- gard the fundamental maxim that the sovereign cannot be sued."' " The view in which this court appears constantly to have acted, which reconciles all its decisions, and is in accord- ance with the English authorities, is this : the objection to the exercise of jurisdiction over the sovereign or his property, in an action in which he is not a party to the record, is in the nature of a personal objection, which, if not suggested by the sovereign, may be presumed not to be intended to be insisted upon. . . . If property is in the possession of the defendants and not of the sovereign, an informal suggestion that it belongs to the sovereign will not defeat the action. But if the sovereign in proper form, and by sufficient proof, makes known to the court that he in- sists upon his exemption from suit, and that the property sued 1 106 U. S. 215. s 106 U. S. 226. 2 106 U. S. 220. 418 CHAP. VIII.] CORPORATION AND STATE. [§ 463. for is held by the nominal defendants exclusively for him and in his behalf as public property, the right of the plaintiff to prosecute the suit, and the authority of the court to exercise jurisdiction over it cease, and all further proceedings must be stayed." ^ The reasoning in this case applies to suits brought against state oflB.cers. In a still later case, however, the Supreme Court held that the creditors of a state, although their rights against it were secured by a clear contract, could not compel state officers to carry out the provisions of a statute, securing the rights of creditors, when the state, by an amendment to its constitution, had undertaken to prohibit its officers from acting under the s'tatute, and when the court, if it required the officer to proceed, could not protect him with a judgment to which the state was a p^rty.^ " The court, when a state cannot be sued, cannot set up its jurisdiction over the officers in charge of the public moneys, so as to control them, as against the political power, in their administration of the finances of the state. "^ This decision pointed towards the proposition which the Supreme Court has finally declared ; that whenever, in order to enable a court to grant the relief sought, it appears that a state is an indispen- sable party to the suit, the court has no jurisdiction.* § 463. Here must be noticed further and important limitations on the rights, which a corporation can acquire through its contract with the state, arising from limitations on the on the powers of the state legislatures. For the "c^c^ufrabie purposes of government, except as its powers are bythe restricted by the Federal Constitution, a state may, tion perhaps, be regarded as sovereign. But the legisla- tfe'state ture of the state is not the state, and its powers are *on°"|c'j,_ » 106 U. S. 249. " 107 U. S. 728. ' Louisiana v. Jumel, 107 U. S. * Cunningham v. Macon, etc. R. R. 711, distinguishing United States v. Co., 109 U. S. 446.' When a state Lee, supra. See also In re Ayers, begins suit against a person or corprtra- 123 U. S. 443. Compare Board of tion, the defendant may set off, but Public Works v. Gaunt, 76 Va. 455 ; cannot have judgment over, in absence United States Bank v. Planters' Bank, of a statute authorizing it. Common- 9 Wheat. 904 ; Bank of Kentucky ». wealth v. Owensboro, etc. R. R. Co., Wister, 2 Pet. 318. 81 Ky. 572. 419 464.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. VIII. Eestric- tioDs in state con- Btitutions on state legisla- tures. restricted (a) by the state constitution, and (6) by certain doc- trines of constitutional law. §, 464. If the state constitution provides that the power to alter, amend, and repeal shall always be reserved to the state in enabling statutes or in charters of incor- poration, the legislature cannot act in violation of this provision ; it cannot contract with the corporation not to change the corporate constitution.^ Such a con- tract would be void, for constitutional provisions are impera- tive. Likewise, if the state constitution provides that railroad corporations shall not be created by special charter, a special charter, if granted by the state legislature, will be void, and the corporation will acquire no rights therefrom.^ It was said that the power of the state legislature is restricted by the state constitution. The phrase seems proper, for, unlike the Constitution of the United States, state constitutions are restrictive or regulative, rather than enabling in their general nature.^ Some special power or capacity of action may be granted to the legislature by the state constitution ; but ordi- narily legislatures are held to possess, all the powers of the state ' Spring Valley Water Works v. Schottler, 110 U. S. 347, 855. When a reservation to the legislature of the power to revoke charters (or repeal enabling statutes), is contained in the constitution of a state, a charter is subject to this power, though not ex- pressly made so. Spring Valley Water Works V. Schottler, 110 U. S. 847, 352 ; Delaware E. R. Co. v. Tharp, 5 Har. (Del.) 454 ; State v. Person, 82 N. J. L. 134 ; Griffin v. Kentucky Ins. Co., 3 Bush (Ky.), 592 ; so when the reservation is contained in some statute of general application. State v. Com- missioner of Railroad Taxation, 37 N. J. L. 228. ' See Ames v. Lake Superior and Mississippi R. R. Co., 21 Minn. 241. " See Davis v. State, 68 Ala. 58 ; Dorman v. State, 34 Ala. 216, 286 ; Lynn v. Polk, 21 Am. Law Reg. N S. 420 321, 326 ; People v. Draper, 15 N. Y. 582 ; Thorpe i'. Rutland and Burling- ton R. R. Co., 27 Vt. 140 ; Sawyer v. City of Alton, 4 111. 127 ; Winch v. Tobin, 107 111. 212 ; Concord r! R. Co. V. Greely, 17 N. H. 47 ; State v. Nashville R. R. Co., 12 Lea (Tenn.), 583. Still the words of Judge Story in a dissenting opinion are worthy of attention. " But the ^legislature of Massachusetts is . . . in no just sense the sovereign of the state. The sov- ereignty belongs to the people of the state in their original character as an independent community ; and the legis- lature possesses those attributes of sovereignty, and those only which have been delegated to it by the people of the state under its constitution." Charles River Bridge U.Warren Bridge, 11 Pet. 644. CHAP. VIII.] CORPORATION AND STATE. [§ 466. except as restricted by the state constitution or by certain doctrines of constitutional law which may now be considered. § 465. There are certain powers necessary to the welfare, if not to the existence of the state as a self-governing qj^^j. ^^ community, and to iustify the doctrine that these strictions • ■111- ■ 1 1 1 1 on legis- powers override all private rights, one need not look latwe beyond the maxim, Salus populi suprema lex. The p"^^""^- powers themselves fall under the. general heads of eminent domain and what is loosely called the " police power" of the state.' It is a well-known doctrine of constitutional law that these powers cannot be granted away or abridged by one legis- lature so as in any way to bind its successors or even itself.* Consequently, the power to alter the rights of a corporation through the exercise of the right of eminent domain or the police power, and to take its property for public purposes, can never be surrendered by the legislature ; any law or charter purporting to surrender it would in that respect be void. Therefore, taking the property of a corporation by the exercise of the power of eminent domain or of the police power can never impair the obligation of a contract, as these powers must in all cases be held to have been reserved to the legislature.' § 466. The legislature of the state, however, as before re- marked, is not the state, and although the legislature cannot surrender the eminent domain or the police power of the state, it does not follow that the ultimate power of the state cannot do so. This ultimate power exists in a majority of the people of the state, and at first sight it would seem competent for them to do any political act which the Federal Constitution does not forbid the states to do. Accordingly, would it not be competent for the people by direct vote to surrender the right ' A discussion of the extent of these power or to so tie up the hands of the powers comes properly in a subsequent government as to preclude its repeated part of this chapter. §§ 470 et seq. exercise as often and under such cir- 2 "When the existence of a parti- cumstances as the needs of government cular power in the government is re- may require." Cooley, Cons. Lim., cognized on the ground of necessity, p. 525. no delegation of the legislative power ' See Twenty-second Street, In re, by the people can be held to vest 102 Pa. St. 108; Philadelphia Pas- authority in the department which senger Ry. Co.'s Appeal, 102 Pa. St. holds it in trust to bargain away such 123. 421 § 468.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. of eminent domain as to the property of any given corpora- tion ? If so, and such corporation accepted a charter with such provision in it, would not that acceptance create a contract the obligation of which would be impaired by the exercise as to any property of that corporation of the power of eminent domain? These are questions of theoretical interest mainly. IS'o partial surrender, it is thought, of its right, to exercise its eminent domain has ever been made by a state, and such a sur- render would never be implied. "Whether the courts would hold such a surrender to be a valid contract, and as such within the protection of the Federal Constitution ; or whether they would hold that, as states are integral parts of the United States, the Federal Constitution cannot sanction an act which might tend towards the disintegration or extinction of one of these integral parts remains an open question. § 467. A word may be added here in regard to corporations organized under authority from Congress. Although tions"™' the constitutional provision against passing a law im- CoDgress^ pairing the obligation of contracts does not apply to Congress, the prohibition against depriving any one of his property without due process of law and just compensa- tion does ; and as rights which have already vested under a contract are held to be property. Congress seems nearly as resti'icted as if the provision against passing a law impairing the obligation of contracts applied to it.* It will be seen, how- ever, that any rights of a corporation against the United States would lack any sanction except the comity of the government, which, strictly speaking, is no sanction.^ § 468. Questions whether or not particular state statutes, or particular acts done on behalf of a state, impair the tion of the obligation of any contract between a state and a cor- courtB? poration, come up properly for discussion in the fol- lowing pages of this chapter, in connection with the ' County of Cass v. Morrison, 28 corporation, see Lalce Superior and Minn. 257 ; see Chicago, etc. R'y Co. Mississippi R. R. Co. v. U. S., 9."? v. United States, 104 U. S. 680 ; U. S. 442. and, for the construction of a contract ' Compare generally United States between the United States and a v. Lee, 106 U. S. 196, and Louisiana V. Jumel, 107 U. S. 711. 422 CHAP. VIII.] CORPORATION AND STATE. [§ 468. topics of eminent domain, police power, taxation, and the right which a state may reserve to alter and amend the constitution of a corporation. Questions of this character are often decided in the Federal courts ; and as the final decision, whether the obligation of a contract is impaired by a state law, rests with the Supreme Court of the United States,' the utterances of that court are of universal authority. In construing the statutes of a state, the Federal Supreme Court will follow as far as may be the courts of the state whose statute it is construing ;" but when the highest court of a state has held repeatedly that certain state statutes are valid, and when rights have vested under them, the Federal Supreme Court will not follow in construing such statutes any oscilla- tions of the state court ; at least when the Supreme Court is ■ Where a party to a suit set8 up that under one statute a state made a contract with him, and that by a sub- sequent statute it violated the contract, and the highest court of law or equity of the state has held the subsequent act to be a valid act, and decreed ac- cordingly, the Supreme Court of the United States has jurisdiction under sec. 25 of the Judiciary Act. The Binghamton Bridge, 3 Wall. 5l. And when a state statute creates a contract, and a subsequent statute is alleged to impair the obligation of that contract, and the highest court of law or equity in the state construes the first statute in such a manner that the second statute does not impair the con- tract, whereby the second statute re- mains valid under the United States Constitution, the Federal Supreme Court may pass on the decision. Bridge Proprietors v. Hoboken Co., 1 Wall. 116. The Federal question relied on must have been raised on the trial in the state court. Susquehanna Boom Co. V. West Branch Boom Co., 110 U. S. 57; Brown v. Colorado, 106 U. S. 95. The question whether a state may tax the franchises of a cor- poration derived from acts of Congress is removable to the Federal courts. Southern Pacific R. K. Co. v. Cali- fornia, 118 U. S. 109. The constitution of a state is a "law" within the meaning of the clause in the Federal Constitution which forbids a state to pass a law impairing the obligation of contracts. Railroad Co. v. McClure, 10 Wall. 511. 2 See Wright v. Nagle, 101 U. S. 791 ; Secombe v. Railroad Co., 23 Wall. 108 ; but compare Burgess o. Seligman, 107 U. S. 20 ; see also Beauregard v. New Orleans, 18 How. 497, 502 ; Bank of Hamilton v. Dud- ley's Lessee, 2 Pet. 492, 524 ; Elmen- dorf V. Taylor, 10 Wheat. 152, 159; Green v. Neal's Lessee, 6 Pet. 291, 298. A decision by a state court that a statute of the state is in accordance with the state constitution binds -the Federal courts. Railroad Co. v. Geor- gia, 98 U. S. 359. 423 § 469 a.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. deciding upon the legal eifect of transactions taking place before the change in state judicial opinion had transpired.' § 469. We now come to the relations between the state and J, , (.. jj the corporation other than the legal relations occa- between sioned by the contract between them ; to relations, andthecor- that is, existing between the lawgiver as such and other^than citizens. Eeverting for an instant to the distinction legal reia^ before mentioned between the state considered as the tions occa- i . i i n i i i • sioned by ultimate political power thereof and the state legis- lature, it raaj^ be added that, though the powers of the legislature are more restricted than those of the state, still the legislature for ordinary purposes may be regarded as the state itself; and for the purposes of the following discussion, except as restrained by the state and Federal constitutions, and by the constitutional doctrines before referred to, the power of the state legislature over corporations may be regarded as uur limited in law ; for persons -interested in a corporate enterprise are, in respect of the same, subject to the laws of the state just as in all other respects. § 469 a. The political powers possessed by the Federal and state governments over corporations may be grouped under the general heads of police power, power to tax, and eminent do- main. These three powers have their common source in the function of government to provide for the welfare of the peo- ple. Their distinguishing characteristics may be thus formu- lated. By virtue of its police power the state regulates the use of property, but takes nothing. By virtue of its power to tax, the state, according to a ratio proportioned as evenly and justly as may be, takes property for public uses without making direct compensation.* ' Gelpcke v. City of Dubuque, 1 v. Tyson, 16 Pet. 1 ; Railroad Co. v. Wall. 175 ; Havemeyer u. Iowa Coun- National Bank, 102 U. S. 14 ; nor, of ty, 3 Wall. 294 ; see Olcott vt Super- course, in deciding whether a state visors, 16 Wall. 678; Douglass v. statute conflicts with the Federal Con- Pike County, 101 U. S. 677. But stitution. Jefferson Branch Bank v. the Federal courts will not follow a Skelly, 1 Black, 436. See § 318. state court in deciding upon questions " There would often be manifest in- ofgeneralcommercial law, not depend- justice in subjecting the whole prop- ing on local usage or statutes. Swift erty of a city or of any district to tax- 424 CHAP. VIII.] CORPORATION AND STATE. [§ 469 5. By virtue of its power of eminent domain, the state takes the property of individuals for a public purpose, making just compensation, but without regard to whether it takes more of one man's property than another's. It is essential to the existence of these powers that they should override private rights. Yet our system of institutions places limitations on them. These limitations are of two dis- tinct classes, between which the division is fundamental. The first class springs from the relations between the Federal govern- ment and the states ; the second from the relations between the individual or corporation whose property is regulated or taken, and the government, state or Federal, taking or regulating it. The one class is based on political considerations, the other on requirements of justice. § 469 b. Limitations of the first class apply to the exercise of all three powers. "Within the range of its constitutional powers the Federal government is superior to the state govern- ments.* The Constitution declares this f and that it should be so is essential to the existence of the Federal government as the government of a nation of which the states are constituent parts. Consequently, wherever there is concurrent authority in the Federal and state governments, and the Federal govern- ment legislates, state laws in so far as inconsistent must yield. Certain powers moreover, conferred on Congress, are essentially exclusive, even while unexercised, as for instance the power to regulate commerce with foreign nations and among the states. Therefore state legislation cannot extend within their domain, and besides this, the Federal Constitution in close connection with these exclusive powers of Congress, places certain express prohibitions on the states, forbidding them, for instance, to lay imposts or duties on exports and imports. Nevertheless, the ation for a local improvement. The S. 700, 705; Louisiana v. Pillsbury, rule of equality and uniformity pre- 105 U. S. 278, 295 ; County of Mo- scribed in cases of taxation for state bile v. Kifnball, 102 U. S. 691, 704. and county purposes, does not require ' Gibbans v. Ogden, 9 Wheat. 1, that all property or all persons in a 210; Tennessee u. Davis, 100 U. S. county or district should be taxed for 257, 263. See Transportation Co. v. local purposes. He who reaps the Wheeling, 99 U. S. 273, 281. benefit should bear the burden. Ha- ^ Art. VI. § 2. gar V. Beclamation District, 111 U. 425 § 470.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. Federal government, though supreme within its sphere, pos- sesses only such powers as are coaf'erred on it by the Constitu- tion ; and Federal legislation beyond the scope o f these powers is void.' The second class of restrictions is suinmed up in the two fundamental rules that no man's property shall be taken with- out (1) due process of law, and (2) just compensation. The first is a restriction on the power of eminent domain and the power to tax, the second only on the power of eminent domain and on such instances of the exercise of the police power as raise the question whether property has been taken, and not merely regulated.* § 470. By the exercise of its power of eminent domain,^ the state may take the property of corporations for public £mment i • t j.- • i. ii domain. purposes, on makmg due compensation, just as the Restric- tions. state may take other property.* The exercise of this 1 An act of Congress making it a misdemeanor to mix for sale naphtha and illuminating oils, or to sell or offer such mixture for sale, is a police regu- lation, relating exclusively to the in- ternal trade of the states, and can only have effect where the legislative au- thority of Congress excludes territori- ally all state legislation, as, e. g., in the District of Columbia. Within state limits it can have no constitutional operation. United States v. Dewitt, 9 Wall. 41. Property covered by letters-patent is subject to regulation by police powers of a state, like other property. Patterson v. Kentucky, 97 U. S. 501. ^ No compensation need be made when private property is regulated by the police power. Talbot v. Hudson, 16 Gray (Mass.), 417. ' Eminent domain (or th6 right or power of eminent domain) "is the rightful authority which exists in every sovereignty to control and regu- late those rights of a public nature 426 which pertain to its citizens in com- mon, and to appropriate and control individual property for the public benefit as the public safety, necessity, convenience, or welfare may demand." Cooley Cons. Lim'ns, 524. People v. Humphrey, 23 Mich. 471. It will be noticed that the notion of eminent do- main given by this definition resembles in some respects notions of the police power. See infra, §§ 474 et seq. ; also §§ 171 e« seq. The power of eminent domain is not granted by the state constitution to the legislature, but is inherent in the legis- lature, limited only by constitutional re- strictions. Central Branch IT. P. R R. Co. V. Atchison, T. and S. F. R. R. Co., 28 Kan. 453. A state may condemn property for the use of the United States. Ovvv. Quimby, 53 N. H. 590. * A bridge held by an incorporated company under a charter from a state may be condemned and taken as part of a public road, under the laws of that state. This charter, although a CHAP. VIII,] CORPORATION AND STATE. [§ 471. power either by the United States^ or by a state, is subject to two restrictions contained in the Federal Constitution (as well as in state constitutions) : (1) no person shall be deprived of his property without due process of law : (2) nor shall private pro- perty be taken for public use without just compensation.^ § 471. The phrase " due process of law" is one that seems likely for many years to remain without adequate definition. It means the " law of the land," as those cess of words are used in Magna Carta f and, consequently, ^*^'" contract between the state and the company, is, like all other private pro- perty, subject to the right of eminent domain. The Federal Constitution does not take away this right, the ex- ercise of which does not interfere with the inviolability of contracts. All pro- perty and contracts are subject to eminent domain, and property held by an incorporated company stands on the same footing with that held by an individual, and a franchise cannot be distinguished from other property. West River Bridge Co. v. l)ix, 6 How. 507. Accord, Central Bridge Co. v. City of Lowell, 4 Gray, 474 ; Metro- politan City B,'y Co. v. Chicago West Div. R'y Co., 87 111. 317; Sixth Avenue-R. R. Co. v. Kerr, 72 N. Y. 330; Backus v. Lebanon, 11 N. H. 19 ; Philadelphia Passenger R'y Co.'s Appeal, 102 Pa. St. 123 ; Boston and L. R. R. Co. V. Salem, etc. R. R. Co., 2 Gray (Mass.), 1; compare En- field Toll Bridge Co. v. Hartford and New Haven R. R. Co., 17 Conn. 453 ; S. C, 17 Conn. 40; Pennsylvania R. E. Co.'s Appeal, 93 Pa. St. 150. 1 See Darlington v. United States, 82 Pa. St. 382. ^ Amendment V., which does not apply to the states ; Withers v. Buck- ley, 20 How. 84 ; and Amendment XIV., which does apply to the states. The provision that private property shall not be taken without just com- pensation is not in Amendment XIV. ; but is contained in most of the state constitutions, and, moreover, it is safe to say, as a general principle of law, springing from the nature of our insti- tutions, that no state can take private property by its right of eminent do- main, without making juet compensa- tion. See §§456, 171. "~' That the right of eminent domain exists in the government of the United States, and may be exercised by it within the states so far as is necessary to the exercise of the powers conferred on the Federal government by the Constitution, was held in Kohl v. United States, 91 U. S. 867. The state cannot delegate a right to take property by eminent domain, for a private purpose. § 163 ante. ' Murray's Lessee v. Hoboken Land Co., 18 How. 272. Magna Carta was granted or enacted by John " per gon-, silium" of his primate, his barons, and the papal legate. The thirty-ninth section, which contains the phrase in question, runs thus : " NuUus liber hom6 capiatur, vel Imprisonetur, aut dissaisiatur, aut utlagetur, aut exule- tur, aut aliquomodo destruatur, nee super eum ibimus, neo super eum mit- timus, nisi per legale judicium parium suorum vel per legem terrae." Stubb's Select Charters, 276-291. See § 492. 427 § 473.] the' law of private corporations, [chap. VIII. it meajis something which is continuously undergoing modifi- cation and development. The provision in Magna Carta is a re- striction on the power of the Crown rather than on that of Parliament; but the provision in our Constitution that no person shall be deprived of his property without due process of law is a restriction on the power of the state governments act- ing in any manner whatsoever, and on the power of the Federal government.' § 472. "When applied to judicial proceedings, the term " due process of law" means a course of legal proceedings according to the rules and principles which have been established in onr systems of jurisprudence for the protection and enforcement of private rights. To give such proceedings validity, there must be a tribunal competent by the law of its creation to pass upon the subject-patter of the suit, and, if the suit involves merely a determination of the personal liability of the defendant, he must be brought within the jurisdiction of the court by service of process within the state, or by his voluntary appearance.' § 473. The other constitutional restriction on the power of eminent domain is that private property shall not be taken ' It seems that even before the pas- and the usages of the common law, sage of Amendment XIV., a state would be a protection to him and his could not through its legislature have property. But the legislature may made anything due process of law. take away any particular form of See Murray's Lessee w. Hoboken Land remedy, and give a new one. And Co., 18 How. 272. the " law of the land" means about ' Pennoyer v. Neff, 95 U. S. 714, the same as "due process of law." 733 ; see St. Clair v. Cox, 106 U. S. People v. Supervisors, 70 N. Y. 228. 350; and compare American Express "By the law of the land is most Company u. Conant, 45 Mich. 642; clearly intended the general law; a McNichol V. United States Mercantile law which hears before it condemns ; Reporting Agency, 74 Mo. 457 ; Pope which proceeds upon inquiry and ren- V. Terre Haute Car Co., 87 N. Y. ders judgment only after trial. The 137. Notice is essential. Campbell meaning is that every citizen shall V. Campbell, 63 111. 462. hold his life, liberty, property, and " Due process of law" requires that immunities under the protection of the a party shall be properly brought into general rules which govern society." court, and that he shall have an oppor- Webster arguendo in Dartmouth Col tunity when there to prove any fact lege v. Woodward, 4 Wheat. 619, 581 which according to the constitution, 428 CHAP. VIII.] CORPORATION AND STATE. [§ 474. without just compensation.^ To bring a case within the protec- tion of this provision, it is not necessary that pro- perty should be taken in the narrowest sense of the pensaM^' word : it is enough that some private right be mate- rially impaired.* In determining the value of property taken for public purposes, the same considerations are to be regarded as in the sale of property between private persons. The inquiry should be, what is the property worth in the market, not merely with reference to the uses to which it is at the time applied, but with reference to those to which it is plainly adapted.* In the absence of any specific provision in the constitution of a state, a state legislature may regulate in its discretion the mode of exercising the right of eminent domain.* The power to exercise this right may be delegated to private citizens or to corporate bodies, public or private;* but, in the absence of special provision, the right of eminent domain may not be delegated by the person or, body receiving it from the state.^ § 474. As by virtue of its power of eminent domain a state may take the property of corporations, so may a state modify ' See Garrison v. City of New York, 21 Wall. 196. "The power to take private property for public uses, gene- rally termed the right of eminent do- main, belongs to every independent government. It is an incident of sov- ereignty, and requires no constitutional recognition. The provision found in the fifth amendment to the Federal Constitution and in the cbnstitutions of the several states, for just compen- sation for the property taken, is merely a limitation on the use of the power. It is no part of the power itself, but a condition upon which the power may be exercised." United States w, Jones, 109 U. S. 513, 518, opinion of court per Field, J. 2 The backing of water so as to overflow the lands of individuals is such a taking. Pumpelly v. Green Bay Co., 13 Wall. 166. See §§ 171- 176 for a fuller discussion of what constitutes such a taking of private property or impairment of private rights (by a corporation) as to require compensation. ' Boom Co. V. Patterson, 98 U. S. 403. See for cases on the rule of damages for property taken by a rail- road or other corporation, §178. * Secombe v. Kailroad Co., 23 W^all. 108. * Brayton v. Fall River, 124 Mass. 95, 97. Compare, United States v. Jones, 109 U. S. 513. But this power can never be presumed to exist either in municipal or private corporations. Phillips V. Dunkirk, Warren, etc. R. R. Co. 78 Pa. St. 177 ; Allen v. Jones, 47 Ind. 438. Compare Pennsylvania R. R. Co.'s Appeal, 93 Pa. St. 150. See §168. ^ See § 166 ante. 429 § 474.J THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. corporate constitutions, and regulate corporate property, by virtue of its police power ; which is the power neces- power sarily inherent in the state as a self-governing commu- nity to pass laws for the public welfare.* Thus, in a case where a corporation was chartered with the right to hold lotteries for twenty-five years, and subsequently the state which had chartered it adopted a new constitution containing a pro- vision forbidding lotteries, it was held that this constitution, operating as it did to annul the right of the corporation to hold lotteries, was, not repugnant to the Federal Constitution as impairing the obligation of the charter, but was a valid exercise of the police power of the state, which the legislature could not grant away. " N"o legislature can bargain away the public health or the public morals. The people themselves cannot do it, much less their servants. The supervision of both these subjects of governmental power is continuing in its nature, and they are to be dealt with as the special exigencies of the moment may rfequire. Government is organized with a view to their preservation, and cannot divest itself of the power to provide for thera.^ But a legislature may grant a franchise, as for in- stance the exclusive right to supply gas or water to a munici- pality, and cannot revoke it through the exercise of its police ' See Chicago Life Ins. v. Needles, exclusive privileges of slaughtering 113 U. S. 574. Compare Lake View animals held constitutional. Butchers' V. Rose Hill Cemetery Co., 70 111. Union Slaughter House, etc. Co. v. 191. Crescent City Co., Ill U. S. 74G, 2 Stone U.Mississippi, 101 U. S. The legislation held valid in this case 814 ; accord, State v. Morris, 77 N. C. destroyed the exclusive nature of the 512; see Slaughter House Cases, 16 privileges held valid in Slaughter Wall. 36; Crescent City Slaughter House Cases, 16 Wall. 36. A law House Co. V. New Orleans, 33 La. prohibiting the employment of women Ann. 934; Richmond, Fred'g and Pot. and persons under eighteen in any R. R. Co. V. City of Richmond, 26 manufacturing establishment more than Gratt (Va.), 83 ; Chicago, Burlington, sixty hours a week violates no contract and Q. R. R. Co. v. Haggerty, 67 111. of the commonwealth implied in grant- 113. In matters relating to the pub- ing the charter of a manufacturing lie health and the public morals the company. Commonwealth v. Hamil- legislature of a state cannot by any ton M'fg Co., 120 Mass. 383. See contract limit the exercise of its police Woodlawn Cemetery u. Everett, 118 power to the prejudice of the general Mass. 864. welfare. Legislation abrogating valid 430 CHAP. VIII.J CORPORATION AND STATB. [§ 474 b. power after the grantee has performed the conditions of the grant : yet by granting such franchises the legislature does not part with its power to regulate them so as to protect the public health and morals.' § 474 a. In the exercise of its police power a state must avoid infringing the restrictions before referred to :^ (1) it must not enter the domain of legislation exclusively' reserved to Congress by the Constitution, or interfere with Federal regulations con- stitutionally made ; and (2) it must not take the property of an individual or a corporation without just compensation deter- mined by due process of law. § 474 b. The opinion of the Supreme Court of the United States in Gibbons v. Ogden,' delivered* by the great Chief Justice, is still "the accepted canon of con- p°lm_ struction" of the commerce clause in the Constitution.^ Commerce The main point decided in that case was that the 'Sew York statutes giving to Fulton and Livingstone the ex- clusive right to navigate by steam all waters within the terri- torial jurisdiction of New York State were unconstitutional in so far as they excluded from those waters vessels licensed for the coasting trade under United States laws." Marshall expounded the clause broadly, and Gibbons v. Ogden is recognized as authority for the following propositions : The power of Congress to regulate commerce has no limita- tions other than those prescribed in the Constitution.* The power to regulate is the power " to prescribe the rule by which commerce is to be governed."' Commerce among the states cannot stop at the boundary of each state ; so the power of Congress to regulate commerce ^ New Orleans Gas Co. v. Louisi- ' Compare Pensaeola Tel. Co. v. ana Light Co., 115 U. S. 650; New Western Un. Tel. Co., 96 U. S. 1, Orleans Water Works Co. v. Kivers, which held that a state could not give 115 U. S. 674 ; Louisville Gas Co. v. a telegraph company a monopoly Citizens' Gas Co., 115 U. S. 683; within certain of its own counties, Tammany Water Works v. New Or- when Congress had regulated inter- leans, 120 U. S. 64. state telegraphing. 2 Ante, §§ 469 a, 469 b. ^ Gibbons v. Ogden, 9 Wheat. 1, 3 9 Wheat. 1. 19S; approved in Brown v. Maryland, * Hendersons. Mayor of New York, 12 Wheat. 419, 446. 92 U. S. 259, 270. ' lb., 9 Wheat. 196. 431. § 474 C] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. among the states reaches into their interiors, although it does not extend to the regulation of commerce entirely confined to one state.» " The power of Congress, then, comprehends navi- gation within the limits of every state in the Union ; so far as that navigation may be in any manner connected with com- merce with foreign countries or among the several states or with the Indian tribes."^ The power of Congress to regulate commerce extends to car- riers of passengers,^ and comprehends every species of commer- cial intercourse between the United States and foreign nations/ " Commerce undoubtedly is traffic, but it is something moi'e ; it is intercourse. It describes the commercial intercourse be- tween nations, and parts of nations, in all its branches, and is regulated by prescribing rules for carrying on that intercourse. The mind can scarcely conceive a system for regulating com- merce between nations, which shall exclude all laws concerning navigation, which shall be silent on the admission of the vessels of the one nation into the ports of the other, and be confined to prescribing rules for the conduct of individuals, in the actual employment of buying and selling, and of barter."* But "in- spection laws, quarantine laws, health laws of every description, as well as laws for regulating the internal commerce of a state, and those which respect turnpike roads, ferries, etc.," are within the proper scope of state legislation.* § 474 c. Regarding commerce by water, it is held that a state may authorize a city to build wharves on navigable waters and to charge fees for their use,' but in so doing must not dis- criminate against inter-state commerce in favor of commerce ' lb. 9 Wheat. 194, approved in ^ ii,_ g Wheat. 1, 203 ; Cardwell v. Brown v. Maryland, 12 Wheat. 419. Bridge Co., 113 U. S. 205; Morgan's See United States v. Forty-three Gal- Steamship Co. v. Louisiana Board of Ions of Whiskey, 93 U. S. 188; Guy Health, 118 U. S. 455. See Conway V. Baltimore, 100 U. S. 484. v. Taylor's Executor, 1 Black. 603. " Gibbons v. Ogden, 9 Wheat. 1, ' Packet Co. v. St. Louis, 100 U. S. 197. See United States v. Coombs, 423 ; Packet Co. ii. Keokuk, 95 U. S. 12 Pet. 72. 80; Vicksburg v. Tobin, 100 U. S. ' Gibbons v. Ogden, 9 Wheat. 1, 430; Packet Co. v. Catlettsburg, 105 216. U. S. 559 ; Ouachita Packet Co. v. * lb. 9 Wheat. 1, 190 et seq. Aiken, 121 U. S. 444. 5 lb. 9 Wheat. 1, 189, 190. 432 CHAP. VIII.] CORPORATION AND STATE. [§474^. wholly internal to the state.' And a state may regulate the management of vessels within its harbors.'' It may be that by proper and just regulations a state can protect itself against ob- jectionable immigrants, and to that end require full information regarding all immigrants f but a state cannot lay a tax on im- migrants, however veiled in the form of harbor or quarantine regulations ;* and a law prescribing terms or conditions on which alone a vessel can discharge its passengers is a regula- tion of commerce, and is a regulation of commerce with foreign nations if the vessel comes from a foreign port ; it is no argu- ment to call the power to pass such regulations the police power, for a state cannot exercise that power in matters confided ex- clusively to the jurisdiction of Congress.' § 474 d. " Commerce on land between the different states is so strikingly dissimilar, in many respects, from commerce by water, that it is often difficult to regard them in the same as- pect in reference to the respective constitutional powers and duties of the state and Federal governments. No doubt com- merce by water was principally in the minds of those who ■ Guy V. Baltimore, 100 U. S. 434. " Oooley V. Board of Wardens, 12 How. 299 ; County of Mobile v. Kira- Wl, 102 U. S. 691 ; Wilson v. Mc- Namee, 102 U. S. 572. But compare Foster v. Master, etc. of New Orleans, 94 U. S. 246 ; Steamship Co. v. Port- wardens, 6 Wall. 31. 3 See City of New York v. Miller, 11 Pet. 102. ■• Passenger Cases, 7 How. 283; Henderson v. Mayor of New Y-ork, 92 U. S. 259 ; Chy Lung v. Freeman, 92 U. S. 275; People v. Compagnie G6n6rale Transatlantique, 107 U. S. 59. 5 Henderson v. Mayor of New York, 92 U. S. 259, 271, 272. See Glou- cester Ferry Co. v. Pennsylvania, 114 U. S. 196. By examining the cases in the Su- preme Court, in which state legislation has been adjudged invalid in regard 28 to the commerce clause, " it will be found that the legislation adjudged in- valid imposed a tax upon some instru- ment or subject of commerce, or ex- acted a license fee from parties engaged in commercial pursuits, or created an impediment to the free navigation of . some public waters, or prescribed con- ditions in accordance with which com- merce in particular articles or between particular places was required to be conducted. In all the cases, the legis- lation condemned operated directly upon commerce, either by way of tax upon its business, license upon its pur- suit in particular channels, or condi- tions for can7ing it on." Sherlock v. Ailing, 93 U. S. 99. Opinion of the Court per Field, J., p. 102; as to the power of Congress to pass such laws, see Head Money Cases, 112 U. S. 580. 433 § 474c?.J THE LAW OF PRIVATJ) CORPOKATIONS. [CHAP. VIII. framed and adopted the Constitution, although both its lan- guage and spirit embrace commerce by land as well."' State legislation seeking to impose a direct burden on inter-state com- merce by land or water, or to interfere directly with its freedom, encroaches on the exclusive power of Congress." Thus, a stat- ute of Missouri prohibiting driving or conveying Texan, Mexi- can, or Indian cattle into the state between the first days of March and E"ovember is an .unconstitutional regulation of inter-state commerce.' But, Congress not having acted on the _ subject, it is held not to conflict with the powers of Congress to regulate inter-state commerce, for several states by concurrent legislation to consolidate railroad companies so as to create a consolidated corporation running a continuous line of road through several states,* and state statutes regulating the tolls of railroad companies within state limits, making no discrimina- tion between local and inter-state rates, are constitutional police regulations, so far as regards the commerce clause in the Con- stitution, even though they affect a railroad company operating .a road through several states." Thus, as far as regards this clause, a state may constitutionally prescribe a maximum charge for the transportation of passengers and merchandise carried within the state, or taken up outside the state and brought into it, or taken up inside and carried out — at least until Congress legislates concerning inter-state commerce.' ' Railroad Co. v. Maryland, 21 107 U. S. 678 ; People v, Saratoga, Wall. 456, 470; Opin. of Ct. per etc. K. R. Co., 15 Wend. (N. Y.) Bradley, J. 113; Railroad Co. v. Rlichmond, 19 2 Hall V. DeCuir, 95 U. S. 485. Wall. 584. See W;estern Union Tel. Co. v. Pen- ' Boardman v. Lake Shore, etc. dleton, 122 U. S. 347. So long as Ry. Co., 84 N. Y. 157. This seems Congress does not pass any law regu- tacitly recognizedin many cases in the lating commerce among the states, it Federal Supreme Court, indicates its will that inter-state com- 6 Railroad Co. v. Fuller 17 Wall, merce should be free and untram- 560. melled. Brown v. Houston, 114 U." « Peik v. Chicago, etc. Ry. Co., 94 S- ^22. U. S. 164 ; Chicago, etc. R. R. Co. ' Railroad Co. v. Husen, 95 U. S. v. Iowa, 94 U. S. 155; People v. 465. For the power of states to au- Wabash, etc. Ry Co., 104 111. 476 ; thorize bridges over their navigable S. C. 105 111. 236. But see Carton & waters see Gilman v. Philadelphia, S Co. v. Illinois Central R. R. Co., 59 Wall. 713 ; Escanaba Co. v. Chicago, Iowa, 148. But a state statute regu- 434 CHAP. VIII.] CORPORATION AND STATE. [§475. § 475. Turning now to a consideration of the reistrictions placed on the police power by the requirements of PoUce justice, it may be remaned that the term " police \°^^l' ^*° power" is not well chosen, as the power in question Property in extends somewhat beyond the scope of what are puwic has ordinarily regarded as police regulations.^ The *"^°'^''«^*- limits of this power are necessarily undeiinable, as, in accord- ance with its essential nature and purposes, its exercise must depend on circumstances. Whether any given enactment or regulation comes properly within its limits is a question resting for decision in the first instance with the legislature, but re- viewable by the courts. Its scope is greater with respect to property in the management of which the public has a plain interest, as a- railroad,^ or a ferry, or even a grain elevator. lating railroad charges for a transpor- tation which constitutes a part of com- merce among the states is void. Wa^ bash, St. L. & P. Ry. Co. v. Illinois, 118 U. S. 557. Congress has now passed an " Inter- State Commerce Bill." No questions under it have yet come before the courts ; and how far it will operate to restrict state leg- islation it is impossible to say. ' "Police is in general a system of precaution for the prevention of crimes and calamities." J. Bentham, Edinburgh Ed. of Works, part ix. p. 157 ; quoted in Kansas Pacific R'y Co. V. Mower, 16 Kan. 573. ^ The legislature can compel a rail- road company to fence its road. Thorpe v. Rutland and Burlington R. R. Co., 27 Vt. 140 ; Gorman v. Pacific Railroad, 26 Mo. 441 ; Kansas Pacific R. R. Co. V. Mower, 16 Kan. 573; New Albany and Salem R. R. Co. v. Tilton, 12 Ind. 3 ; Ohio and Missis- sippi R. R. Co. V. McClellandj 25 111. 140 ; see Hayes v. Michigan Central R. R. Co., Ill U. S. 228. And make it liable in double damages for stock killed till it is fenced ; Missouri Pac. Ry. Co. v. Humes, 115 U. S. 512; Humes ». Missouri Pac. Ry. Co., 82 Mo. 221 ; to ring bells or whistle before crossing a road ; Galena, etc. R. R. Co. V. Loomis, 13 111. 548; to- erect a bridge necessary' for travellers along a turnpike ; People 'v. Boston and Albany R. R. Co., 70 N. Y. 569; to stop trains at a certain station (right to alter and repeal being reserved) ; Railroad Co. v. Hamersley, 104 (J. S. 1 ; Chicago and Alton R. R. Co. v. People, 105 111. 657; State v. New Haven and Northampton Co., 43 Conn. 351 ; Pennsylvania Co. v. Wentz, 37 Ohio St. 333 ; Common- wealth V. Eastern R. R. Co., 103 Mass. 254; to light their tracks in cities ; Cincinnati H. and D. R. R. Co. V. Sullivan, 32 O. St. 152. So the legislature may regulate the speed of locomotives in passing through cities and towns ; Mobile and Ohio R. R. Co. V. State, 51 Miss. 137; Myers v. C. R. I. and P. E,. Co., 57 Iowa, 555 ; see State i'. East Orange, 41 N. J. L. 127; or at highways and crossings; see Rockford, etc. R. R. Co. v. Hill- mer, 72 111. 235 ; Horn v. Chicago, 435 § 476.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. The following extract is from the opinion of the majority of the court by Chief Justice Waite, in Munn v. Illinois:' "Look- ing then to the common law from whence came the right which the constitution protects, we find that when private property is 'affected with a public interest it ceases to he juris privati only.' This was said by Lord Chief Justice Hale more than two hun- dred years ago in his Treatise De Portibus Maris, 1 Harg. Law Tracts, 78, and has. been accepted without objection as an essential element of the law of property ever since. Property does become clothed with a public interest when used in a manner to make it of public consequence, and affect the com- munity at large. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created. He may withdraw his grant by discontinuing the use ; but so long as he maintains the use, he must submit to, the control."* § 476. These remarks are undoubtedly sound as far as they go. The real difficulty, however, is to draw a line between ■property 'in the management of which the public has a clearly defined interest, and property in regard to which it has none. Where the property in question is that of a corporation, the interest of the public might be roughly said to be coextensive M'ith the grant to the corporation of powers which it would be etc. R. R. Co., 38 Wis. 463 ; Toledo etc. R. R. Co., 95 N. C. 417. Such P. and W. Ry. Co. v. Deacon, 63 111. regulations as the above, in order to be 9.1 ; and may regulate the grade of a valid exercise of the police power, railways, and prescribe how railway must be reasonable. Toledo, W. and tracks shall cross each other; Fitch- N. Ry. Co. b. Jacksonville, 67 111.37. burg R. R. Co. u. Grand Junctfon R. ^ 94 U. S. 118, 126 (Elevator R. Co., 1 Allen, 552 ; Pittsburgh, etc. Cases). R. R. Co. V. South West Penn. R. R. * The property of a telephone com- Co., 77 Pa. St. 173 ; compare State pany is property in the use of which V. Noyes, 47 Me. 189 ; and a city may the public is interested — it is property, forbid a railroad company to run its devoted to a public use — and its rates trains by steam within certain parts of may be fixed by statute. Hockett v. the city ; Railroad Co. v. Richmond, State, 105 Ind. 250 ; Central Union 96 U. S. 521. A legislature may im- Telephone Co. v. Bradburv, 106 pose penalties for delays in forwarding Ind. 1. freight. McGowan v. Wilmington, 436 CHAP. VIII.] CORPORATION AND STATE. [§ 476. unconstitutional or improper for the legislature to grant, except for purposes in the attainment of which the public was directly concerned. For instance, it is ordinarily incompetent for the legislature to grant the right of taking private property on compulsory process except for the attainment of an object of public importance.' Accordingly, as this i-ight is ordinarily granted to a railroad corporation, the possession of the right by such corporation would seem to indicate a clear interest on the part of the public in its affairs. This is a clear case of a defined public interest in a private enterprise. But such a test, taken by itself, is not applicable to all cases ; for the public is some- times held to have an interest in enterprises where no such extra- ordinary powers have been granted, as, for instance, in the grain- elevator case, whence the foregoing extract is taken. The truth of the matter seems to be, that what may constitute such an interest of the public in private enterprises as will warrant, the regulation of them by the police power of the state, is essen- tially incapable of definition. The Chief Justice says : '^ When, therefore, one devotes his property to a use in which the public has an interest, he in effect grants to the public an interest in that use." What is " a use in which the public has an interest" ? To this question the remarks of the Chief Justice give no answer. In any private business, as the manufacture of soap, the public has always at least this negative interest that the business shall not be carried on in such a way as to become a public nuisance. Yet the business of manufacturing soap is as private as any business can be. Take for another example, the business of supplying milk in a city. This is a business in which the public is held to have an interest to this extei^t, that the milk supplied shall be pure and wholesome.^ In truth, the interests of a society, be they called public or private, are so correlated and interwoven that it is impossible to pick out the life or occupation of any individual and say : that is an occu- ' See Beekman i>. Saratoga and Wend. 9, 55; Edgewood R. R. Co. '3 Schenectady R. R. Co., 3 Paige, 73 ; Appeal, 79 Pa. St. 257. Ten Eyck v. Delaware, etc. Canal ^ See Commonwealth v. Evans, 132 Co., 18 N. J. Law, 200; Bloodgood Mass. 11. V. Mohawk and Hudson R. R. Co., 18 437 § 476.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. pation in which the public has no conceivable interest.* "What- ever the public welfare calls for, the police power of the state exists to afford, and whether any given exercise of this power is, a proper one, is a question for the discretion of the legisla- ture, subject to review in some way by the courts.* ^ "The sovereign police power •which the state possesses is to be exer- cised only for the general public wel- fare, but it reaches to every person, to every kind of business, to every spe- cies of property within the Common- wealth." People V. Salem, 20 Mich. 452, 478, per Cooley, J. ^ " As a general proposition it may be stated, it is the province of the law- making power to determine when the exigency exists, calling into exercise this (police) power. What are the subjects of its exercise, is clearly a judicial question." Lake View v. Eose Hill Cemetery Co., 70 111. 191, 195, opinion of court per Scott, J. See also Toledo, W. and N. Ky. Co. v. City of Jacksonville, 67 111. 37. A few more decisions on the exercise of the police power are given in this note. If the public safety or the public ftiorals require the discontinuance of any manufacture or traffic, the legis- lature cannot be stayed from providing for its discontinuance by any incidental inconvenience which individuals or cor- porations may sufl'er. All rights are held subject to the police power of the state. The court said, that they did not mean to hold that property ac- tually in existence, in which the right of the owner had become vested, could be taken for the public good without just compensation ; but that they did hold, in accordance with Bartemeyer v. Iowa, 18 Wall. 129, that as a measure of public regulation, a state law pro- hibiting the manufacture and sale of 438 intoxicating liquors is not repugnant to the Constitution (the charter of the corporation in this case was subject to alteration and repeal). Beer Co. v. Massachusetts, 97 U. S. 25. The ap- propriate regulation of the use of pro- perty is not a "taking" of property within the meaning of the Federal Constitution. Railroad Co. v. Rich- mond, 96 U. S. 521. The charter of a fertilizing company, organized to make dead animals into manure, is a sufficient license until revoked ; but it cannot be regarded as a contract guar- antying exemption from the exercise of the police power of the state, how- ever serious the nuisance may become by reason of the growth of population. Fertilizing Co. v. Hyde Park, -97 U. S. 659. The legal tender acts are constitu- tional, whether applied to contracts made before or after their passage. Legal Tender Cases, 12 Wall. 457, overruling Hepburn v. Griswold, 8 Wall. 603 ; Chase, C. J., and Clifford, Field, and Nelson, JJ., dissenting. Giving the opinion of the majority of the court, Strong, J., said: "As in a state of civil society property of a citi- zen or subject is ownership subject to the lawful demands of the sovereign, so contracts must be understood as made in reference to the possible ex- ercise of the rightful authority of the government, and no obligation of a contract can extend to the defeat of the legitimate government authority." 12 Wall. 551. And see the constitu- CHAP. VIII.] CORPORATION AND STATE. [§ 476 a. § 476 a. Munn v. Illinois' is the leading case on the power of the state to 'regulate charges for the use of property devoted to a public use. It decided that the legisla- ^asT^Kaii- ture could rearulate the charges for storina: ffrain de- road „jjv.ri ,.. ■. °°. , charges. manaea by the owners of gram elevators in large cities. Similar considerations arise with regard to the right of legislatures to limit tolls charged by railroad companies. " Railroad companies are carriers for hire. They are incor- porated and given extraordinary powers in order that they may the better serve the public in that capacity. They are, there- fore, engaged in a public employment afiecting the public in- terest, and (under the decision in Munn v. Illinois) subject to legislative control as to their rates of fare and freight, unless protected by their charters This company in the transaction of its business has the same rights, and is subject to the same control as private individuals under the same circum- stances. It must carry when called upon to do so, and can charge only a reasonable rate for the carriage. In the absence of any legislative regulation upon the subject, the courts must decide for it, as they do for private persons, when controversies arise, what is reasonable. But when the legislature steps in, and prescribes a maximum of charge, it operates upon this corporation the same as it does upon individuals engaged in a similar business. It was within the power of the company to call upon the legislature to fix permanently this limit, and" make it a part of the charter ; and, if it was refused, to abstain from building the road and establishing the contemplated- busi- ness. If that had been done, the charter might have, presented a contract against future legislative interference. But it was not; and the company invested its capital, relying upon the good faith of the people and the wisdom and impartiality of legislators for protection against wrong under the form of leg- islative regulation."^ ^ tionality of these acts re-affirmed court per Waite, C. J. These remarks (Field, J., only, dissenting) in Legal are authoritative. Accord, Peik v. , Tender Case, 110 U. S. 421. Chicago, etc. Ry. Co., 94 U. S. 164; ' 94 U. S. 113. Chicago, etc. R. R. Co. v. Ackley, 94 2 Chicago, etc. R. R. Co. v. Iowa, U. S. 179; Ruggles v. State of lUi- 94 U. 8. 155, 161, 162 ; opinion of nois, 108 U. S. 526 ; Blake v. Wi- 439 § 476 b.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. § 476 b. When, however, power has been expressly given a railroad company to take tolls in its discretion, without any legislative reservation, the state cannot regulate its tolls and charges, as that would impair the obligation of the contract between the corporation and the state ; and the police power does not extend so far as to impair or destroy a franchise or a power essential to its exercise.' But '"grants of immunity from legitimate governmental control are never to be presumed. On the contrary, the presumptions are all the other way, and unless an exemption is clearly established the legislature is free to act on all subjects within its general jurisdiction, as the pub- lic interest may seem to require."^ Accordingly, only when the terms are clear and express will the legislature be held to have granted away its rights to regulate tolls.^ Thus, an amendment in a charter gave the directors of a railroad company power to establish rates of toll as they should by their by-laws determine, but provided that their by-laws should not be repugnant to the . laws, of the state. It was held 'that the amendment did not re- lease the company from restrictions upon rates of toll contained in the laws of the state.' In this case in a concurring opinion, Harlan, J., said, after reviewing the cases on the subject, that the cases established these principles : " 1. That the charter of a railroad corporation is a contract within the meaning of the "nona, etc. R. R. Co., 19 Minn. 418; Attorney-General v. Railroad Cos., 85 aff'd suh nom. Winona, etc. R. R. Co. Wis. 425 ; Sloan v. Pacific R. R. Co., V. Blake, 94 U. S. 180; Illinois Can- 61 Mo. 24; Iron R. R. Co. v. Law- tral R. R. Co. v. People, 95 111. 813. rence Furnace Co., 29 O. St. 208 ; And the state may attach a penalty for see Pingry v. Washburn, 1 Aiken taking more tolls than allowed by Stat- (Vt.), 264; semble, contra, Illinois ute. State of Minnesota v. Winona, Central R. R. Co.. v. People, 95 111. etc. R. R. Co., 19 Minn. 434 ; Mobile 313. and M. Ry. Co. v. Steiner, 61 Ala. ' Ruggles v. State of Illinois, 108 559. Compare Chicago and A. R. R. U. S. 526, 531. Co. V. People, 67 111. 11; Wabash, 3 Railroad Commission Cases, 116 St.- L. and P. Ry. Co. v. People, 105 U. S. 807; Illinois Central R. R. Co. 111. 236. But such a penalty cannot v. People, 95 111. 313 ; Georgia R. R. constitutionally be attached to past v. Smith, 70 Ga. 694 ; Shields v. Ohio, acts and omissions. Wilson v. Ohio, 95 U. S. 319. etc. Ry. Co., 64 111. 542. « Ruggles v. State of Illinois, 108 • Philadelphia, W. and B. R. R. U. S. 526^ Co. «. Bowers, 4 Houst., (Del.) 506 ; 440 CHAP. VIII.] CORPORATION AND STATE. [§ 477. contract clause in the Federal Constitution. 2. That such cor- poration may be protected by its charter against absolute legis- lative control in the matter of rates for the carriage of passen- gers and freight. 3. That when the charter is granted subject to such regulations as the legislature from time to time may provide, or subject to the authority of the legislature to alter or repeal it, in either of such cases the legislature has the same power over rates or tolls that it had when the charter was granted. 4. In the absence of statutory regulations upon the subject, it is necessarily implied from the occupation of a rail- road corporation that it shall exact only reasonable compensa- tion for carriage. "J § 477. Another power necessary to the existence of the state, which, while it may perhaps be regarded as inciden- tal to the police power, is important enough for de- power.^™^ tailed discussion, is the power to tax, that is to take the property of individuals for a public use," without making compensation.* Perplexing questions arise in the construction of statutes imposing taxes on corporate property, because of the equivocal use of such phrases as " capital stock," " shares of stock," " stock," " franchises," " earnings,"'' etc.- Very likely no one has a clear understanding of all these phrases. At all events their meaning, as they are used in tax statutes, is so am- biguous that it can only be determined from the context, and accordingly a decision construing any of these terms is apt to be of doubtful application in any other case than that in which it was rendered. Said Chief Justice Waite, giving the opinion of the Federal Supreme Court in Tennessee v. W hitworth :* "In corporations four elements of taxable value are sometimes found : 1, fran- chises; 2, capital stock in the hands of the corporation; 3, corporate property f and 4, shares of the capital stock in the 1 108 u. S. 537. ■* -^s to earnings and profits see § « There ca-n be no lawful tax which 565. Also Memphis and C; R. R. is not levied for a public purpose. Co. v. United States, 108 U. S. 228. Loan Association v. Topeka, 20 Wall. ' 117 U. S. 129. 655 ; Parkersburg v. Brown, 106 U. ' A tax upon the capital stock of S_ 487. a company is a tax upon its property ' See Gilman v. City of Sheboy- and assets. Commonwealth v. Standard gan, 2 Black, 610; and § 469 a. Oil Co., 101 Pa. St. 119 ; Fox's Ap- 441 § 477 a.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. hands of the individual stockholders. Each of these is, under some circumstances, an appropriate subject of taxation ; and it is no doubt within the power of a state, when not restrained by constitutional limitations, to assess taxes upon them in a way to subject the corporation or the stockholders to double taxa- tion. Double taxation is, however, never to be presumed." § 477 a. A construction of tax laws that will impose double taxation is not to be adopted unless required by the express words of the statute or by necessary implica- tion.' The franchise of a corporation is plainly dis- tinct from its capital or property ; consequently, a tax on the franchise coupled, with a tax on the capital or property of a corporation is not double taxation.* And the franchise of a railroad company, for instance, may be .valued for taxation separately from its property.' Further, the capital stock of a corporation is distinct from the shares of its capital stock, which represent or constitute the legal interest of the shareholders in the corporate property ;* consequently, both the capital stock Double taxation. peal, 112 Pa. St. 837. There is no double taxation where a corporation is assessed on its tangible property, and also on the value of its capital stock in excess of the value of its tangible property. Porter v. Kockford, etc. R. E. Co., 76 111. 561 ; Chicago, B. and Q. R. R. Co. v. Siders, 88 111. 320. ■ Salem Iron Factory v. Danvers, 10 Mass. 514; Amesbury Woolen, etc. Co. V. Amesbury, 17 Mass. 461 ; Bank of Georgia v. Savannah, Dudley (Ga.), 130 ; Iron City Bank v. Pitts- burgh, 37 Pa. St. 340; Cooley on Taxation, 2d ed., 227. 2 Carbon Iron Co. v. Carbon County, 89 Pa. St. 251 ; Lackawanna Iron, etc. Co. V. County of Luzerne, 42 Pa. St. 424; Delaware R. R. Tax, 18 Wall. 206 ; Commonwealth v. Lowell Gas Light Co., 12 Allen (Mass.), 75 ; Commonweath v. Hamilton M'f'g Co., 12 Allen (Mass.), 298; Monroe 442 Savings Bank v. Rochester, 85 N. Y. 365 ; Spring Valley Water Works v. Schottler, 62 Cal. 69. 3 Wilmington, C. and A. R. R. Co. V. Board of Com'rs, 72 N. C. 10. For cases on the valuation of capital stock and franchises, see State Railroad Tax Cases, 92 U. S. 575^ Railroad Co. V. Vance, 96 U. S. 450 ; Boston and L. R. R. Co. v. Commonwealth, 100 Mass. 899 ; People v. Equitable Trust Co., 96 N. Y. 887. When the statute requires the capi- tal stock of a corporation to be assessed at its "actual value," it should be estimated above or below par, accord- ing to the fact. Oswego Starch Fac- tory V. DoUoway, 21 N. Y. 449. * Farrington v. Tennessee, 95 U. S. 679, 686 ; New Orleans «. Hous- ton, 119 U. S. 265; State Bank v. CityofRichmond, 79 Va. 118; Porter w. Rookford, etc. R. R. Co., 76 111. 561. CHAP. VIII.] CORPORATION AND STATE. [§ 478. and the shares thereof in the hands of shareholders may be taxed, and still there be no double taxation,' As Justice Nel- son said, giving the opinion of the Federal Supreme Court in Van Allen v. Assessors : " The tax on shares is not a tax on the capital of the bank. The corporation is the legal owner of all the property of the bank The interest of the share- holder entitles him to participate in the net profits earned by the bank in the employment of its capital, during the exist- ence of its charter, in proportion to the number of his shares ; and upon its dissolution or termination, to his proportion of that which may remain of the corporation after the payment of its debts. This is a distinct independent interest or property held by the shareholder, like any other property that may belong to him."2 § 478. The Federal Congress, in the exercise of powers con- ferred' on it by the Constitution, may tax the property of corporations : " The Congress shall have power to congress. lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defence and general welfare of the United States."^ But the power of Congress to tax is restricted tp the scope of the purposes thus specified, and also by the following provisions; — ' Cases in last note. But see Che- state banking association shall pay a shire County Telephone Co. v. State, tax of ten per cent, on the amount of 63 N. H. 167. A statute requiring the notes of any state bank or state the corporation to pay a tax on the banking association paid out by them shares of its stock irrespective of the after August 1^ 1866, does not lay a fact whether there are dividends or direct tax within the meaning of the not, is substantially a tax on the cor- Constitution, and is constitutional, poration. New Orleans v. Houston, Congress, having undertaken in the 119 U. S. 265. exercise of undisputed constitutional 2 3 Wall. 573, 583. See §§ 483, power to provide a currency for the 484. For purposes of taxation the whole country, may constitutionally situs of shares is at the residence of secure the benefit of it to the people the owner, unless otherwise declared by appropriate legislation, and to that by statute. Ogden v. City of St. end may restrain the circulation of any Joseph, 90 Mo. 522. notes not issued under its authority. ' Cons., sec. 8, art. I. Veazie Bank v. Fenno, 8 Wall. 533 ; The ninth section of the act of Con- see National Bank v. United States, gress of July 13, 1866, providing that 101 U. S. 1. every national bank, state bank, or 443 § 479.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. " All duties, imposts, and excises shall be uniform throughout the United States.' " 1^0 capitation or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken.'' " No tax or duty shall be laid on articles exported from any- state.* " No preference shall be given by any regulation of commerce or revenue to the ports of one state over those of another ; nor shall vessels bound to or from one state be obliged to enter, clear, ' or pay duties in another."'' § 479. Unlike the taxing power of Congress, the power of a state to tax the property of corporations is not re- SeTtates stricted in the scope of its purposes and objects by Restric- the Federal Constitution ; nor do the specific restric- tions above referred to, on the taxing power of Con- gress, apply to the states. But, on the other hand, the power of a state to tax is subject to restrictions to which the taxing power of Congress is not ; and, in the first place, is limited by the territorial limitations to the political jurisdiction of the state.' Thus, a state cannot tax the interest on bonds held by a non-resident, secured by a railroad mortgage, although the railroad lies within the limits of the state ; for such bonds are property in the possession of their owners, and when held by non- residents, are property beyond the jurisdiction of the state, and, consequently, not subject to her tax laws, which can have no extra-territorial operation.^ N"either ban a state tax the entire ' Cons., sec. 8, art. I. of the creditor. lb. See Kirtland v. ^ Cons., sec. 9, art. I. Direct taxes Hotchkiss, 100 U. S. 491 ; Bonaparte ■within the meaning of the Constitution v. Appeal Tax Court, 21 Am. Law are only capitation taxes and taxes on Keg., N. S. 290 (U. S. Supr. Ct.) ; land. Springer v. United States, 102 Railroad Co. v. Jackson, 7 Wall. 262 ; D. S. 586. Commonwealth v. Chesapeake, etc. » Commonwealth u. Standard Oil R. R. Co., 27 Grat. (Va.), 344; Valle Co., 107 Pa. St. 119. V. Ziegler, 84 Mo. 214. But personal * Case of the State Tax on Foreign property other than a debt, may have Held Bonds, 15 Wall. 300. It makes a situs apart from the domicile of the ■no difference that the mortgaged pro- owner, at least for the purposes of perty lies within the state, for a debt taxation. Thus, the legislature of a has no situs apart from the domicile state may, for the purpose of taxation, 444 CHAP. VIII.] CORPORATION AND STATE. [§ 479. track and equipment, or the total capital stock of a railroad company whose track lies partly without the boundaries of the state ; but may tax only the portion of the road within its limits, or such proportion of the total capital stock as repre- sents that portion.* Although a state may not tax the franchises of a foreign cor- poration, it may tax the business ; and when a tax is imposed on the "business" of a foreign corporation doing business in the state, the court will not presume that the tax is imposed on the business done outside the state (which might be unconsti- tutional), although the tax is computed on the capital stock of the corporation." A foreign corporation, by doing business within a state, does not bring its capital into the state con- locate shares of stock in a national bank at the bank's place of business, though the shareholders reside else- where. Tappanu. Merchants' National Bank, 19 Wall. 491 ; see also North Carolina R. K. Co. v. Commissioners, 91 N. C. 454; St. Albans v. National Car Co., 57 Vt. 68 ; compare Milleru. United. States, 11 Wall. 269. How- ever, shares may be taxed at the resi- dence of the owner also. Thus, a city may tax its citizens on shares owned by them in the stock of a foreign cor- poration ; and it may do this although the state incorporating the corporation also taxes the shares. Seward ii. City of Rising Sun, 79 Ind. 351 ; see Com- monwealth V. Gloucester Ferry Co., 98 Pa. St. 105; McKeen v. North- ampton County, 49 Pa. St. 619; Worth V. Commissioners, 90 N. C. 409. ' State Trieasurer v. Auditor-Gen- eral, 46 Mich. 224. See Ohio and M. R. R. Co. V. Weber, 96 111. 44.3. But the United States may tax the interest payable on railroad bonds held by alien non-resident owners ; and may compel the corporation to withhold such tax from the bondholders. United States V. Erie R'y Co., 106 U. S. 327. But it is held that in assessing the value of stock for the purposes of state taxation, it is not illegal to include real estate owned by the corporation, but situated outside, of the state. American Coal Co. v. County Com- missioners, 59 Md. 185. A statute provided that the personal property of corporations should be taxed in the town "in which it has its principal place of business or exercises its corpo- rate powers." Held, that the princi- pal place of business, within the mean- ing of this statute, is the place where the governing power of the corpora- tion is exercised. Middletown Ferry Co. V. Middletown, 40 Conn. 65. Not where the principal labor of the em- ployes of the corporation is done. lb. Compare Oswego Starch Factory u. Dolloway, 21 N. Y. 449. 2 People V. Equitable Trust Co., 96 N. Y. 387. A railroad company is "doing business" in a state where part of its road is situated. Erie R'y Co. V. Pennsylvania, 21 Wall. 492. Compare People v. Horn Silver Mining Co., 105 N. Y. 76. 445 § 480.] THE LAW OF PKIVATB CORPORATIONS. [CHAP. VIII. structively, so as to subject to taxation its property outside of the state.* § 480. The power of a state to tax is expressly restricted by section 10, article I. of the Federal Constitution: viz: "No state shall, without the consent of the Congress, lay any im- posts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws,'' . . . nor lay any duty on tonnage."* And the taxing power of a state is also restricted by the clause in Amendmeiit XIV. to the Federal Constitution, which forbids any state to deny to any person within its jurisdiction the equal protection of the laws.^ Thus, when a state allows individuals to deduct the amount of the mortgages on their property in estimating its tax valuation, it is unconstitutional for the state to provide that in assessing the property of railroad companies the amount of the mortgages therein shall not be deducted.* And further, to make no provision for giving the company notice of the as- sessment, and to allow it no chance to be heard in respect thereof, deprive it of its property without due process of law.* On the other hand, as corporations are held not to be citizens within the meaning of the clause in the Constitution which ' Commonwealth v. Standard Oil ' See Peete v. Morgan, 19 Wall. Co., 101 Pa. St. 119. A corporation 581 ; Cannon v. New Orleans, 20 will be regarded as "doing business" Wall. 577; Inman Steamship Co. v. in a state where its oflficers have their Tinker, 94 U. S. 238 ; State Tonnage offices, where its directors hold their Taxes, 12 Wall. 204. ♦ meetings, where its dividends are de- * This provision applies to and pro- clared and paid, and large portions of tects corporations. Santa Clara County its property are sold from time to time. v. Southern Pacific R. B,. Co., 118 U. It is not essential that all its business S. 394, But does not protect foreign be done in the state. People u. Home corporations until they have entered Silver Mining Co., 105 N. Y. 76. the state; See § 400. 2 See Brown v. Maryland, 12 = Railroad Tax Cases, 13 Fed. Rep. Wheat. 419; Turner u. Maryland, 722. See People ?;. Fire Ass'n, 92 N. 107 U. S. 38; People v. Compagnie Y. 311. Contra, Central Pac. R. G6n6rale Transatlantique, 107 U. S. R. Co. v. State Board, 60 Cal. 35; 59 ; Woodruff v. Parham, 8 Wall. San Francisco, etc. R. R. Co. v. 123 ; Pace v. Burgess, 92 U. S. 372; State Board, 60 Cal. 12. Guy w. Baltimore, 100 U. S. 434; « lb. See People u. Supervisors, 70 Tiernan v. Rinker, 102 U. S. 123; N. Y. 228 ; post, ^ 492. Higgins V. Three Hundred Casks of Lime, 130 Mass. 1. 446 CHAP. VIII.] CORPOKATION AND STATE. [§ 481. secures to the citizens of each state the privileges and immunities of the citizens in the several states,* a state may ordinarily dis- criminate in its taxation between foreign and domestic corpora- tions,' and may lay additional taxes on a foreign corporation as a condition of its being allowed to transact business within the limits of the state.' § 481. But the most important of the restrictions in the Federal Constitution on the power of the states to tax arise by implication from the exigencies of the tionsonthe Federal government, and from the nature of certain fhJstates powers granted to Congress. Within the scope of its *» '^^ ^"s- ■^ ^ " ^ ing from constitutional powers the Federal government is the exigen- superior to the state governments.* And, since a Federal power to tax the agencies and instruments of a fj'g^t™" government involves a power to trammel and destroy them, it is evident that "any power in the state to tax the agencies and instruments of the national government would be incompatible with that government's existence. Since the greatest of constitutional decisions, McCulloch v. Maryland,* these propositions have not been questioned. ' Cons., sect. 2, art. IV. ; Pyro- lusite Mangauese Co. v. Ward, 73 Ga. 491. "Ducat V. Chicago, 48 111. 172; Phoenix Ins. Co. v. Commonwealth, 5 Bush (Ky.), 68 ; Tatem v. Wright, 23 N. J. L. 429 ; see Commonwealth V. Gloucester Ferry Co., 98 Pa. St. 105, and compare Commonwealth v. Texas and Pacific K. E.. Co., 98 Pa. St. 90. It is not entirely clear to the writer that these decisions are in accord with the Federal Circuit Court decision of Railroad Tax Cases, supra. With that decision, however, the view of the New York Court of Appeals, in People V. Fire Ass'n, 92 N. Y. 311, is perfectly reconcilable ; i. e., that the Amendment XIV., which prohibits states from denying to any person the equal protection of the laws, does not apply to conditions imposed on foreign corporations on entering the state, although it may afford them security after they have complied with such conditions. See § 400. ' People V. Fire Ass'n, 92 N. Y. 311 ; Phoenix Ins. Co. v. Welch, 29 Kans. 672 ; State v. Western Union Telegraph Co., 73 Me. 518 ; Western Union Tel. Co. v. Mayer, 28 Ohio St. 521 ; but see Clark v. Port of Mobile, 10 Ins. Law Journal, 357 ; except where such taxation would conflict with the exercise of powers gran.ted to Congress by the Federal Constitution, see § 486. See also §§ 379 et seq., on the territorial extent of corporate powers. * See ante, § 469 b. = 4 Wheat. 405. 447 §. 483.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. § 482. The exemption of Federal agencies from state taxa- tion is held to depend, not upon the nature of the r^encfes agencies, nor upon the manner in which they are constituted, nor even upon the fact that they are such agencies. Does the tax, in truth, impair their power to serve the Federal government as they were intended to serve it ? this ' is the material question.' Accordingly, while a state tax on the operations of a Federal agency or instrument would be void as a direct obstruction to the exercise of the powers of the Fed- eral government, yet if such agency or instrument be a stock corporation, a state tax upon its property may be valid, provided the tax leaves the corporation free efficiently to discharge its duties to the Federal government, and in no way impairs the functions of the corporation as a Federal agency.* If these propositions are correct, ct fortiori the employment of a corpo- ration, originally chartered by a state, in the service of the Federal government, does not exempt it from state taxation ; at least in the absence of legislation on the part of Congress indi- cating that such exemption is deemed by Congress essential to the full performance on the part of the corporation of its obli- g;ations to the Federal government.' § 483. The most numerous and important class of corpora- tions incorporated by Congress are the national banks ; atfonof^" which are instruments designed to aid the Federal national government in the administration of an important branch of the public service. Being such means and brought into existence for that purpose, the states can exei'cise no control over them, nor in any way affect their operations, except in so far as Congress may permit.* To what extent na- ^ Railroad Co. v. Peniston, 18 Wall, sumed, however, inasmuch as Congress 5. has power to charter corporations only * Railroad Co. v. Peniston, supra ; in furtherance of some Federal object, . National Bank v. Commonwealth, 9 that any state tax on the property of Wall. 353 ; see Bank of Commerce v. corporations so chartered, in any^ way New York City, 2 Black, 620; Bank discriminating against them, would be Tax Case, 2 Wall. 200 ; Society of held unconstitutional, Savings u. Coite, 6 Wall. 594 ; Provi- ' Thompspn v. Pacific R. R., 9 dent Institution v. Massachusetts, 6 Wall. 579. Wall. 611; Hamilton Co. v. Massa- * Farmers', etc. National Bank v. chusetts, 6 Wall. 633. It may be as- Dearing, 91 U. S. 29 ; Pollard v, 448 CHAP. VIII.] CORPORATION AND STATE. [§ 484. tional banking interests may be taxed by the states, Congress has provided as follows : — " Nothing herein shall prevent all the shares in any associa- tion from being included in the valuation of the personal prop- erty of the owner or holder of such shares, in assessing taxes imposed by authority of the state within which the association is located ; but the legislature of each state may determine and direct the manner and place of taxing all the shares of national banking associations located within the state, subject only to the two restrictions, that the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state, and that the shares of any national banking association owned by non-residents of any state shall be taxed in the city or town where the bank is located, and not elsewhere. Nothing herein shall be construed to exempt the real property of associations from either state, county, or municipal taxes, to the same extent, according to its value, as other real property is taxed."' § 484. "With reference to these statutory provisions, it was held that the New York statute, passed March 9, 1865, by which it was enacted that shares in a national bank held by any person or body corporate should be "included in the valua- tion of the personal property of such person or body corporate in the assessment of taxes in the town or ward where such banking association is located, and not elsewhere," but which did not provide that the tax imposed should not exceed the rate imposed on the shares of any of the banks organized under state authority, is unwarranted and void, no tax having been State, 65 Ala. 628 ; City of Carthage ' U. S. Rev. Stat. § 5219. See 0. First National Bank, 71 Mo. 508; Boyer u. Boyer, 113 U. S. 689. Maguire v. Board of Revenue, 71 Ala. The power of a state to tax national 401. banks comes from the act of Congress, It is within the constitutional power which must be obeyed in thorough of Congress to establish a national good faith. First National Bank v. bank in any state, and provide that St. Joseph, 46 Mich. 526. its shares shall be exempt from taxa- The legislature may tax the property tion by other states. Flint «. Board of a corporation and also tax the share- of Aldermen, 99 Mass. 141 ; see Mc- holders separately on their shares. CuUoch V. Maryland, 4 Wheat. 405. Cook v. City of Burlington, 59 Iowa, 251. 29 449 484.] THE LAW OF PRIVATE COEPORATIONS. [CHAP. VIIX. laid by the state on shares in the stock of state banks, though there was a tax on the capital of such banks.' It was held, however, that, within the limits of the JSTational Banking Act, a state might tax the entire interest of the shareholder in national banking shares ; and that, too, without regard to the fact that a part or the whole of the capital of the bank was in- vested in Federal bonds exempted from state taxation by act of Congress. Such a tax the court considered but a tax on the new uses or privileges conferred by the charters of national banks in respect of the bonds, and a valid condition annexed to their new use.'' If the rate of taxation by a state on the shares in national banks is not greater than the rat© upon the moneyed capital of individuals which is subject to taxation ; that is, if no greater proportion or percentage of tax is levied on the valuation of such shares than is levied upon other tax- able moneyed capital in the hands of citizens of the state, the tax conforms with the National Banking Act.' It has further been held under the act of Congress of February 10, 1868,* per- mitting the state legislatures to direct the iTianner of taxing shares, that shares in national banks may be valued for taxation at an amount above their par value." ' Van Allen v. The Assessors, 3 Wall. 573. ' Van Allen r. The Assessors, 3 Wall. 573, Chase, C. J., and Wayne and Swayne, JJ., dissenting. Ac- cord, Bradley v. People, 4 Wall. 459 ; National Bank v. Commonwealth, 9 Wall. 353 ; in which last case the court held that a tax might, properly speaking, be a tax on shares, though it was collected from the bank instead of from the individual shareholders. See also Mercantile Bank v. New York, 121 U. S. 138 ; People v. Home Ins. Co., 92 N. Y. 828; compare Philadelphia Contributionship v. Com- monwealth, 98 Pa. St. 48. ' People V. The Commissioners, 4 Wall. 244, affirming Van Allen v. The Assessors, svpra. The fact that 450 the state, in the charters of two state banks, has disabled itself from taxing them, does not prevent the state from taxing shares in other state ]t>anks, and in national banks. Lionberger v. Rouse, 9 Wall. 468; compare First National Bank v. Waters, 19 Blatchf. 242. * Ante, § 5219 U. S. Rev. Stat. ^ Hepburn v. The School Directors, 23 Wall. 480 ; see People v. Commis- sioners of Taxes, 94 U. S. 415 ; Straf- ford National Bank v. Dover, 58 N. H. 316. But the provision in § 5219 of the U. S. Rev. Stat., that state- taxation on the shares of any national banking association, shall not be at a greater rate than is assessed on other moneyed capital, has reference to the entire pro- CHAP. VIII.] CORPORATION AND STATE. [§ 485. tions on state taxa^ tion arising from the power of Congress tp regulate commerce. § 485. Of great interest are the restrictions on the power of the^tate to tax corporations which arise from the Restric- essentially exclusive power of Congress to regulate commerce with foreign nations and among the states.^ The power of a state to authorize railroads and other highways is unrestricted, and the disposition of rev- enues from them lies in its discretion.^ A state may license and tax occupations extending beyond its borders, pro- vided it does not discriminate in favor of similar occupations that are carried on entirely within its borders.' But a state cannot impose a tax on the movement of persons or commodi- ties from one state to another.^ A state tax on freight trans- ported from state to state is void, as amounting to a regulation of commerce between the states ; for, whenever a subject, over which a power regulative of commerce is asserted, is in its nature national or interstate, it may be said to require exclusive regulation by Congress ; and the transportation of passengers cess of assessment, and includes the valuation of the shares as well as the rate of percentage charged thereon. A New York statute which permits a person to deduct his just debts from the valuation of all his personal pro- perty, except from so much thereof as consists of national banking shares, taxes them at a greater rate than other moneyed capital, and is void as to them. People v. Weaver, 100 U. S. 539 ; Supervisors v. Stanley, 105 U. 8. 305. See Pelton v. National Bank, 101 U. S. 143 ; Cummings v. National Bank, 101 U. S. 153. The personal property of an insol- vent national bank in the hands of a receiver is exempt from state taxation. Rosenblatt v. Johnston, 104 U. S. 462. A national bank may, on behalf of its shareholders, maintain a suit to enjoin the collection of a state tax unlawfully assessed on their shares. Hills v. Ex- change Bank, 105 U. S. 319; Evans- ville Bank v. Britton, 105 U. S. 822; Cummings v. National Bank, 101 U. S. 153; National Albany Exchange Bank v. Wells, 18 Blatchf. 478 ; City National Bank v. Paducah,- 2 Flippin, 61. But see § 4926, note. ' See for the effect of these exclu- sive powers of Congress in restricting the police power of the states, ante, §§ 4746-474d. 2 Railroad Co. v. Maryland, 21 Wall. 456. 3 Machine Co. v. Gage, 100 U. S. 676; Osborne v. Mobile, 16 Wall. 479. Compare Ward v. Maryland, 12 Wall. 418; Erie By. Co. v. State, 31 N. J. L. 531 ; Jackson Mining Co. v. Auditor-General, 32 Mich. 488. * Crandall v. State of Nevada, 6 Wall. 35 ; Railroad Co. v. Maryland, 21 Wall. 456. Compare Moran v. New Orleans, 112 U. S. 69; Coe v. Errol, 116 U. S. 517; Pickard v. Pullman Southern Car Co., 117 U. S. 34. 451 § 485.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. or merchandise througli a state is of this nature.* On the other hand, a state tax on the gross receipts of a railroad company is not such a regulation of interstate commerce as to be repug- nant to the Constitution, even though the gross receipts are made up in part from freights received for the transportation of merchandise from the state laying the tax to another state, or for transportation from another state into the state laying the tax ; nor is such a tax a tax on imports or exports.* And it is further held a state may tax the vehicles of commerce like o1;her property owned by its citizens.^ A state cannot impose a tax on commodities by reason of their foreign origin ; nor in any way discriminate in its tax laws against the products of other states brought within its boundaries.* The power of congress to regulate commerce " continues until the commodity has ceased to be the subject of discriminating legislation by reason of its foreign character. That power protects it, even after it has entered the state, from any burden imposed by reason of its foreign origin. . . . ' Case of the State Freight Tax, 15 Wall. 233. But the court said that it recognized fully the power of a state to tax its own internal commerce, and the franchises, property, and business of its own corporations, provided inter- state trade and commerce were^not thereby embarrassed or restricted. lb. Compare Passenger Cases, 7 How. 283; Delaware Railroad Tax, 18 Wall. 206 ; Fargo u. Michigan, 121 U. S. 230 ; Philadelphia, etc. S. S. Co. V. Pennsylvania, 122 U. S. 326. ' State Tax on Railway Gross Re- ceipts, 15 Wall. 284. See Ohio and Mississippi R. R. Co. v. Weber, 96 111. 443. State Tax on Railway Gross Receipts, supra, is questioned in Phil- adelphia, etc. So. S. Co. V. Pennsyl- vania, supra. Maryland granted to a railroad com- pany a franchise to build a road from Baltimore to Washington, stipulating that the company should charge not 452 more than two and a half dollars per passenger, and that at the end of every six months the company should pay to the state one-fifth of the amount re- ceived for the transportation of pas- sengers. Held, that such stipulation was not unconstitutional as being a restriction on free intercourse and trafiic between the states, and that it differed from a tax or duty on the movements or operations of commerce between the states. Railroad Co. v. Maryland, 21 Wall. 456 ; compare Osborne v. Mobile, 16 Wall. 479. " Wiggins Ferry Co. v. East St. Louis, 107 U. S. 365; compare Transportation Co. v. Wheeling, 99 U. S. 273 ; Passenger Cases, opinion of McLean, J., 7 How. 288, 402; Commonwealth v. Gloucester Ferry Co., 98 Pa. St. 105. * Walling V. Michigan, 116 U. S. 446. CHAP. VIII.] CORPORATION AND STATE. [§ 487. The fact -that congress has not seen fit to prescribe any specific rules to govern interstate commerce does not affect the question. Its inaction on this subject, when considered with reference to its legislation with respect to foreign commerce, is equivalent to a declaration that interstate commerce shall be free and un- trammelled."* § 486. In respect of its foreign and interstate business a tele- graph company is, as an instrument of commerce, sub- ject to the regulating power of Congress, and if it Jo^^anil'^ accepts the provisions of title sixty-five, of the Revised Statutes of the United States, it becomes a Federal agent in so far as the business of the Federal government is concerned. Accordingly, when such a company has accepted those pro- visions, state laws, in so far as they impose a specific tax on each message which the company transmits beyond the state, or on messages sent by a United States officer over its lines on public business, are unconstitutional.'' § 487. It will be noticed that the restrictions so far discussed on the power of a state to tax corporations, depend on the re- lation that a state under the Constitution bears to the United States government,. rather than on any special relations that a corporation bears to the state incorporating it, or to other states. These restrictions derive their importance in regard to corpora- tions from the fact that enterprises of great magnitude, like the building and working of railroads and telegraphs extending through several states, are ordinarily undertaken by corporations, the means of single individuals rarely sufficing for the successful carrying out of such enterprises. On the other hand, the re- strictions remaining for discussion on the power of a state to ' Welton V. State of Missouri, 91 tion of which many interesting ques- U. S. 275, 282. See also Weber v. tions are likely to arise. Virginia, 103 U. S. 344 ; Guy v. Balti- * Telegraph Co. v. Texas, 105 U. S. more, 100 U. S. 434 ; Tiernan v. 460. See American Union Telegraph Rinker, 102 U. S. 123 ; Cook v. Co. v. Western Union Telegraph Co., Pennsj'lvania, 97 U. S. 566 ; Higgins 67 Ala. 26. Such a law would be un- V. Three Hundred Casks of Lime, 130 constitutional, not only as being a Mass. 1. Compare Turner v. Mary- regulation of interstate commerce, but land, 107 U. S. 38. also as interfering with a Federal Congress has now passed an inter- agency, state commerce bill, in the construe- 453 § 488.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. VIII. tax corporations, arise from special contractual relation between a corporation and the state incorporating it, and from the application of the rule that no man shall be deprived of his property without due process of law. § 488. In incorporating a corporation, a state legislature may exempt from taxation the corporate property for a spe- Chartered gified time, or forever : and this exemption may be from exemptions ' ^ n from taxa- taxation beyond a certain amount, or from any taxa- tion whatsoever. Such an exemption, when made by the legislature at the time of incorporating the corporation, and when expressed in clear and unmistakable terms,^ constitutes a contract between the corporation and the state, the obligation of which would be impaired by any subsequent state l^w at variance with its terms.^ Thus, in 1845, the legislature of Ohio ' To sustain against a state a con- tract not to tax a corporation, the terms must be clear and unequivocal. Korth Missouri Railroad v. Maguire, 20 Wall. 46 ; Memphis Gas Co. v. Shelby County, 109 U. S. 398; St. Louis V. Manufacturers' Savings Bank, 49 Mo. 574. That a state has chartered a corporation -without reserving the right to alter and repeal does not pre- vent the state from taxing the fran- chises and property of such corporation. Providence Bank v. Billings, 4 Pet. 519. See Portland Bank v. Apthorp, 12 Mass. 252 ; Commonwealth v. Lan- caster Savings Bank, 123 Mass. 493. ^ When a state in chartering a char- itable corporation exempts its property from taxation, a subsequent law taxing its property is void. Washington Uni- versity V. Rouse, 8 Wall, 439 ; Home of the Friendless v. Kouse, ib. 430 ; University v. People, 99 U. S. 309 ; Asylum V. New Orleans, 105 U. S. 862 ; Mobile and S. H. R. R. Co. v. Kennerly, 74 Ala. 566. The same is true of a railroad corporation. Hum- phrey V. Pegues, 16 Wall. 244; Par- rington v. Tennessee, 95 U. S. 679 ; 454 Pacific Railroad Co. v. Maguire, 20 Wall. 36. And of other stock corpo- rations; Jefierson Branch Bank v. Skelly, 1 Black, 436 ; Franklin Branch Bank v. Ohio, 1 Black, 474 ; ace. Mo- bile and Ohio R. R. Co. v. Moseley, 52 Miss. 127 ; Atlantic and Gulf R. R. Co. V. Allen, 15 Fla. 637 ; Bank of Commerce v. McGowan, 6 Lea (Tenn.), 703 ; Neiistadt v. Illinois Central R. R. Co., 31 111. 484. But these doctrines have not been univer- sally acquiesced in by the state courts, or even by all the judges of'the Fede- ral Supreme Court. That a state can- not bargain away its taxing powers was held in Mechanics and Traders' Bank v. Debolt, 1 Ohio St. 591 ; Toledo Bank v. Bond, ib. 622 ;. Skelly V Jefferson Branch Bank, 9 Ohio St. 606; Mott. V. Pennsylvania R. R. Co., 30 Pa. St. 9. See Brewster o. Hough, 10 N. H. 138 ; West Wisconsin R. R. Co. V. Supervisors, 35 Wis. 257 ; Washington University v. Rouse; 8' Wall. 439, per Chase, C. J., Miller and Field, JJ., dissenting. Compare the remarks of Marshall, C. J., in Providence Bank v. Billings, 4 Pet. CHAP. VIII.J CORPORATION AND STATE. [§ 489. chartered a bank, stipulating that the bank should pay a certain tax, which should be in lieu of all other taxes ; in 1852 an act was passed, levying taxes on the bank to a greater amount, and this last act was held void as impairing the obligation of a contract.^ § 489. Exemptions from taxation constituting a contract on the part of the state not to tax, are held never t6 Never arise arise by implication f and are construed narrowly in ^7 ™piioa- 519, 563, and the strong adverse criti- cism of this case in Angell and Ames on Corp. §§ 465-469. ' Dodge V. Woolsey, 18 How. .331; Accord, State Bank of Ohio v. Knoop, 16 How. 369. See Gordon u. Appeal Tax Court, 3 How. 133 ; State v. Berry, 2 Harrison (N. J.), 80. A charter exempting the property of a railroad company, and the shares therein from taxation, exempts not only the rolling stock and real estate, , but also the franchise of the corpora- tion ; and a subsequent law taxing, the franchise impairs the obligation of a contract, and is. void. Wilmington Railroad v. Keid, 13 Wall. 264 ; Ra- leigh and Gaston R. R. Co. «. Reid, ;3 Wall. 269 ; Worth v. Wilmington, etc. R. R. Co., 89 N.C. 291 ; Worth V. Petersburg R. R. Co., 89 N. C. 301. In Tennessee v. Whitworth, 117 U. S. 129, the exemption of "capital stock" from taxation was construed to exempt the shares in the hands of shareholders. " A provision in an act consolidating two railroad companies, requiring the consolidated company to pay a tax of one-quarter per cent, on its stock, does not prevent the legislature from im- posing further and different taxes. Delaware Railroad Tax, 18 Wall. 206. See also People v. Commissioners of Texas, 82 N. Y. 459. The charter of a street railroad company provided that the company should pay a license of $30 for each car run by the company ; subsequently the legislature raised the license to $50. Held, that there was no con- tract to require only |30. Railway Co. V. Philadelphia,, 101 U. S. 528. The court said that even if this pro- vision had constituted a contract, un- der its constitutional power reserved to alter and amend, the legislature could have imposed the additional li- cense, lb. Ace. Johnson v. Phila- delphia, 60 Pa. St. 445 ; Prankford and P. Pass'r Ry. Co. «. Philadel- phia, 58 Pa. St. 119. The^rant; to a corporation of a privilege to manufac- ture and vend gas in a city for a cer- tain term of years, which places re- strictions on the prices that may be demanded by the corporation, does not exempt the corporation from the impo- sition of a license tax. Memphis Gas Co. V. Shelby County, 109 U. S. 398. When a corporation is Chartered with the unconditional right to increase its capital stock (power to alter, etc., not reserved), the state cannot exact a bonus (not a tax) on the corporations increasing its stock. Commonwealth V. Erie, etc. Trans. Co., 107 Pa. St. 112. But when a charter, which is subject to alteration and repeal, pro- vides that the corporation shall not be taxed until its dividends amount to a certain per cent., the state may still 455 § 490.] THE JiAW OF PRIVATE COKPOEATIONS. [CHAP. VIII. favor of the state.^ Moreover, to give rise to such a contract there must be some consideration therefor from the corpo- ration ; as a statute passed subsequently to the creation of a corporation, providing that the corporation shall not be taxed beyond a certain rate, is a mere gratuity, and may be repealed by the state at any time.* So a statute of one state permitting a corporation of another state to exercise part of its franchises in the former state, and laying a tax on the corporation at the same time, does not preclude further taxation on the part of the former state.^ And an exemption from taxation in the nature of a "bounty" has been held repealable, even as to corpora- tions formed subsequently to its passage and with a view to its provisions.^ § 490. An exemption of the property and franchises of a cor- immunity po^ation from taxation is a privilege pertaining to the corporation, which does not follow its property. and franchises into the hands of subsequent owners ; unless subsequent owners succeed to the property and neetion with an exemption of its prop- erty from taxation, the exemption ap- plies only to property acquired for such purposes. Bank v. Tennessee, 104 U. S. 493. ' Christ Church v. County of Phila- delphia, 24 How. 300. An act of the legislature exempting property from taxation is not a "contract" unless there is a consideration for it, but a nude pact and revocable. Tucker v. Ferguson, 22 Wall. 527 ; West Wis- consin R. R. Co. V. Supervisors, 93 U. S. 595. But if the exemption be from taxa- tion not transfera- ble. tax the corporation before that condi- tion of affairs exists. Commonwealth V. Fayette County R. R. Co., 55 Pa. St. 452. Compare § 461, ante, and § 497, note. See also cases in the fol- lowing note. ' Railroad Cos. v. Gaines, 97 U. S. 697 ; Railroad Co. v. Commissioners, 103 U. S. 1 ; Hoge v. Railroad Co., 99 U. S. 348 ; Bailey v. Maguire, 22 Wall. 215; Morgan v. Louisiana, 93 U. S. 217; Roosevelt Hospital u. City of New York, 84 N. Y. 108 ; Academy v. Exeter, 58 N. H. 306 ; Tucker v. Ferguson, 22 Wall. 527 ; contained in an amendment* to the Memphis and L. R. R. R. Co. v. Rail- charter accepted by the corporation. road Commissioners, 112 U. S. 609. Exempting the capital stock and dividends from taxation does not ex- empt lands granted to the corporation by the state creating it. Railroad Co. V. Loftin, 98 U. S. 559 ; see Railway Co. V. Loftin, 105 D. S. 258. Where the purposes for which a corporation may hold property are specified in eon- 456 the exemption constitutes a contract binding on the state. University v. People, 99 U. S. 309 ; Commonwealth V. Pottsville Water Co., 94 Pa. St. 516. ' Erie Railway Co. v. Pennsylvania, 21 Wall. 492; Home Insurance Co. V. City Council, 98 U. S. 116., ♦ Salt Co. V. East Saginaw, 13 Wall. 873. CHAP. VIII.] CORPORATION AND STATE. [§ 490. franchises of the corporation under special authority from the state securing to them all the rights and privileges of the cor- poration.* Thus, upon the sale of the property and franchises of a railroad corporation under a mortgage, in terms covering the franchises of the corporation, immunity of the property of the corporation from taxation does not accompany the property in its transfer to the purchaser. The court held that the fran- chises of a railroad corporation are positive rights and privi- leges without which the road could not be successfully worked, and that immunity from taxation is not one of them. Fran- chises may pass to the purchaser as part of the property ; ira-r munity from taxation is personal, and incapable of transfer, without express statutory direction.^ When a railroad comes into the possession of the state, whatever immunity from taxa- tion may have existed in respect to it ceases; and will not pass to the grantee of the state, if the state at the time of taking possession is forbidden by the state constitution to grant immu- nity from taxation.^ And when by reason of restrictions in a state constitution it is incompetent for the legislature to make an original grant of exemption from taxation, it is also incom- petent for the legislature to provide that the assignee of a rail- ' See Tennessee v. Whitworth, 117 L. R. E. R. Co. v. Railroad Commis- U. S. 139; Nichols v. New Haven sioners, 112 U. S. 609. and N. Co., 42 Conn. 103. Exemp- ^ Morgan v. Louisiana, 93 U. S. tion from taxation may pass to a cor- 217 ; followed in Louisville and Nash- poration which purchases the road of ville R. R. Co. v. Palmes, 109 U. S. another under a statute providing 244 ; Chesapeake and O. R'y Co. v, that "all rights" as to a line of rail- Miller, 114 U. S. 176; see Raiboad way whicJi " are and have been legally Cos. v. Gaines, 97 U. S. 697; State vested" in one corporation shall pass v. Morgan, 28 La. Ann. 482; Rail- to the corporation purchasing its road, road Co. v. County of Hamblen, 102 Atlantic and Gulf R. R. Co. v. Allen, U. S. 273 ; Humphrey v. Pegues, 16 15 Fla. 637. A mortgage by a rail- Wall. 244; Wilson v. Gaines, 103 U. road company of its charter, rights, S. 417; Memphis and L. R. R. R. privileges, and franchises, made in Co. v. Railroad Commissioners, 112 pursuance of authority to mortgage U. S. 609 ; compare City of Bridge- "itseharter and works," does not pass port v. New York and N. H. R. an exemption from taxation to the R. Co., 36 Conn. 255, 266; and corporation formed out of the bond- Truckee Turnpike Co. o. Campbell, holders after foreclosure. Memphis and 44 Cal. 89. 3 Trasku. Maguire, 18 Wall. 391. 457 § 491.] THE LAW OF PEIVATB CORPORATIONS. [CHAP. VIII. road company which had enjoyed a personal non-assignable im- munity from taxation shall enjoy the immunity possessed by his assignor.^ This reasoning was afterwards followed in the case of a consolidation creating a new corporation ; and it was held that the new corporation could not have received immu- nity from taxation because of an amendment to the state con- stitution in force at the time of the consolidation forbidding^ the exemption of corporations from taxation.^ § 491. Some of the most interesting questions respecting Effect of chartered immunity from taxation have arisen upon consoiida^ the consolidation of corporations ; and in solving these questions the Supreme Court of the United States has strongly exemplified the doctrine that the intent of the legislature to exempt the property of a corporation from taxation must be explicit. An early case is Philadelphia and "Wilmington Railway Co. v. Maryland,' which was the case of a railroad company formed by the union of several companies chartered by different states. One of the original companies had been chartered by Maryland, and its charter contained no exemption from taxation. The court held that the property of the consolidated company in Maryland could be taxed by that state, although the charter of another of the original companies, given by another state, contained an exemption from taxation.* So, where one railroad company was merged ' Louisville and Nashville R,. R. which the original companies had pre- Co. V. Palmes, 109 U. S. 244. viously enjoyed under their respective 2 St. Louis, I. M. and S. R'y Co. v. charters ; the rights and privileges in Berry, 113 U. S. 465. Maryland which 'the Maryland com- 2 10 How. 376. pany had there enjoyed, and in Dela- * Two acts of Delaware and Mary- ware the rights and privileges which land authorized the consolidation of the Delaware company had there en- two railroad companies, one in Dela- joyed, and that it was not the purpose ware and one in Maryland. Both to transfer to either state and enforce acts contained a provision whereby therein the legislation of the other, the shareholders of the two companies And, therefore, since a provision in the should, when consolidated, enjoy all charter of the original Maryland cor- the rights -and privileges, and exercise poration exempting its shares from all the powers vested in either com- taxation, exempted them only in Mary- pany. It was held that the purpose of land, the privilege of the new coni- the two provisions was to vest in the pany in this matter only extended to new company the rights and privileges an exemption in that state and did not 458 CHAP. VIII.] CORPORATION AND STATE. [§ 492. in another created by the same state, which latter company be- came invested with all the property, rights, and privileges of the former, it was held that an exemption from taxation in the charter of the latter company did not, in the absence of express words or necessary intendment, extend to the property of the former railroad acquired through the consolidation.' A con- solidated company acquires no greater immunities from taxa- tion than the constituent companies had prior to the consolida- tion, and holds their immunities distributively ; that is to say, whatever privileges and advantages either of the former companies possessed, inure to the benefit of the new company to the extent of the road occupied by each of the former com- panies respectively at the time of the consolidation.^ And when two corporations subjected to a certain special tax, with immunity from other taxation, are consolidated into a new corr poration under such conditions as to render the special tax im- possible, the new corporation is not entitled to immunity from general taxation.' § 492. The rule that no man shall be deprived of his property without due process of law applies to taxation ; but Taxation. a mode of procedure may be " due process of law" ge^of i^™];. exempt its shares from taxation in missioners, 37 N. J. L. 240; Tennes- Delaware. Delaware Kailroad Tax, see v. Whitworth, 117 U. S. 139. 18 Wall. 206. Two corporations en- When a new corporation is formed out joying respectively certain immunities of two or more previously existing from taxation were consolidated by a corporations, and by the act creating statute passed after the passage of a it is to have the powers, privileges, general law reserving generally the and immunities possessed by each of right to the state to withdraw corpo- the corporations whose union consti- rate franchises granted by subsequent tutes the new corporation, the new cor- charters unless expressly negatived in poration will have the privileges, pow- the charter ; the effect of the consoli- ers,andimmunities which they all (i. e., dation was to dissolve the two corpo- every one of them) had ; and will not rations and create a new one ; it was have those powers, privileges, and im- held the consolidated corporation was munities which some had and some did subject to taxation. Railroad Co. v. not. This construction was put on a Georgia, 98 U. S. 359. consolidating act in regard to exemp- 1 Chesapeake, etc. R. R. Co. v. tion from taxation; the former char- Virginia, 94 U. S. 718. ters, moreover, were subject to altera- 2 Tomlinson v. Branch, 15 Wall, tion and repeal. State v. Maine Cen- 460 ; see Central Railroad, etc. Co. v. tral R. R. Co., 66 Maine, 488, 514. Georgia, 92 U. S. 665 ; State v. Com- Railroad Co. v. Maine, 96 U. S. 499. ' . 459 § 492.] , THE LAW OF PKIVATB CORPORATIONS. [CHAP. VIII. in matters of taxation, which would not be " due process of law" in other proceedings. " Taxes have not, as a general rule, in this country since its independence, nor in England before that time, been collected by regular judicial proceed- ings. The necessities of government, the nature of the duty to be performed, and the customary usages of the peo- ple, have established a different procedure, which, in re- gard to that matter, is, and always has been, due process of law."^ Accordingly, at least as regards taxation, the phrase does not necessarily imply a regular proceeding in a court of justice, or after the manner of courts of justice.' In delivering the opinion of the court in l)avidson v. 'Sew Orleans,' Justice Miller said in regard to the term : " Apart from the eminent risk of a failure to give any definition which would be at once perspicuous, comprehensive, and satisfactory, there is wisdom we think in the ascertaining of the intent and application of such an important phrase in the Federal Constitution by the gradual process of judicial inclusion and exclusion, as the eases presented for decision shall require, with the reasoning on which such decisions may be founded. This court is, after an experi- ence of nearly a century, still engaged in defining the obliga- tion of contracts, the regulation of commerce, and other powers conferred on the Federal government, or limitations imposed upon the states." .... As contributory to this process we hold " that whenever by the laws of a state, or by state authority, a tax, assessment, servitude, or other burden, is imposed upon property for the public use, whether it be for the whole state, or for some more limited portion of the community, and these laws provide for a mode of confirming or contesting the charge thus imposed, in the ordinary courts of justice, with such notice to the person, or such proceeding in regard to the property as is appropriate to the nature of the case, the judgment in such proceedings cannot be said to deprive the owner of his property without due process of law, however obnoxious it may be to other objections."* ' Kelly V. Pittsburgh, 104 U. S. ' 96 U. S. 97, 104. 78, 80 ; opinion of court per Miller, J. < See also Kentucky R. R. Tax ^ Davidson v. New Orleans, 96 U. Cases, 115 U. S. 321. S. 97, citing Murray's Lessee v. Ho- boken Land Co., supra. , 460 CHAP. VIII.] CORPORATION AND STATE. [§ 492a. § 492a. Giving the opinion of tbe court in Hagar v. Eecla- mation District (after quoting approvingly from Davidson v. New Orleans), Justice Field said : " It is sufficient to observe here that by 'due process' is meant one which, following the forms of law, is appropriate to the case, and just to the parties to be affected. It must be pursued in the ordinary mode pre- scribed by the law ; it must be adapted to the end to be attained ; and wherever it is necessary for the protection of the parties, it must give them an opportunity to be heard respecting the justice of the judgment sought. The clause in question means, therefore, there can be no proceeding against life, liberty, or property which may result in the deprivation of either, without the observance of those general rules established in our system of jurisprudence for the security of private rights.* Unless re- strained by provisions of the Federal Constitution, the power of the state, as to the mode, form, and extent of taxation, is unlimited, where the subjects to which it applies are within her jurisdiction."' " Of the different kinds of taxes which the state may impose, there is a vast number of which, from their nature, no notice can be given the taxpayer, nor would notice be of any possible advantage to him, such as poll taxes, license taxes (not dependent upon the extent of his business), and generally, specific taxes on things, or persons, or occupations. In such cases the legisla- ture, in authorizing the tax, fixes its amount, and that is the end of the matter. If the tax be not paid, the property of the de- linquent may be sold, and he be thus deprived of his property. Yet there can be no question that the proceeding is due process of law, as there is no inquiry into the weight of evidence, or other element of a judicial nature, and nothing could be changed by hearing the tax-payer. 'So right of his is, therefore, in- vaded " But where a tax is levied on property, not specifically, but according to its value, to be ascertained by assessors appointed for that purpose upon such evidence as they may obtain, a dif- ferent principle comes in. The officers in estimating the value act judicially ; and in most of the states provision is made for- ' Citing Hurtado v. California, 110 ^ Quoted from State Tax on For- U. S. 516, 636. eign Held Bonds, 15 Wall. 300, 319. 461 § 4926.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. the correction of errors committed by them, through boards of revision or equalization, sitting at designated periods provided by law to hear complaints respecting the justice of the assess- ments. The law in prescribing the time when such complaints will be heard, gives all the notice required, and the proceeding by which the valuation is determined, though it may be fol- lowed, if the tax be not paid, by a sale of the delinquent's prop- erty, is due process of law."' § 4926, In order to obtain the aid of a court of equity to re- strain the collection of a tax, the case must be brought within some of the recognized foundations of equity jurisdiction, and mere error, or excess in valuation, or hardship or injustice of the law, or any grievance which can be remedied by a court of law, either before or after payment of the tax, will not warrant a court of equity to interpose by injunction to stay the collection of a tax.'' And as a general rule, the owner of taxable property who would enjoin the collection of a tax thereon, must first pay or tender so much as is due.^ Jurisdic- tion of equity to restrain the collection of a tax. ' Hagar v. Reclamation District, lllU. S. 701, 709, 710. (There is appended at the end of this case a note of the legislation of the colonies before the Revolution, and of the states since, giving the taxpayer the right to be heard before the assessment be- comes final.) Compare Porter u. Rockford, etc. R. R. Co., 76 111. 561 ; Railroad Tax Cases, IS Fed. Rep. 722. ' State Railroad Tax Cases, 92 U. S. 575 ; see Union Pacific Ry. Co. v. Cheyenne, 113 U. S. 516 ; Allen v. Baltimore and Ohio R. R. Co., 114 U. S. 311. One of the reasons why a court should not thus interfere, as it would in a matter between individuals, is that it has no power to apportion the tax, or make a new assessment, or order a new assessment to be made by the proper officers of the state. The levy of taxes is not a judicial function, 462 but by the constitutions of all the states, and by the theory of our Eng- lish origin, is exclusively legislative. If there is an over- valuation of the fran- chise, or of the capital stock, or of both, it is an error of judgment in the offi- cers to whose judgment the law con- fided that matter ; and it does not lie with a court to substitute its own judg- ment for that of the tribunal expressly created for that purpose. lb. Com- pare Wright V. Southwestern R. R. Co., 64 Ga. 783 ; Southwestern R. A. Co. V. Wright, 68 Ga. 811. ^ National Bank v. Kimball, 103 U. S. 732 ; compare Supervisors v. Stanley, 105 U. S. 305. A bank can- not enjoin a tax collector from selling the shares of individual shareholders. Waseca County Bank v. McKenna, 32 Minn. 468. But see § 484, note. CHAP. VIII.] CORPORATION AND STATE. [§ 493. § 493. The discussion of the powers which a state has over cor- porations by virtue of its police power (in the broadest Dig^ngtion sense), would be incomplete without mentioninsc the between distinction taken in many cases between "rights" ana^'reme- and " remedies." It has been, for instance, decided ^'^^" that the abolishment of imprisonment for debt, or distress for rent, even as to debts already contracted or leases already in force, is not unconstitutional as impairing the obligation of a contract, because such a law is held to operate only as a modi- fication of the remedy.* These cases have been questioned,'' and indeed the distinction between a right and a remedy is probably of comparatively recent growth. Going back to early periods of legal history we find that what are now regarded as the sub- stantial rights of persons were simple and easy of determina- tion, while the more difficult, but equally important, questions were as to the proper means of enforcing these rights. This is illustrated by the extraordinary prominence of the law of dis- tress in the Brehon (old Irish) and Salic systems.' At Home, moreover, the right to bring a certain actio was not distin- guished, as at present, from the rights which by means of that actio were sought to be enforced.* Still, the law of procedure is- in most respects to-day readily distinguishable from the law regulating material rights, and with reference to our present legal notions the distinction on principle may be sufficiently justifiable, if not so historically.' Besides, the power to regu- ' Sturges V. Crowninshield, 4 Wheat, creased exemptions under a new home- 122; Mason v. Haile, 12 Wheat. 370; stead act affecting the remedy under Penniman's Case, 103 U. S. 714 ; Van contracts already entered into were Rensselaer v. Snyder, 13 N. Y. 299; unconstitutional. See also Louisiana Conkey B. JHart, 14 N. Y. 22. v. New Orleans, 102U. S. 206. ^. " Any law which in its operation ' See Maine's Early History of amounts to a denial or obstruction to Institutions. the rights accruing by contract, though ■* See, generally, Windschied, Die professing to act only on the remedy, Romische Actio. is directly obnoxious to the provision ^ See United States v. Union Pacific of the Constitution." Pritchard v. R. R. Co., 98 U. S. 569, 608. A re- Norton, 106 U. S. 124, 132; see duction in the time prescribed by the McCracken v. Hayward, 2 How. 608, statute of limitations in force when 612; Gunn «. Barry, 15 Wall. 615; the right of action accrued is not un- Edwards v. Kerzey, 96 U. S. 595, constitutional, provided- a reasonable 607. The last two cases held that in- time be left for the commencement of 463 § 495.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. late procedure may perhaps be regarded as a portion of the police power of the state of which a surrender could never be presumed.' § 494. A late statement of the general law on this subject may be found in Penniman's Case,^ where Justice Woods said, giving the opinion of the Supreme Court of the United States : " The general doctrine of this court on this subject may be thus stated : ,in modes of proceeding and forms to enforce the contract the legislature has the control, and may enlarge, limit, or alter them, provided it does not deny a remedy or so embarrass it with conditions or restrictions' as seriously to impair the value of the right."^ It would seem, however, that when a new remedy is authorized after a contract has been made, such remedy may be wholly taken away by the legislature before any vested rights have been acquired under it; for such remedy could have formed no part of the contract as made. But if the creditor proceeds, and acquires any vested rights under the new remedy, it may then be incompetent for the legislature by re- pealing the new remedy to affect his rights.* § 495. In creating a corporation' the legislature may impose upon it, and upon parties dealing with it, such restrictions as the legislature maj' deem proper in regard to subjecting its assets to the discharge of its obligations ; and, further, may pro- vide that any one of the usual remedies of creditors shall in certain cases be withheld." And after a corporation has been incorporated, a statute which prescribes a mode of judicial ser- vice on the corporation different from that provided for in its charter affects only the remedy and is constitutional.* Like- wise provisions in the charter of a railroad company regulating a suit before the bar takes effect, generally, Virginia Coupon Cases, 114 Terry v. Anderson, 95 U. S. 628 ; U. S. 270. compare Blount v. Windley, 95 U. S. • Memphis v. United States, 97 U. 173. S. 293; South Carolina ». Gaillard, 1 See Railroad Co. v. Hecht, 95 U. 101 U. S. 433. S- 1 68. 6 National Shoe and Leather Bank = 103 U. S. 714, 720. V. Mechanics' Nat. Bank, 89 N. Y. ' See also Tennessee v. Sneed, 96 467. U. S. 69 ; Crawford v. Branch Bank « Railroad Co. v. Hecht, 95 U. S. of Mobile, 7 How. 279; Antoni v. 168. Greenhow, 107 U. 8. 769. Compare, 464 CHAP. VIII,] CORPORATION AND STATE. [§ 496. the manner of taking land ;' or a summary remedy against de- faulting stockholders given to a corporation by its enabling act, may be changed by subsequent legislation.'' § 496. Having discussed the powers which a state has over corporations and their property by virtue of eminent domain, police, and taxing powers ; by virtue, that reserved to is, of powers inherent in the state as the political repeaf"'^ superior of the corporation, the exercise of which is not incompatible with the concurrent legal relations between the state and the corporation occasioned by the implied contract between them ; we come now to consider the further powers of the state over corporations when, by reserving the right to alter and amend or repeal the charter or enabling act of the corporation, the state prevents such charter or enabling act from impliedly creating as between itself and the corporation a contract within the purview of the Federal Constitution.' The state occupies towards the corporation the position of lawgiver, ■v. ^ Mississippi E'J^ Co. v. McDonald, 12 Heisk. (Tenn.) 54; Gowen v. Penobscot R. K. Co., 44 Me. 140; Chatteroi Ky. Co. v. Kinner, 81 Ky. 221 ; see Baltimore and Susquehanna R. R. Co. V. Nesbit, 10 How. 395. 2 Ex parte North East and S. W. Ala. R. R. Co., 37 Ala. 679. The legislature can alter the mode of asses- sing banks. Bank of Republic v. County of Hamilton, 21 111. 53 ; see Reapers' Bank v. Willard, 24 111. 433. A statute authorizing the sale of its road for payment of the debts of the corporation is constitutional, even if the right to alter and repeal is not reserved. Louisville, etc. Turnpike Co. V. Ballard, 2 Mete. (Ky.) 165. Even when the power to alter and repeal the charter is not reserved, a state may constitutionally provide that a state officer may file a petition to have unsound insurance companies wound up. This is a valid exercise by the state of its unalienable police power, 30 and does not impair the obligation of the contract between the corporation and the state, nor deprive shareholders of their vested rights. Ward v. Far- well, 97 III. 593; Chicago Life Ins. Co. V. Auditor, 101 111. 82. See Forstall v. Consolidated Association, 34 La. Ann. 770 ; Rockover v. Life Association, 77 Va. 85. ' "The reserved power of amend- ment and repeal is not anything more than the legislature would have had without a reservation, if statutes of in- corporation had been held to be pos- sessed of the ordinary amendable and repealable qualities of other statutes." Ashuelot R. R. Co. v Elliot, 58 N. H. 451, 454. The right to alter and re- peal may be reserved in a general statute so as to apply to charters sub- sequently granted. Thornton v. Mar- ginal Freight Ry. Co., 123 Mass. 32; Roxbury v. Boston and P. R. R. Co., 6 Cush. (Mass.) 424. 465 § 497.] THE LAW or PEIVATE CORPORATIONS. [CHAP. VIII, from whom emanate most of the rules of law contained in the constitution of the corporation. It is held to contract with the corporation not to alter these rules, thus agreeing ■ that acts in respect of the corporate enterprise shall always have a certain legal effect. This, as we have seen,' is the only contract ordi- narily existing between the corporation and the state ; and if the state reserves the right to alter or repeal these rules of law, that reservation prevents the existence of this contract. § 497. Accordingly, when the state reserves this power, the , ^ charter or enabling act of the corporation, as between No vested ° , ^ . right in a the state and the corporation, subsists simply as a aw. ^^^^ ^^^ conduct, as law properly speaking, which, like other law, may be altered or repealed at the will of the legislature, provided the obligation of no contfact is thereby impaired, and no one is deprived of his property without due process of law. ISTo one has any property or vested right in a rule of law, except in so far as the rule has manifested itself in legal relations between himself and others who are within the scope of its operation ; and, accordingly, provided legal relations already existing are not affected, the law may be changed at the will of the legislature.^ As Chief Justice Waits said, in Munn V. Illinois:^ "A mere common law regulation of trade or business may be changed by statute. A person has no prop- erty, no vested interest, in any rule of the common law. That is only one of the forms of municipal law, and is no more sacred than any other. Rights of property which have been created by the common law cannot be taken away without due pro- cess ; but the law itself, as a rule of conduct, may be changed ' at the will, or even at the whim of the legislature, unless pre- vented by constitutional limitations. Indeed, the great office of statutes is to remedy defects in the common law as they are developed, and to adapt it to the changes of time and circum- stances."^ ' § 450. American Coal Co. v. Consolidation 2 When a state reserves the uncon- Coal Co., 46 Md. 15. ditional right to alter and repeal, the ' 94 U. S. 113, 134, affirming S. question vfhether an amendment is C, 69 111. 80. wise, consistent with public interests * A railroad company was incorpo- and the prosperity of the company, is rated, its charter being subject to alte- for the legislature, not for the courts, ration and repeal. Subsequently the 466 CHAP. VIII.] CORPORATION AND STATE. [§ 498. § 498. But the charter of a corporation, or the enabling statute and articles of association filed in pursuance thereof, state legislature amended the charter by exempting the property of the cor- poration from taxation. After the pas- sage of this amendment, the people of the state adopted a new constitution, one of the provisions of which required corporations to be taxed ; and, carry- ing out this provision, the legislature levied a tax on the property of said corporation. The tax was held consti- tutional, the Supreme Court saying, per Field, J. . " The original corpora- tors, or subsequent stockholders, took their interest with knowledge of the existence of this power, and of the pos- sibility of its exercise at any time in the discretion of the legislature. . . . The reservation affects the entire rela- tion between the state and the corpo- ration, and places under legislative control all rights, privileges, and im- munities derived by its charter directly from the state. Rights acquired by third parties, and which have become vested under the charter, in the legiti- mate exercise of its powers, stand upon a different footing ; but of such rights it is unnecessary to speak here. The state only asserts in the present case the power under the reservation to modify its own contract [?] with the corporators ; it does not contend for a power to revoke the contracts of the corporation with other parties, or to impair any vested rights thereby ac- quired." Tomlinson v. Jessup, 15 Wall. 454, 458. Ace. Union Im- provement Co. V. Commonwealth, 69 Pa. St. 140. A bridge company accepted from Congress the right to build a bridge across navigable waters, on condition that such right or franchise might be revoked, or alterations required in the bridge at any time, if the bridge should be found detrimental to navigation. Held, that this condition was an essen- tial element of the grant, and that the company, in accepting the privileges, assumed all risks of loss from the ex- ercise of the power Congress had re- served; and that Congress might re- quire alterations in the bridge without incurring for the United States liability to pay for them. Bridge Co. b. United States, 105 U. S. 470. The constitution of California of 1849 provided that corporations might be formed under general laws, but should not be created by special act, except for municipal purposes; and that all general laws and special acts passed pursuant to this provision might be altered from time to time or re- pealed. The legislature afterwards enacted a general law for the forma- tion of corporations for supplying cities and counties with water, which provided that the rates to be charged for water should be fixed by a board of commis- sioners to be appointed partly by the corporations and partly by the muni- cipal authorities. Subsequently the constitution and laws of California were changed so as to take away from water companies organized under the old constitution and laws the power to appoint members of the boards of com- missioners, and give to the municipal authorities the sole power to fix the rates for water. It was held that these changes violated no provision of the Federal Constitution, and that to vest such sole authority in the municipal authorities was within the legislative power. Spring Valley Water Works V. Schottler, 110 U. S. 347. 467 § 498.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. Effect of the reserva- tion of the right to alter and repeal on the con- tract be- tween the corpora- tors. embody the terms of a contract between the corporators. .This contract, however, is subject to the reserved power in the state to alter or repeal it: for it is a contract which is not only sanctioned by, but embodied in laws which the state has reserved the right to alter and repeal. Consequently, the legal relations among the corporators, in so far as they are occasioned solely by this contract, may be changed at the will of the state, without thereby impairing the obligation of the contract or depriving any one of " vested rights." The obliga- tion of a contract consists in the rules of law which manifest themselves in legal relations between the parties to it ;' and, in this instance, one of these very rules would be that the state might change or repeal any of the rules of law constituting this obligation ; might change, that is, any of these legal relations. It is accordingly implied in the agreement of the corporators among themselves, that in so far as their legal relations are oc- casioned solely by their contract embodied in the constitution of the corporation, they may be altered at the will of the state. The obligation of this contract, then, consists either in the rules of law manifesting themselves in legal relations upon the ex- ecution of the contract, or in those rules as modified by subse- quent legislation and such other rules as the state changing the constitution of the corporation may make.'' Consequently, the state by changing the corporate constitution does not impair the obligation of this contract.^ ^ ' ' The laws which exist at the time and place of the making of a contract, and where it is to be performed, enter into it and form part of it. This em- braces alike those which affect its validity, construction, discharge, and enforcement The obligation of a contract is the law which binds the parties to it to perform their agree- ment." Walker v. Whitehead, 16 Wall. 314, 317, 318. See Von Hoff- man*. City of Quincy, 4 Wall. 550 ; Louisiana v. Neiw Orleans, 102 U. S. 206. Compare Connecticut Mutual 468 Life Ins. Co. v. Cushman, 108 U. S. 51. 2 Compare Supreme Commandery V. Ainsworth, 71 Ala. 456, 450. ' To the stock of a railroad corpo- ration, whose charter was subject to alteration and repeal, a city subscribed, having the right to appoint a certain number of the directors of the railroad. Individuals also subscribed, but did not pay their subscriptions. Some years later the legislature authorized the city to appoint a greater number of directors ; and the legislation was held CHAP. VIII.] CORPORATION AND STATE. [§ 499. § 499. Although the state may change the legal telations arising solely from the contract of the corporators embodied in the corporate constitution, it by no J'lJe're*"* means follows that the state may change any and all served legal relations subsisting in respect of the corporate ^°*^'^" enterprise. The contract embodied in the constitution is an act which itself occasions legal relations among the parties to it ; and it is only the legal relations which arise solely from this contract as a contract that the state may change. The consti- tution of a corporation, besides embodying a contract between the corporators, contains rules of law which will manifest them- selves in legal relations upon the doing of other and further acts in respect of the corporate enterprise ; and the legal rela- tions which are not occasioned solely by the contract embodied in the constitution, but which arise only upon the doing of other and further acts which bring the actors within the opera- tion of that constitution regarded as law, the state cannot change. In respect of such acts, the state may only provide what legal relations they shall occasion in the future ; but the acts having been done, no constitutional legislation can alter the legal relations which they have occasioned. As Strong, J., said in the Sinking Fund Cases,' the power reserved by a legislature to alter and repeal the charter of a corporation, " is one over the act itself, not over anything that may have law- fully been done under the act before its repeal or alteration. It is only by great confusion of things essentially distinct, that this power can be construed as applicable to a contract made after the corporation came into existence."* The following constitutional under the reserved power * See Oldtown, etc. R. R. Co. v. to alter and amend. Miller v. State, Veazie, 39 Me. 571. 15 Wall. 478 ; Bradley and Field, .TJ., The reservation of the right to alter dissented on the ground that this was and repeal does not authorize the leg- a modification of a contract outside of islature to do a judicial act, such as the charter. See also Close v. Glen- foreclosing a mortgage by legislation wood Cemetery, 107 U. S. 466 ; Spring cutting off the mortgagor's right to "Valley Water Works v. San Francisco, redeem (the mortgagor being a corpo- 61 Cal. 3 ; Chincleclaraouche Lumber ration with a charter subject to alter- Co. V. Commonwealth, 100 Pa. St. ation and repeal). Ashuelot R. R. 438, 444. Co. V. Eliot, 58 N. H. 451. ' 99 U. S. 700, 740, 469 § SOO.] THE LAWj OF PRIVATE CORPORATIONS. [CHAP. VIII. passage from the opinion of Chief Justice Waite in the same case, may also be quoted : " Whatever rules Congress might have prescribed in the original charter for the government of the corporation in the administration of its affairs, it retained the power to establish by amendment.^ In so doing, it cannot undo what has already been done, and it cannot unmake con- tracts that have already been made ; but it may provide for what shall be done in the future, and may direct what prepara- tion shall be made for the due performance of contracts already entered into. It might originally have prevented the borrow- ing of money, or it might have said that no bonded debt should be created without ample provision by sinking fund to meet it at maturity. Not having done so at first, it cannot now by direct legislation vacate mortgages already made under the powers originally granted, nor release debts already contracted. A prohibition now against contracting debts will not avoid debts already incurred. . . . All such legislation will be confined in its operation to the future."^ § 500. For further illustration of the application of these luustra- principles let us suppose a corporation formed under Hon. Keia- ^ general enabling act (or with a special charter, this tween 18 immaterial) ; the state reserving the right to amend ers aDd Or repeal the enabling act. Let us suppose that the creditors, shareholders under this enabling act are not person- ally liable for the corporate debts after they have fully paid their subscriptions. Here the state may alter the enabling act so as tO' make the shareholders liable personally for all debts con- tracted by the corporation after such amendment ;' but not so as to make them liable for debts contracted before such amend- ment, as such retroactive legislation would (a) impair the obli- gation of a contract, and (b) deprive shareholders of their property without due process of law. To change the legal effect of a contract so as to impose additional burdens on the person already liable thereunder, impairs its obligation, for con- stitutional provisions exist as much for the protection of debtors ' Quoted in Spring Valley Water 700, 721. See also Close u. Glenwood Works V. Schottler, 110 U. S. 347, Cemetery, 107 U. S. 466. 853. ' Sherman v. Smith, 1 Black, 587. = Sinking Fund Cases, 99 U. S. 470 CHAP. VIII.] CORPORATION AND STATE. [§ 501. as of creditors.' The contract of which the obligation is im- paired by making shareholders liable for debts already con- tracted, is the contract by which the indebtedness was incurred. Upon the making of this contract, which was not embodied in the charter or enabling act of the corporation, and so subject to alteration, legal relations arose in respect of the corporate enter- prise between shareholders and creditors ; and one of the rights of shareholders occasioned by the contract was that they should not be liable thereunder beyond the extent of their interest in the corporate funds. Consequently, imposing increased liability on the shareholders in respect of this contract would impair (alter) its obligation. In the second place, it is clear that the im- posing of increased liability on the shareholders would give a creditor a right against them which he had not when the contract was made ; and as every right implies a corresponding liability or duty, which in its turn (at least in a case of this nature) im- plies the giving up of a right, such amendment would deprive a person of a right, i. e., of property without due process of law.^ § 501. On the other hand, since the charter or enabling act of the corporation, when the right to alter and repeal is reserved, is to be regarded as between the state and the corporation only as law, it is clear that the corporation has no vested or contract ' "The objection to a law on the present stockholders prospectively, no ground of its impairing the obligation constitutional legislation can operate of a contract, can never depend on the to impose retrospectively increased extent of the change which the law personal liabilities upon the stock- effects in it. Any deviation from its holders." Dewey, J., in Common- terms, by postponing or accelerating wealth v. Cochituate Bank, 3 Allen, the period of performance which it 42, 44. It is held, however, that a prescribes, imposing conditions not ex- general banking law is not unoonstitu- pressed in the contract, or dispensing tional in its application to corporations with the performance of those which already in existence, ' because it pro- are, however minute or apparently vides that the original shareholders immaterial in their effect upon the shall remain liable to the extent of contract of the parties, impairs its ob- their stock until it has been fully paid ligation." Washington, J., in Green up, notwithstanding they may have V. Biddle, 8 Wheat. 1, 84. transferred it. Such a provision is 2 "Whatever modification of the merely regulative of the transfers, and liability of stockholders in banks may is such as was competent for the state be legally made that shall operate to pass. Marr v. Bank of West Ten- upon future stockholders, or upon the nessee, 4 Lea (Tenn.), 578. 471 ■ § 501.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. right to have the charter or enabling act remain unchanged so that in the future the corporation may continue to acquire by- similar acts the same rights. The state may certainly impose individual liability on the shareholders as to future debts because of the concurrence of three reasons : first, as between the state and the corporation the enabling act embodied no con- tract ; secondly, in so far as the enabling act embodied the con- tract among the corporators, it embodied a contract the terms of which by the implied assent of the parties thereto could be changed at the will of the state: thirdly, the supposed change being as to future indebtedness only, ex kypothese no other con- tract had been entered into, the obligation of which would be impaired by the supposed legislation. It seems clear, however, that even as to future indebtedness, the state cannot impose increased liability on the shareholders, if the state has not reserved the right to alter and repeal ; for such change would {a) impair the obligation of the contract between the state and the corporation, and (b) that of the contract among the corpora- tors, which, in this instance, was not made with the implied consent that it might be changed at the will of the state.' On the other hand, when by the enabling act which the state reserves the right to alter and amend, the shareholders are indi- vidually liable for corporate debts, it is clear that the state can- not repeal this personal liability so as to affect the security of existing debts, vvithout impairing the obligation of the contract between the creditor and the corporation f and it hardly re- quires statement, that the state may repeal this personal liabil- ity as to debts not yet contracted.' 1 Ireland v. Palestine Co., 19 Ohio ^ Hawthorne v. Calef, 2 Wall. 22 ; St. 369, 872 ; limiting Palestine Co. Corning v. McCulIough, 1 N. Y. 47 ; V. Wooden, 13 Ohio St. 395. Contra, Provident Savings Institution «. Jack- Gray V. Coffin, 9 Cush. 192; Coffin son Skating Rink, 62 Mo. 552; St. V. Rich, 45 Me. 507 ; Stanley v. Stan- Louis R'y Supplies Co. u. Harbine, 2 ley, 26 Me. 191. Compare Longley Mo. App. 134; Grand Rapids S'v'gs . V. Little, 26 Me. 162; Wheeler v. B'k v. Warren, 52 Mich. 557; but Frontier Bank, 23 Me. 808 ; Common- compare • Woodhouse v. Common- wealth I'. Cochituate Bank, 3 Allen, wealth Ins. Co., 54 Pa. St. 307. 42. In these Maine cases the right to ^ Compare Curran v. Arkansas, 15 amend seems to have been reserved to How. 304, § 507. the state. 472 CHAP. VIII.] CORPORATION AND STATE. [§ 502. § 502. The question arises whether there are no limits besides those already discussed on the power of the state to j, ^.j, change the constitution of a corporation when it has limits on reserved the right to do so. It has been pointed out,* served that when the charter of a corporation embodies a P"^^"^- contract between the corporation and the state, the state through such contract acquires certain rights and powers over such funds of the corporators as become corporate property, powers which it would have been unconstitutional for the state to ex- ercise, had the corporators not accepted the charter. The rights thus acquired by the state' may be summed up, as the right, in so far as the interests of the public are concerned, either to compel the corporation to fulfil the purposes of its incorpora- tion, or, if the state sees fit, to forfeit the franchises of the cor- poration. When, however, a corporation is formed under an enabling statute or accepts a charter, which the state reserves the right to alter or repeal, what is the limit to the right of the state to alter such statute, and then either compel the corpora- tion to fulfil its altered objects of incorporation, or forfeit the franchises of the corporation for its failure to do so ? As we have seen, there is no contract in such a case between the state and the corporation, for the state agrees to nothing. The cor- porators, however, assume the duty towards the public to fulfil the purposes of their incorporation, as far as the public may be interested in the fulfilment of such purposes, and this duty the state may enforce,^ or, at its option, forfeit the franchises of the I §456. corporated for a public purpose its duties ^ The assumption by the corporators towards the public may be positive, of a duty towards the public does not The point to be regarded is that the imply any contractual relations be- state does not contract, but simply tween the corporation and the state, passes a law, expressly reserving the Every member of a community is right to alter or repeal. Davis, P. J., affected with duties towards it, and by says in People v. New York Central changing his occupation he usually and H. K. R. Co., 28 Hun, 543 : assumes duties with which he was not " The power of the state to compel a affected prior to the change. Duties railroad company by mandamus to to the public are mostly negative, and perform its duties, rests as firmly on may be summed up in the maxim, Sic the ground that that duty is a public utere tuo ut alienum non loedas, but in trust, which having been conferred by the case of a (private) corporation in- the state, and accepted by the corpora- 473 § 502.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. VIII. corporation. But in these respects, and especially in respect of enforcing the fulfilment of the purposes of incorporation, the word " alter" must be reasonably construed, and the power of the state held restricted to legislation fairly amendatory of the original constitution." The state may at any time repeal the constitution of the corporation, but the state cannot, under the reserved power to alter, substitute entirely different purposes of incorporation, and compel the fulfilment of them. It could not, for instance, so alter the charter of a railroad corporation as to force it to run a line of steamboats, for it is plain that any such change is not within the scope of the duty assumed by the corporation, and it is questionable whether a court would enter- tain a proceeding to forfeit the franchises of the corporation for not fulfilling such unreasonably imposed and unlooked for duties. Neither may the state, under the power to alter and amend, deprive the corporation of its property ; for instance, it cannot, by compelling a plank road company to remove a toll- gate, practically deprive it of several miles of the most valuable portion of its road.^ As Justice Swayne said, giving the opinion of the court in Shields v. Ohio :* " The power of altera- tion, may be enforced for the public v. Gardiner, 18 Gratt. (Va.) 509 ; benefit, as upon the contract between Sprigg v. Western Telegraph Co., 46 the corporation and the state." Md. 67 ; West End, etc. R. R. Co. u. ' The right of the legislature under Atlanta, etc. R. R. Co., 49 Ga. 151 ; reservation of power to amend, alter, compare Yeaton v. Bank of the Old or repeal the charter of a railroad com- Dominion, 21 Gratt. (Va.) 693. Under pany, includes authority to withdraw such reservation rates of toll may be powers already granted, and to confer limited. Parker u. Metropolitan R. R. new powers and require their exercise, Co., 109 Mass. 506 ; see Fitchburg R. and is independent of the assent of the R. Co. v. Grand Junction R. R. and coKporation. A statute requiring cer- Depot Co., 4 Allen, 198; American tain railroad corporations to unite in a Coal Co. v. Consolidation Coal Co., passenger station in Worcester, and to 46 Md. 15 ; see §§ 476 a, 476 b. extend their tracks in that city to such ^ Detroit v. Detroit, etc. Plank station, and after such extension to Road Co., 43 Mich. 140. In Orr v. discontinue certain portions of their Bracken County, etc. 81 Ky. 593, it present locations, is a valid exercise of was held that the legislature, under its the power to alter and amend. Mayor, power to alter and amend, could not etc. of Worcester v. Norwich and change the control of corporate affairs Worcester R. R. Co., J09 Mass. 103. by giving to each shareholder as many See English v. New Haven and North- votes as he held shares. Sed qucere. ampton Co., 32 Conn. 240; Robinson ' 95 U. S. 319, 324. 474- CHAP. VIII.] CORPORATION AND STATE. [§ 503. tion and amendment is not without limit. The alterations must be reasonable, they must be made in good faith, and be consistent with the scope and object of the act of incorporation. Sheer oppression and wrong cannot be inflicted under the guise of amendment or alteration. Beyond the sphere of the reserved powers, the vested rights of property of corporations in such cases are surrounded by the same sanctions, and are as inviola- ble as in other cases."* > § 503. When the legislature reserves the right to annul the charter of a corporation, if the corporation misuses VV li^n !i ill— its powers or fails to begin active operations within aiciai pio- a certain time, it has been held that the legislature pfereoui- may exercise its right without the interposition of a ^'*^ *° ^^^ judicial tribunal.^ Undoubtedly, if the legislature reserves the unconditional right to alter and repeal, it may ex- ercise that right in its discretion ; but when that right is condi- tioned on an abuse of corporate powers, it would seem to be little more than the ordinary right of the state to proceed by quo warranto. Accordingly, that the corporation should have an opportunity to be heard in its defence, and that some jiadicial tribunal should pass upon the question whether there has been ' See also Commissioners v. Holyoke an unconditional reservation of the Water Power Co., 104 Mass. 446, right to repeal. Judicial proceedings practically overruling Commonwealth taken against the corporation by the V. Essex County, 13 Gray, 239; attorney-general, under which the cor- Holyoke Co. v. Lyman, 15 Wall. 500 poration is compelled to remedy 'cer- (affirming Commrs. v. Holyoke Water tain of its abuses, do not deprive the Power Co., supra) ; Zabriskie v. Hack- state of its power of repeal for the ensack, etc. R. K. Co., 18 N. J. Eq. abuse. A repealing statute will be 178 ; see also §§ 533-535. presumed to have been passed on the ^ Miners' Bank v. United States, 1 existence of the fact on which its va- Greene (Iowa), 553. The power to lidity depends. Erie and N. E. R. K. repeal for abuse of corporate privi- Co. v. Casey, 26 Pa. St. 287 (decided leges is a different right from that of by a bare majority). But the legisla- demanding a judicial sentence of for- tureis not the final judge as to whether feiture. After an abuse has occurred the casus judicis, upon which is based the legislature is invested with full its authority to repeal, has accrued; power to repeal the charter, and the Commonwealth v. Pittsburgh and C. corporations hold their franchises from E. R. Co., 58 Pa. St. 26; Erie and the state merely as tenants at will, in W. E. R. R. Co. v. Casey, 26 Pa. the same manner as if there had been St. 287. 475 § 504.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VIII. an abuse of corporate powers, or a failure to exercise them, would seem prerequisite,' for the legislature is not the proper body to construe a contract between itself and a group of citizens." § 504. The repeal of a general enabling act does not affect the capacities of corporations already formed under fflti °^ ^ it'* unless the legislative intention to dissolve existing corporations is clearly expressed in the repealing statute.'* The legal effect of the repeal by the legislature of a charter of a corporation is clearly stated in the following words of Justice Miller, giving the opinion of the court in Greenwood V. Freight Company :* " Whatever force the law may give to transactions into which the corporation entered, and which were authorized by its charter when in force, [after the repeal of its charter] it can originate no new transactions dependent on the power conferred by the charter. If the corporation be a bank, with power to lend money, and to issue circulating notes, it can make no new loan nor issue any new notes designed to circulate as money. If the essence of the grant of the char- ter be to operate a railroad, and to use the streets of a city for that purpose, it can no longer so use the streets of the city, and no longer exercise the franchise of running a railroad in the city. In short, whatever power is dependent solely upon the grant of the charter, and which could nOt be exercised by unincorporated private persons under the general laws of the state, is abrogated by repeal of the law, which granted these special rights. Personal and real property acquired by the cor- poration during its lawful existence, rights of contract, or choses in action so acquired, and which do not in their nature depend upon the general powers conferi-ed by the charter, are not de- stroyed by such repeal ; and the courts may, if the legislature ' Mayor of Baltimore v. Pittsburgh ' United Hebrew Assooiation v. and Cornellsville li. R. Co., 1 Abb. Benshimol, 130 Mass. 325 ; Donworth U. S. 9 ; accord, Flint, etc. Plankroad v. Coolbaugh, 5 Iowa, 300. Co. u. Woodhull, 25 Mich. 99 ; com- * Freehold Mutual Loan Association pare Grand Gulf R. R. Co. v. State v. Brown, 29 N. J. Eq. 121 ; Wilson of Mississippi, 18 Miss. 428, and §458. v. Tesson, 12 Ind. 285. ' Commonwealth v. Proprietors of ^ 105 U. S. 13, 18. See also Peo- New Bedford Bridge, 2 Gray, 339 ; pie u. O'Brien, 45 Hun (N. Y.), 519. compare City of London v. Wood, 1 2 Mod. 669, 687. 476 CHAP. VIII.] CORPORATION AND STATE. [§505. does not provide some special remedy, enforce such rights by the means within their power. The rights of the shareholders of such a corporation to their interest in its property are not annihilated by such a repeal, and there must remain in the courts the power to protect those rights." § 505. Having considered the relations between the state and the corporation, a few words may be said as to the Relations relations more particularly subsisting between the }^^T^ state and (a) the shareholders, (6) the directors and and the other officers and agents of the corporation, and (c) interested the creditors of the corporation. porat^e"""^' The contract with the state, when there is one, is enterprise, between the state and the original corporators, who incorporate themselves by accepting the constitution of the corporation. Their incorporation enables them, within the scope of the cor- porate powers, to act as a body corporate, and places their rights and interests in the hands of a majority of their own number and of the corporate agents. Accordingly, it is the province of the body corporate or corporate management, to protect the interests of all the shareholders against the consequences of unconstitutional action on the part of the state. Nevertheless, when the corporation fails to act in defence of corporate inte- rests, a shareholder may.' As the corporation, however, cannot sue the state directly to compel it to repeal an unconstitutional law, nor to obtain damages from the state for the effects of such a law,* it is usually in the legal relations between the share- holders and other persons in any way interested in the corpo- rate enterprise, that the consequences of unconstitutional legis- lation show themselves.' As, for instance, questions arising under a law imposing increased personal liability upon share- ' Where the legislature of a state tract. Greenwood v. Freight Com- has repealed the charter of a street pany, 105 U. S. 13. See §§ 138 et railroad company, and transferred its seq. franchises and track to another, and ^ See § 462. the corporation refuses to seek a rem- ' A statute to the effect that all edy in the courts, a stockholder of the dividends not claimed within five years company will have a standing in a shall be paid to a university, impairs court of equity to obtain an injunction the obligation of a contract. Univer- on the ground that the repealing stat- sity v. North Carolina R. R. Co., 76 ute impairs the obligation of a con- N. C. 103. 477 § 506.] THE LAW OF PRIVATE CORPORATIONS. |CHAP., VIII. holders would come up between shareholders andl creditors endeavoring to enforce this improperly increased liability of shareholders.' It would seem that questions directly between the state and shareholders could arise only when a shareholder is defending his interests against the action of government agents seeking to carry into effect the provisions of some un- constitutional law.' The usual object and principal effect of laws made by the state are not to create any relations between the state and its citizens, but to affect relations among its citi- zens ; to enable them to acquire rights and incur liabilities in a manner different from that in which they could have, before the passage of the law.' § 506. Likewise, very seldom would questions arise directly between the state and directors of a corporation. The state may compel directors to perform their duties in so far as a non- performance of them in any way prejudices the public inte- rests ;* and directors could resist action by the agents of the state of an improper nature, and in so doing rest their defence on the nullity of the authority relied on by such agents. The state may create penalties for breaches of trust or failure to fulfil their duties on the part of directors ; and here again if the penalties were enforceable at the suit of those persons for whose protection they were created, the questions as to them would arise between those persons and the directors; Penalties, moreover, cannot be constitutionally imposed for past trans- actions." ' See §§ 500, 501. - and also to the United States. By its ' E. g., to restrain the collection of charter the bank had a lien on its an illegal tax. See Delaware Rail- stock for the payment of debts due it road Tax, 18 Wall. 206. by shareholders, and insisted on this When a stockholder sues to restrain lien against the claim for priority of the collection of an illegal tax (when payment asserted on the part of the the corporation refuses), a demurrer United States. The bank was sus- lies to his complaint unless the corpo- tained. Brent v. Bank of Washing- ration is made a party. Davenport v. ton, 10 Pet. 596. Dows, 18 Wall. 626. * E. g., by making given acts or ' But a question might arise in an omissions criminal, entirely different way between the ^ Even when the state reserves the state or the United States, and a cor- right to alter and repeal. White v. poration, and its shareholders. Thus How, 3 McLean, 111. a shareholder was indebted to his bank, 478 CHAP. VIII.] CORPORATION- AND STATE. [I 507., § 507. rinally, in regard to creditors of the corporation, questions as to the constitutionality of legislation in respect of the corporate enterprise, would usually come up between credi- tors and the corporation ;' or between creditors and shareholders or directors f or among creditors.^ However, when a state, that has provided in the charter of a bank that its bills shall be re- ceivable for state taxes, attempts to repeal this provision, the question of the constitutionality of the repeal would arise directly between the state officers and the billholders. Such a provision is held to constitute a contract between the state and the holders of the bank bills in circulation, and a con- tract which the state cannot affect by subsequent legislation.* ' E. g., where the legislature of a state authorized commissioners to bor- row money to be used in making a canal, and, for the redemption of the loan, pledged the canal, with its tolls and lands, the lien of a lender under the act cannot be divested or post- poned by subsequent legislation. Trus- tees of the Wabash and Erie Canal Co. V. Beers, 2 Black, 448 ; compare Curran v. Arkansas, 1 5 How. 304 ; §501. The legislature may constitutionally enact a law providing that, unless a creditor of an embarrassed corporation expresses his dissent within a specified time from measures deemed essential to the common welfare of the corpora- tion and its creditors, he shall be held to have assented to them. Union Canal Co. v. GilfiUin, 93 Pa. St. 95 ; S. C, aff'd, 108 U. S. 401. 2 See §§ 500, 501. When the state is a shareholder, questions may arise between the creditors of the corpora- tion and the state as shareholder in the corporation or contributor of its capi- tal. See Curran !'. Arkansas, 16 How. 304. " See Barings v. Dabney, 19 Wall. 1. So questions as to the competency of a court to authorize a receiver to issue certificates making them liens prior to the lien of a mortgage, would arise among creditors. See, e. g., Fosdick V. Schall, 99 U. S. 235; Wallace v. Loomis, 97 U. S. 146. See §§ 821 et seq. * Woodrufi^ V. Trapnall, 10 How. 190. In this case the state was the sole shareholder. See Paup v. Drew, 10 How. 218 ; Furman v. Nichol, 8 Wall. 44 ; Wagner i.. Stall, 2 S. C. 538. Such bank bills are not "bills of credit" within the meaning of the Constitution. Darrington v. Bank of Alabama, 13 How. 12. In 1836 Maryland passed a law di- recting a subscription of f3, 000, 000 to the capital stock of the Baltimore and Ohio K. K. Co., with the following proviso: " That if the said company shall not locate the said road in the manner provided for in this act, they shall forfeit 11,000,000 to the state of Maryland for the use of Washington County." In 1841 the state repealed so much of the prior act as made it the duty of the railroad company to locate its road as prescribed, and released the penalty. Held, that the above pro- viso was a penalty, and measure of state policy, which the state might change ; and that neither the county 479 § 507.] THE LAW OF PRIVATE CORPORATIONS, [CHAP. VIII. Similarly, in Curran v. Arkansas* litigation arose directly between the state and the billholders of a bank of which the state incorporating the bank was the sole shareholder.^ The state had withdrawn the funds of the bank by means of stat- utes at variance with the provisions of its charter ; and these statutes, with the action of the state officers in accordance with them, the Federal Supreme Court held to impair the obligation of the contract between the billholders and the bank, as well as that of the contract between the state and the billholders. Giving the opinion of the court. Justice Curtis said : " It is true that as the state was the sole stockholder in this bank, the charter cannot be deemed to be such a contract between the state and the corporation as is protected by the Constitution of the United States. But it is a very diiferent question whether that charter does not contain provisions, which, when acted upon by the state and by third persons, constitute in law a binding contract between them Now the charter of this bank provides that it shall have a capital stock of one million dollars to be raised by the sale of the bonds of the state, and also that certain other funds, that are specifically described, shall be deposited therein by the state, and constitute a part of the capital stock of the bank. , . . The bank received this money from the state as the fund to meet its engagements with third persons which the state, by the charter, expressly author- ized it to make for the profit of the state. Having thus set apart this fund in the hands of the bank, and invited^the pub- lic to give credit to it, under an assurance that it. had been placed there for the purpose of paying the liabilities of the bank, whenever such credit was given, a contract between the state and the creditor not to withdraw that fund to his injury at once arose."' nor any of its citizens acquired any 3 15 How. 313. Catron, Daniel, separate or private interest in it. and Nelson, J J., dissented. Compare Maryland v. Baltimore and Ohio R. Forstall v. Consolidated Association, K. Co., 3 How. 634; compare Cham- 84 La. Ann. 770. When a state is a berlain v. St. Paul, etc. R. R. Co., 92 stockholder in a private corporation, it U. S. 299. is bound by the provisions of the char- ' 15 How. 804. ter as an individual. Marshall u. Wes- i^ A statute authorizing suits against tern N. C. R. R. Co., 92 N. C. 822. the state existed. 480 CHAP. IX.j CORPORATION AND SHAREHOLDERS. CHAPTER IX. LEGAL RELATIONS BETWEEN THE CORPORATION AND ITS SHAREHOLDERS. Legal relations discussed in this chap- ter, § 508. Legal relations between shareholders and the corporation, how occasioned, § 509. Contracts to take shares, § 510. Issue of certificate not essential, § 511. Legal relations ; general character, § 512. Implied promise of subscriber to pay for the shares, §§ 513, 514. Consideration, § 515. Prescribed forms. Failure to pay pre- liminary deposit, § 516. Conditions. Levy of assessment, § 517. Subscription of total amount named in articles, § 518. Waiver of condition. Estoppel, § 51 9. Provisions construed not to be condi- tions, § 520. Verbal conditions and secret agree- ments void, § 521. "Non-assessable," § 522. Subscriptions obtained by fraud void- able, provided subscriber acts with despatch, § 523. English and American views, § 524. Rationale, §§ 525, 526. Effect of error, § 527. Subscriptions, how affected by sub- sequent unauthorized or improper action on the part of the corporation, §§ 528, 529. Change in the corporate enterprise by legislative action, §§ 530-532. 31 Power reserved to the state to alter and repeal, §§ 533-535. Effect of consolidation, § 536. When subscriber cannot plead nul tiel corporation, § 587. When he may, §§ 538, 539. Shareholders may plead that officers making calls not legally elected, § 540. Subscribers to shares irregularly or illegally issued, § 541 . Insolvency of corporation no defence. Capacities of receiver, § 542. Directors cannot delegate authority to make calls. When calls unneces- sary, §§ 543, 544. Corporation may receive property in payment for its shares, § 545. Forfeiture of shares for non-payment of calls, §§ 546, 547. Collusive forfeitures, § 548. Release of subscriber void, §§ 549-551. Purchase of shares by the corporation, §552. Right of the corporation to control the corporate enterprise, § 553. Courts will not interfere at the suit of shareholders, § 553. Unless to restrain a«ts which are ultra vires, or constitute a breach of trust, §§ 555, 556. When shareholders may enjoin the acceptance of an amendment, § 557. Corporate affairs must be managed in the interests of the shareholders as such, §§ 558, 559. 481 §508. THE LAW OF PRIVATE CORPORATIONS. _ [CHAP. IX. Eight of shareholders to sue the cor- poration and its officers for con- spiracy, § 560. Like outsiders, a shareholder may sue the corporation, § 561. Shareholders have no unconditional right to a division of profits, § 562. But courts will sometimes interfere, especially in favor of preferred share- holders, § 563. Preferred dividends cumulative, § 564. Dividends can be paid only out of profit, § 565. Recovery of dividends illegally paid, §§ 566, 567. , Rights of shareholders after a dividend has been declared, § 568. Right to subscribe to additional shares on an increase of the capital stock, §569. Rights on a decrease of stock, § 570. Power to issue preferred shares, §§571, 572. Meetings of the corporation. Notice, §§ 573, 574. Who may call meetings, § 575. Business irregularly transacted, § 576. Voting. Election of officers, § 577. Transfer books evidence of right to vote, § 578. Voting by proxy, § 579. Each shareholder has as many votes as shares. Combinations of sharehold- ers, § 580. A court of law the tribunal to. deter- mine the validity of corporate elec- tions? Injunctions, § 581. Power to make by-laws, §§ 582-584. Right to inspect corporate books, §585. Transfer of shares. Effect. When corporation is insolvent, § 586. Liability of transferee, §§ 587, 588. Irregular transfers, §§ 589, 590. Liability of corporation for excessive issues, § 591. Liability of corporation in registering transfers, § 592. Registrj' of transfers on forged orders, §593. In violation of by-laws, § 594. Ih disregard of rights of which the corporation has no notice, § 595. Interpleader, § 596. Registry of transfers by mistake, §597. Estoppel of corporation by its certifi- cate, § 598. Right of purchaser to a transfer; to damages, § 599. Lien of a corporation on its shares, §§ 600-602. Effect of lien, § 603. It.s scope, §§ 604, 605. Waiver of lien, §§ 606, 607. Right of shareholders in respect of winding up, §§ 608, 609. Power of majority to dissolve ; of mi- nority, § 610. Jurisdiction of equity, § 611. § 508. It is the purpose of the present chapter to treat of the Legal reia- ^®g^^ relations subsisting between individual share- c^"ed in holders, or a minority of shareholders, and the cor- this chap- poration or body corporate, acting as such and exer- cising directly or through its constituted agencies the corporate powers in the management of the corporate enter- prise. The body corporate, acting through whatever agency constitutes the corporate management, is the representative of the rights of all persons interested in the corporate enterprise. 482 CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 510. Therefore, ordinarily, to an action brought by the corporation against a shareholder, for instance to enforce his subscription, no defence can be pleaded that would iiJipair the rights of any persons respecting the corporate funds. With a view, however, to a proper arrangement of topics, discussion of legal relations subsisting directly and apparently among shareholders, and between shareholders and corporate officers and creditors will be reserved for future chapters. § 509. Legal relations between shareholders' and the body corporate are occasioned in the first instance by pur- chasing, subscribing for, or contracting to take shares tious be- of stock. The shareholder is thus brought within shTrehoia- the operation of rules of law entering into the con- gorpor'L*'^^ stitution of the corporation, which thereupon mani- tion;how fest themselves in legal relations not only between the shareholder and the body corporate, but also between the shareholder and all other persons in any way interested in the corporate enterprise. But in this chapter, as before remarked, we are concerned only w^ith the relations of these persons as represented by the corporation. § 510. The forms of contracts to take shares in the stock of a corporation may differ,^ but the legal relations oc- contracts casioned by them are similar.^ A contract of this to take kind is in the main a contract to subscribe funds for • " The type .... of a member or shareholder of a company is a per- son who has agreed to become a mem- ber, and with regard to whom all con- ditions precedent to the acquisition of the rights of a member have been duly observed. Where all these cir- cumstances are combined, there is membership in its fullest and most ms- curate sense." 1 Lindley on Part. (Am. ed.), 127. ' A stock certificate, although con- taining an agreement to pay interest to the holder until the happening of a certain event, may still constitute him a shareholder ; and the agreement to pay interest is a contract between the holder and the corporation, which can- not be varied by the vote of a majority of shareholders to pay such interest in bonds. McLaughlin v. Detroit, etc. R. R. Co., 8 Mich. 100. See also Rich- ardson V. Vermont and Mass. R. R. Co., 44 Vt. 613, in which case the in- terest was payable out of surplus earn- ings. ' Mutual insurance companies, in which the insured becomes a meniber by the payment of the cash premium, are anomalous. The theory of such companies is that the premiums paid by the members for the insurance of their respective properties, constitute a common fund devoted to the pay- ment of any losses that may occur. Union Ins. Co. o. Hoge, 21 How. 35. 483 § 511.J THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. the accomplishment of a certain purpose, the subscriber to sur- render his rights as owner over the funds subscribed, but to retain some of his rigBts in such funds (as e. g.^ to have them applied to no other purposes than the objects of incorporation') and acquiring through his contract certain other rights (as e.g., the right to act as a member of a corporation), which otherwise he would not have had. § 611. To constitute a person a shareholder, it is not necessary that a certificate of stock should have been issued to him;^ though it seems a verbal promise to take and pay for shares will not be binding,^ unless a stock certificate has been tendered and accepted.* Where a subscriber acknowledges the receipt of shares which he agrees to pay for in instalments, one of which he actually pays, he will be liable on his subscription, although no certificate of stock has ever been issued to him ;' and, unless a subscription is Issue of certificate not essen- tial. ' "When any person takes stock in a railroad company, he has entered into a contract. with the company that his interest shall be subject to the di- rection and control of the proper au- thorities of the corporation to accom- plish the object for which the company was organized. He does not agree that the improvement to which he sub- scribes should be changed in its pur- poses and character, at the will and pleasure of a majority of the stock- holders, so that new responsibilities, and it may be new hazards, are added to the original undertaking." Clear- water V. Meredith, 1 Wall. 25, 40. 2 Chaffin V. Cummings, 37 Me. 76 ; Beckett v. Houston, 32 Ind. 393; Slipher v. Earhart, 83 Ind. 1 73 ; Haynes v. Brown, 36 N. H. 546, 563 ; Schaeffer v. Missouri Home Ins. Co., 46 Mo. 248; Chester Glass Co. v. Dewey, 16 Mass. 94 ; Burr v. Wilcox, 22 N. y. 651 ; Chesley v. Pierce, 32 N. H. 388, 402 ; Mitchell k. Beckman, 64 Cal. 117 ; see Thorp v. WoodhuU, 1 Sandf. Ch. (N. Y.) 411 ; and com- 484 pare Courtright v. Deeds, 37 Iowa, 503. But compare Busey v. Hooper, 35 Md. 15 ; Mount Sterling Coal Road Co. V. Little, 14 Bush (Ky.), 429. " Fanning u. Insurance Co., 37 Qhio St. 339 ; Vreeland v. New Jersey Stone Co., 29 N. J. Eq. 188. (In these cases the charters indicated that writing was essential.) Pittsburgh and Steubenville K. E. Co. v. Gazzam, 32 Pa. St. 340. A transfer cannot be established by parol. Pittsburgh and Connellsville R. R. Co. v. Clarke, 29 Pa. St. 146. But in the late case of Colfax Hotel Co. v. Lyon, 69 Iowa, 683, a verbal subscription contract was held valid, the charter of the corpora- tion and the general statutes of the state containing no provisions regulat- ing the form of such contracts. * Upton V. Tribilcock, 91 U. S. 45. 5 Hawley v. Upton, 102 U. S. 314. In this case the subscriber had not de- manded a certificate. Compare Wem- ple V. St. Louis, etc. R. R. Co., 120 111. 196. CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 513. expressly made payable on call no notice to the subscriber is neces- sary before bringing suit.^ "A certificate of the shares of stock of a railway company is merely a solemn affirmation under the seal of the company that a certain amount of shares of stock stands in the name of the individual mentioned in the certificate."^ § 512. Legal relations occasioned by a contract to take shares, just as legal relations occasioned by any other con- tract, are the manifestations of the rules of law within ^.^^ai reia- the operation of which the parties by their contract rai charac- have brought themselves. If the contract to take shares is binding, that is, if the desired legal relations are oc- casioned, the rules of law of which the legal relations so occa- sioned are the manifestation will be those composing the consti- tution of the corporation ; or, speaking more definitely, will be those contained in the charter of the corporation, or in the general enabling statute and articles of association filed in ac- cordance therewith ; supplemented by the more general rules of corporation law.' And a person subscribing for shares is affected with a notice of the obligations which he incurs.* § 513. It is the settled law of the United States Supreme Court, and of most of the states, that a subscription impug^ for shares implies the promise of the subscriber to promisjof ^ ^ T 1 • ■ subscriber pay for them.' And this implied promise arises, to pay for although a power to forfeit or sell the shares for non- 1 Lake Ontario, etc. R. K. Co. v. Naason, 16 N. Y. 451 ; Grubb v. Ma- honing Nav. Co., 14 Pa. St. 302; Wilson V. Wills Valley R. R. Co., 33 Ga. 466. Personal demand before suit for calls may be made necessary by statute. Scarlett v. Academy of Music, 43 Md. 203 ; compare Shef- field R'y Co. V. Woodcock, 7 M. & W. 574 ; Newry and Enniskillen R'y Co. V. Edmunds, 2 Exch. 118. • 2 Lord Cairns in Shropshire Union R'ys, etc. Co. v. Queen, L. R. 7 H. L. Cas. 496, 509. ' See Hoagland v. Cincinnati and Ft. W. R. R. Co., 18 Ind. 452, 454. < McKim V. Glenn, 66 Md. 479 ; Chesapeake and Ohio Canal Co. v. Dulany, 4 Cranch, Cir. Ct. 85. 5 Upton V. Tribilcock, 91 U. S. 45 ; Webster v. Upton, ib. 65 ; Lake On- tario, etc. R. R. Co. V. Mason, 16 N. Y. 451 ; Rensselaer, etc. Plankroad Co. V. Barton, ib. 457, note ; Miller v. Wild Cat Gravel Road Co., 52 Ind. 51 ; Sagory v. Dubois, 3 Sandf. Ch, (N. Y.) 466 ; Dayton v. Borst, 31 N. Y. 435 ; Fry's Ex'r v. Lexington, etc. R. R. Co., 2 Mete. (Ky.) 314 ; Beene V. Cahawba, etc R. R. Co., 3 Ala. 660 ; Gill's Adm'r «. Kentucky, etc. Mining Co., 7 Bush (Ky.), 635 ; Chase V. Railroad Co., 5 Lea (Tenn.), 415 ; Waukon, etc. R. R. Co. v. Dwyer, 49 485 § 514.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. payment may be expressly given to the corporation.* The courts of Massachusetts, Maine, and, possibly, New Hampshire, follow a contraty doctrine, holding that a subscription for shares in a corporation subjects the subscriber only to the liabilities im- posed by the statute under which the corporation was organized ; and when a corporation is authorized by- statute to assess the shares, and sell them for non-payment of assessments, and a sub- scriber has not expressly promised to pay assessments no pro. mise can be implied which will enable the corporation to main- tain an action against him personally, even though the sale of the shares under the statute fails to bring enough to pay the assessment.' § 514. The following statement of the law in New Hamp- shire is at least lucid, whatever objection may be taken to it : " Where a party makes an express promise to pay the assess- ments, he is answerable to the corporation upon such promise for all legal assessments, and may be compelled to its perform- ance by an 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 Iowa, 121 ; Nulton v. Clayton, 54 tra, Odd Fellows' Hall Co. v. Glazier, Iowa, 425 ; Mansfield, etc. E. R. Co. 5 Harr. (Del.) 172. See § 546. V. Brown, 26 O. St. 223. See Small * Mechanics' Foundry, etc. Co. v. V. Herkimer M'f g Co., 2 N. Y. 330. Hall, 121 Mass. 272. See also Ken- Compare New Hampshire Cent. K. K. nebec, etc. R. R. Co. v. Kendall, 31 Co. u. Johnson, 30 N. H. 390; Mount Me. 470; Belfast, etc. R. R. Co. v. Sterling Coal Co. v. Little, 14 Bush Moore, 60 Me. 561 ; Penobscot, etc. (Ky.), 429 ; Russell v. Bristol, 49 R. R. Co. v. Dunn, 89 Me. 587. Conn. 251. An amendment to a charter cannot If a person makes a valid contract operate to make a subscriber person- on sufficient consideration with a cor- ally liable on his subscription when he poration to take stock in it and refuses was not so liable before. Belfast, etc. to comply without fault on the part of R. R. Co. v. Moon, 60 Me. 561. But the corporation, it may recover such by charter-provisions stocks may be damages for the breach as it has sus- liable to further assessments by the tained. Quick v. Lemon, 105 111. corporation after the full par value has 578. been paid. Price's Appeal, 106 Pa. I Dexter, etc. Plankroad Co. v. St. 421. Compare Dewey ». St. Millerd, 3 Mich. 91 ; Hughes v. An- Albans Trust Co., 57 Vt. 332. tietam M'f 'g Co., 34 Md. 316. Con- 486 CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 515. 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."* § 515. In the absence of express provisions in the charter or enabling act regulating subscription contracts, whether an implied or express promise to pay for yon^"^*"^^' shares may be enforced by the corporation, is to be determined in accordance with the rules of the law of contracts.^ In the first place, and principally, was there a consideration ?* When no consideration is expressed, a sufficient one to uphold the contract ordinarily exists in the implied counter-promise of the corporation, in accepting the subscription, to admit the sub- scriber to all the rights of a shareholder.^ This consideration, however, does not exist uiiless the agreement to subscribe is ' New Hampshire Central R. R. Co. V. Johnson, 30 N. H. 390, 403. ' E. g. To an action on a subscrip- tion contract, the infancy of the sub- scriber may be pleaded. Newry and Enniskillen R'y Co. v. Combe, 5 Eng. R'y Cas. 633 ; Dublin, etc. R'y Co. v. Black, 7 Eng. R'y Cas. 434. Com- pare Cork, etc. R'y Co. v. Cazenove, 10 Q. B. 935. Writing one's name in the private memorandum book of a person soliciting subscriptions, does not give that person authority to sign a stock-subscription. McClelland v. Whiteley, 15 Fed. Rep. 322. ' An agreement by a person to act as director and to give the business of his firm to a bank, is a sufficient con- sideration to support a contract on the part of the bank to give him the requi- site number of shares to qualify as a director. Rich v. State Nat. B'k, 7 Neb. 201. There is no question that there is a consideration for notes given to a corporation by a subscriber to se- cure payments on his shares. Chet- lain V. Republic Life Ins. Co., 86 111. 220. * Kennebec and Portland R. R. Co. V. Jarvis, 34 Me. 360 ; Stokes v. Leba- non, etc. Turnpike Co., 6 Humph. (Tenn.) 241 ; Thigpen v. Miss. Cent. R. R. Co., 32 Miss. 347 ; East Ten- nessee, etc. R. R. Co. V. Gammon, 5 Sneed (Tenn.), 567. See Starratt v. Rockland Fire Ins. Co., 65 Me. 374. Compare University of Des Moines v. Livingston, 57 Iowa, 307. When commissioners are appointed to receive subscriptions under a statute which does not provide for the event of an' excess of subscriptions over the au- thorized capital, and subscriptions in excess are made, every subscriber ac- quires the right to some stock. Meads V. Walker, Hopk. Ch. (N. Y.) 587. See Clarke v. Brooklyn Bank, 1 Edw Ch. (N. Y.) 361. 487 § 5J6.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX made either with the corporation or its agent/ or is subse- quently accepted by the corporation.^ If at the time of sub- scribing, the subscribers n)ake a part payment or deposit on ac- count of their subscriptions, the making of these deposits by the d liferent subscribers and the receiving of them by the corpora- tion, which latter must be held by so doing impliedly to agree to apply them to the purposes of incorporation, will constitute a sufficient consideration to prevent any subscriber from with- drawing his deposit, as well as a sufficient consideration to en- able the- corporation to compel the subscribers to complete the full amount of their subscriptions.^ § 516. When in the constitution of a corporation, any par- ticular form for a contract of subscription is pre- scribed, it maybe inferred that that form, if followed, will constitute a binding contract.* But the fact that the form prescribed was not followed, will not neces- sarily invalidate a subscription ;* nor will a subscriber be allowed to take advantage of his own non-performance of conditions precedent prescribed by the constitution, in order to invalidate his subscription agreement, at least if any one who has acted on the faith of such agreement would be injured by its non-fulfilment. Thus, where the constitution of the corpo- ration requires a preliminary deposit to be paid by the sub- Prescribed forms. Failure to pay pre- liminary deposit. ' Lake Ontario R. E. Co. v. Cur- tiss, 80 N. Y. 219 ; Essex Turnpike Co. V. Collins, 8 Mass. 292 ; Lowe v. E. and k. R. R. R. Co., 1 Head (Tenn.), 659 ; Parker v. Northern Centr. Mich. R. R. Co., 33 Mich. 23 ; Wallace v. Townsend, 43 O. St. 537. Compare Workman v. Campbell, 46 Mo. 305. " Walker v. Mobile, etc. R. R. Co., 34 Miss. 245 ; Northern Central Mich. R. R. Co. V. Eslow, 40 Mich. 222 ; Stevens v. Corbitt, 33 Mich. 458; Michigan, Midland, etc. R. R. Co. v. Bacon, ib. 466. See Mobile and Ohio R. R. Co. V. Yandal, 5 Sneed (Tenn.), 294. An offer to subscribe to stock of a railroad company in case of a speci- fied extension of its road is revocable 488 until delivered to the company ; and the death of the offerer ia a revoca- tion. Wallace v. Townsend, 43 0. St. 537. See § 108. ' See § 98, and generally §§ 91-98, for a discussion of the consideration necessary to uphold an agreement to subscribe. * Parker v. Northern Central R. R. Co., 33 Mich. 23. See § 91. * Still the omission of some pre- scribed formality may render a sub- scription incomplete and therefore in- valid. See Dutchess, etc. R. R. Co. V. Mabbett, 58 N. Y. 397 ; Carlisle v. Saginaw Valley R. R. Co., 27 Mich. 315 ; Shurtz v. Schoolcraft, etc. R. E. Co., 9 Mich. 269. CHAP. IX.] COEPORATION AND SHAREHOLDERS. [§ 517. scriber, and the subscriber fails to pay it, he may not plead his own omission in answer to a suit for calls.' This seems entirely correct on principle, though there are decisions to the contrary." § 517. If the contract of subscription is to be held binding, then must be considered whether it is so absolutely or conditionally.^ It will be binding absolutely Levy of when conditions neither exist in the contract itself ^ent!" nor can be imported into it from the constitjition of the corporation. Otherwise, it will be binding conditionally until the performance of the conditions, provided they are per- formed within a reasonable time,^ whereupon it will become binding absolutely." Accordingly, where, by the terms of the ' Lake Ontario, etc. K. R. Co. v. Mason, 16 N. Y. 451 ; Rensselaer, etc. Plank Road Co. v. Barton, ib. 457, note ; Illinois River R. R. Co. v. Zim- mer, 20 111. 654 ; Ryder v. Alton, etc. R. R. Co., 13 111. 516; Haywood, etc. Plank Road Co. v. Bryan, 6 Jones (N. C.) Lavf, 82 ; Home Stock Ins. Co. 13. Sherwood, 72 Mo. 461 ; Seda- lia W. and S. Ry. Co. v. Abell, 17 Mo. App. 645; Thorp v. WoodhuU, 1 Sandf. Ch. (N. Y.) 411 ; Vicksburg, etc. R. R. Co. I'. McKean, 12 La. Ann. 638 ; Mitchell v. Rome R. R. Co., 17 Ga. 574 ; Wight v. Shelby R. R. Co., 16 B. Mon. (Ky.) 4; Piscataqua Ferry Co. v. Jones, 39 N. H. 491 ; Pittsburgh W. and R. R. R. Co. v. Applegate, 21 W; Va. 172. 2 Wood V. Coosa, etc. R. R. Co., 32 Ga. 273 ; Jenkins v. Union Turn- pike Co., 1 Caines Cas. in Er. (N. Y.) 86; Goshen, etc. Turnpike Co. v. Hurtin, 9 Johns. 217 ; Boyd v. Peach Bottom R'y Co., 90 Pa. St. 169. See Excelsior Grain Binder Co. v. Stay- ner, 25 Hun, 91 ; Fiser v. Mias. and Tenn. R. R.Co., 32Miss. 359. Com- pare Garrett v. Dillsburg, etc. R. R. Co., 78 Pa. St. 465. ' Subscribing conditionally to shares does not make the subscriber a share- holder till the condition is performed. Evansville, etc. R. R. Co. v. Shearer, 10 Ind. 244. It is held in »Pennsyl- vania that when one subscribes con- ditionally to the stock of a railroad company, before the procurement of its charter, the condition is void and the subscription is absolute. Bedford B. R. Co. V. Bowser, 48 Pa. St. 29 ; Caley v. Phila., etc. R. R. Co., 80 Pa. St. 263 ; Pittsburgh and S. R. R. Co. V. Biggar, 34 Pa. St. 455. The writer fails to see the correctness ■ of these decisions, which in effect make for the subscriber a contract he never entered into. They did not turn on any question of the condition being verbal or written. * See Fountain Ferry T. R. Co. v. Jewell, 8 B. Mon. (Ky.) 141. If the corporate enterprise is not started in good faith within the period prescribed by the charter, a subscriber is released. McCuUy V. Pittsburgh and Connells- ville R. R. Co., 32 Pa. St. 25. See also Ramsgate Victoria Hotel Co. v, Montefiore, 4 H. & C. 164. ' Chamberlain v. Painesville, etc. R. R. Co., 15 Ohio St. 225 ; Ashta- bula, etc. R. R. Co. V. Smith, ib. 328 ; 489 § 518.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. IX. subscription, the subscriber agreed to take shares and pay all charges and assessments regularly levied or assessed bj' the board of directors, it was held that the corporation could not recover until an assessment had been made ; and, further, that the terms of the subscription could not be contradicted by parol proof of an understanding that payment should be made with- out calls.' Likewise, if the charter of a corporation does not definitely fix the number of shares of which the capital stock is to be composed, this number must be fixed by the proper authority before a valid assessment can be laid on subscribers.^ § 518. Again, if the contract to subscribe is conditioned on the subscription of a certain 'amount, it may not be Hon of total enforced until that amount is subscribed for ;' and if named in a Certain amount of stock is mentioned in the charter articles. ^^ articles of association, a contract to subscribe is impliedly conditioned on the subscription of that amount,* Mansfield, etc. R. E. Co. v. Brown, 26 O. St. 223 ; Racine County Bank V. Ayres, 12 Wis. 512; Rutland, etc. R. R. Co. u. Thrall, 35 Vt. 536, 543 ; Pittsburgh and Connellsville R. R. Co. V. Stewart, 41 Pa. St. 54 ; Caley V. Phila. and Chester Co. R. R. Co., 80 Pa. St. 263. A corporation suing for the whole subscription may recover what is due unconditionally, though it fail to estab- lish its right to recover the rest. St. Louis and Cedar Rapids R. R. Co. v. Eakins, 30 Iowa, 279. But a con- ditional subscription has been held a mere offer, revocable until the con- dition is performed. Garret v. Dills- burg, etc. R. R. Co., 78 Pa. St. 465. ' Grosse Isle Hotel Co. u. I' Anson, 43 N. J. L. 442. But the subscriber cannot dispute the necessity of the as- sessment. Chouteau Ins. Co. v. Floyd, 74 Mo. 286. Right of action on a sub- scription made subject to call does not accrue till the call is made, and conse- quently not till then does the statute of 490 limitations begin to run. Macon and A. R. R. Co. V. Vason, 52 Ga. 326. Compare Braddock v. Philadelphia M. and M. R. R. Co., 45 N. J. L. 363. ^ Somerset R. R. Co. v. Clarke, 61 Me. 379 ; Same v. Gushing, 45 Me. 524 ; Worcester and Nashua R. R. Co. V. Hinds, 8 Gush. 110. Compare Bucksport, etc. R. R. Co. v. Buck, 65 Me. 536 ; Pike^ v. Bangor, etc. Shore Line R. R. Co., 68 Me. 445. ' Philadelphia and West Chester R. R. Co. V. Hickman, 28 Pa. St. 318 ; Chase V. Sycamore, etc. R. R. Co., 38 111. 215 ; Morris Canal, etc. Co. v. Nathan, 2 Hall (N. Y.), 239 ; Belfast and M. L. R R. Co. v. Cothrell, 66 Me. 185 ; Monsldnock R. R. v. Felt, .52 N. H. 379. * Atlantic Cotton Mills v. Abbot, 9 Gush. 423 ; Katama Land Co. v. Jer- negan, 126 Mass. 155; Read v. Mem- phis Gayoso Gas Co., 9 Heisk. (Tenn.) 545; Littleton M'fg Co. v. Parker, 14 N. H. 543 ; Contoocook Valley R. R. V. Barker, 32 N. H. 363 ; Peoria CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 518. unless the terms of the subscription contract are plainly incon- sistent with the existence of such implied conditions.' And the subscriptions, to fulfil this condition, must be valid and made by solvent persons apparently able to pay for the shares subscribed for by them." It may be added generally, that what- ever conditions are imposed on the corporation by the subscrip- tion contract must be performed before the contract can be en- forced.' But the rule that, when the capital stock is fixed by the charter, an action does not lie to enforce a subscription until all the stock is taken, does not apply where, from the face of the charter, it is obvious that the whole of the capital stock was not necessary to the organization of the company, and the subscriber knew, or had reason to know, this at the time of subscribing; nor does it apply where a subscriber takes part. in and R. I. R. R. Co. v. Preston, 85 Iowa, 115; Memphis Branch R. R. Co. V. Sullivan, 67 Ga. 240; AUman V. Havana, etc. R. R. Co., 88 111. 521 ; Hughes V. Antietam M'Pg Co., 34 Md. 316 ; Elder v. New Zealand Land Improvement Co., 30 L. T. N. S. 285 ; Hendrix v. Academy of Music, 73Ga,.437; Hale u. Sanborn, 16 Neb. 1 ; Rockland, etc. Steamboat Co. v. Sewall, 78 Me. 167. See People's Ferry Co. v. Balch, 8 Gray, 303; Pierce v. Jersey Water Works Co., L. R. 5 Exch. 209. Compare M'Dou- gall V. Jersey Imperial Hotel Co., 10 Jur. N. S. 1043 ; Warwick R. R. Co. i;. Cady, 11 R. I. 131 ; Nutter u. Lex- ington, etc. R. R. Co., 6 Gray, 85. Contra, Nelson v. Blakey, 54 Ind. 29. See also § 96. ' Iowa and Minn. R. R. Co. v. Perkins, 28 Iowa, 281 ; see Selma, M., and M. R. R. Co. v. Anderson, 51 Miss. 829 ; Skowhegan and A. R. R. Co. V. Kinsman, 77 Me. 370; Sedalia, W.. and S. Ry. Co. v. Abell, 17 Mo. App. 645. 2 Lewey's Island R. R. Co. v. Bol- ton, 48 Me. 451 ; Phillips v. Coving- ton, etc. Bridge Co., 2 Met. (Ky.) 219. See Holman u. State, 105 Ind. 569, 571. ' Santa Cruz R. R. Co. v. Schwartz, 53 Cal. 106 ; Swartwout v. Mich. Air Line R. R. Co., 24 Mich. 389 ; Car- lisle V. Cahawba, etc. R. R. Co., 4 Ala. 70 ; Trott v. Sarchett, 10 O. St. 241 ; Thompson v. Oliver, 18 Iowa, 417 ; Burlington and M. R. R. R. Co. V. Boestler, 15 Iowa, 655. A subscription may be received by a railroad company conditioned on a specified location of its road ; and can- not be enforced unless the condition is complied with. Nashville and N. W. R. R. Co. V. Jones, 2 Cold. (Tenn.) 674 ; Missouri Pac. Ry. Co. v. Tygard, 84 Mo. 263, and preceding cases. When on subscribing and paying for shares the subscriber makes a contract with the company's agent, under a mutual mistake as to the agent's powers, and the company refuses to perform, the subscriber can recover back his money ; the contract having been part of the subscription agreement. Weeden v. Lake Erie and M. R. R. Co., 14 Ohio, 563. 491 § 520.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. carrying on the business of the company, and votes on his shares; at least, when the suit is brought by the receiver of the corporation after it has become insolvent.' § 519. The, antecedent obligation of the corporation to per- Waiver f f^rm the conditions of the subscription contract will condition, cease if the subscribers waive performance,' or by ^ °^^ ' acting as if the conditions had been performed estop themselves from setting up the non-performance of them. Thus, if a commissioner subscribes for shares in a railroad corporation to be organized and then joins in a certificate, sent to the gov- ernor of the state, which sets forth the performance of the con- ditions precedent, he will be estopped, in an action brought to recover his subscription, from pleading the non-performance of those conditions.' Similarly, when the receiver of an insolvent corporation sues a shareholder on his subscription, it is no defence that the whole amount of the capital stock had never been subscribed for, if the shareholder, knowing this, has par- ticipated in the affairs of the company in a manner which would have been proper only on the assumption that the shareholders intended to carry on business with the stock but partially sub- scribed.^ The obligation on the part of the corporation to per- form the conditions of a subscription contract will also cease, if the subscriber himself prevents the performance." § 520. At times it may be difficult to determine whether a given provision in the constitution of the corporation, or in the ' Musgrave v. Morrison, 54 Md. * Stillman v. Dougherty, 44 Md. 161. 380. See also Erie, etc. Plankroad 2 Defendant subscribed for shares, Co. v. Brown, 25 Pa. St. 156; Craig making his subscription payable on v. Cumberland Valley State Normal certain conditions, one of which was School, 72 Pa. St. 46; May v. Mem- that the road should be built to a cer- phis Branch R. E. Co., 48 Ga. 109, in tain place by a certain date. Subse- which case the company did not appear quently he gave notes for his subscrip- to be insolvent, and sued in its own tion payable on the fulfilment of the name. Compare Somerset and K. R. conditions, except the one above men- R. Co. v. Cushing, 45 Me. 524, 533. tioned. It was held that the omitted « ggg Upton v. Hansbrough, 3 Biss. condition was thereby waived. Slipher 417, 428. Compare Gould v. Town V. Earhart, 83 Ind. 173. See also of Oneonta, 71, N. Y. 298; Perkins Lee V. Imbrie, 13 Oreg. 510. v. Union Button-Hole, etc. Machine " Bavington v. Pittsburgh and Steu- Co., 12 Allen, 273. benville R. R. Co , 34 Pa. St. 358. 492 CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 521. subscription contract, constitutes a condition precedent to the enforcement of the subscription. The non-fulfilment, however, of that which is not a condition, is no defence construed to an action for calls. Thus, to a petition for a man- condMone. damns to compel the issue of county bonds in pay- ment for railroad shares, it is no defence that the road had not been completed within the time mentioned in the subscription contract, time not appearing to have been of its essence, and the benefits expected from the road having accrued. The court said that if injury had resulted, there might be an abatement in the shape of damages, but not an entire release.* In another case where a corporation in its prospectus, set forth its intention to purchase ten tracts of land, and afterwards failed to purchase two of them, on account of a defective title, it was held that the plaintifi" could not on that account rescind his contract to purchase shares, as to permit that would be a great hardship on the other shareholders.* § 521. It is the better and almost universally accepted view that a condition, in order to be operative, must be verbaicon- expressed in the subscription contract itself; and that ditions and any verbal condition varying the terms of the written agreements contract is void.^ It may, indeed, be laid down as a general rule, that all parol agreements and secret understand- ings between the subscriber and the agent of the corporation who procures the subscription, in any way contrary to its terms, are void ; and the subscription is enforceable as if no such agree- ments or understandings had existed ;* unless a fraud imputable 1 Kansas City, St. Jo., etc. R. R. terms of the subscription be made a Co. V. Alderman, 47 Mo. 349; see condition. Courtright v. Deeds, 37 - San Antonio v, Jones, 28 Tex. 19. Iowa, 503. See § 511. 2 Kelsey I'. Northern Light Oil Co., ' Nippenose M'f'g Co. v. Stadon, 45 N. Y. 505. A tender of a stock 68 Pa. St. 256 ; Miller v. Hanover certificate is not a condition precedent Junction, etc. R. R. Co., 87 Pa. St. to a suit on a subscription. Fulgam v. 95 ; Baile v. Educational Society, 47 Macon, etc. R R. Co., 44 Ga. 597. Md. 117; see Hendrix v. Academy of Compare Cheltenham, etc. R'y Co. v. Music, 73 Ga. 437. But see Rinesmith Daniel, 2 Eng. R'y Cas. 728. But v. People's Freight R'y Co., 90 Pa. see St. Paul, Stillwater, etc. R. R. St. 262. Co. ... Robbing, 23 Minn. 439. But * Galena and S. W. R. R. Co. v. the tender of a certificate may by the Ennor, 116 111. 55; Pistaqua Ferry 493 § 522.] THB LAW OF PRIVATE CORPORATIONS. [CHAP. IX. to the corporation be shown.' And a subscriber cannot plead that his subscription was feigned and fraudulent, and that the company was party to the fraud ; for his subscription will be enforceable for the benefit of other subscribers and creditors.'' It has, however, been held that a subscription, made on a blank paper on condition that the paper should not be attached to the articles of association until they should have been pre- sented to the subscriber for approval, does not bind him, if attached without his consent.^ § 522. The word " non-assessable" upon a stock certificate does not impair the obligation, created by the accept- seseabie." ^^''^ ^^^ holding of the certificate, to pay the amount due upon the shares. At most, it is in legal effect a stipulation against liability from further assessments or taxation after the entire subscription of one hundred per cent, shall have been paid. And representations by the agent of the corpora- tion as to the non-assessability of the shares beyond a certain percentage of their value, constitute no defence to an action Co. V. Jones, 39 N. H. 491 ; Thigpen Co., 8 Fla. 370; Vicksburg, etc. R. V. Miss. Cent. K. R. Co., 32 Miss. R. Co. u. McKean, su^ra ; Mississippi, 347; Smith- u. Plankroad Co., 30 Ala. etc. R. R. Co. v. Cross, supra; Scar- 650; La Grange, etc. Plankroad Co. lett w. Academy of Music, «ujora. See V. Mays, 29 Mo. 64 ; Connecticut, etc. §§ 523 et seq., and Union Nat. B'k v. Rivers R. R. Co. v. Bailey, 24 Vt. Hunt, 76 Mo. 439. 465 ; Downie v. White, 12 Wis. 176 ; ' Graff' v. Pittsburgh and^ Steuben- Mississippi, etc. R. R. Co. V. Cross, ville R. R. Co., 81 Pa. St. 489; Rob- 20 Ark. 443 ; New Albany, etc. R. R. inson v. Pittsburgh and Connellsville Co. V. Fields, 10 Ind. 187; Evans- R. R. Co., 32 Pa. St. 334; Phoenix ville, etc. R. R. Co. v. Posey, 12 Ind. Warehousing Co. v. Badger, 6 Hun, 363; Cunningham u. Edgefield, etc. 293, aff'd 67 N. Y. 294. See Bailey R. R. Co., 2 Head (Tenn.), 23; v. Pittsburgh and Connellsville Gas North Carolina R. R. Co. ^. Leach, 4 Coal, etc. Co., 69 Pa. St. 334. Jones I.,. (N. C.) 340 ; Scarlett t . ' Bucher v. Dillsburg, etc. R. R. Academy of Music, 46 Md. 132; Co., 76 Pa. St. 306. Ace. Ottawa, Vicksburg, etc. R. R. Co. v. McLean, etc. R. R. Co. v. Hall, 1 111. App. 12 La. Ann. 638; Whitehall, etc. R. 612. But in such a case it would R. Co. V. Myers, 16 Abb. Pr. N. S. seem that the subscriber would be (N. Y.) 34 ; Chouteau Ins. Co. v. bound, unless he took immediate steps Floyd, 74 Mo. 286. to have his name removed. Compare ' Martin v. Pensacola, etc. R. R. §§ 523 et seq. 494 CITAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 523. against the holder when he has himself failed to use due dili- gence to ascertain the truth or falsity of such representations.* § 523. A shareholder, however, whose subscription has been induced by a fraud which may be treated as the fraud subscrip- of the corporation can annul his subscription and '*°°g^h' thereby free himself from all liability, provided fraud void- others have not in the meanwhile justifiably acted videdsub- on the faith of his subscription under such circum- ^ith des^*^ stances that as between him and them responsibility patch, for the fraud attaches to him.' Accordingly, when the receiver of an insolvent corporation sues to recover the amount unpaid on a subscription, it is then too late to plead that the subscrip- tion was .induced by fraudulent misrepresentations.* And in ' Upton (assignee) v. Tribilcock, 91 U- S. 45. See also Hall v. Selma, etc. R. R. Co., 6 Ala. 741. 2 Oakes v. Turquand, L. R. 2 H. L. 325 ; Cunningham v. EdgeGeld, etc. R. R. Co., 2 Head (Tenn.), 23^ Grangers' Ins. Co. v. Turner, 61 Ga. 561 ; Davis v. Dumont, 37 Iowa, 47; Water Valley M'fg Co. v. Seaman, 53 Miss. 655 ; Rivers v. Montgomery Plank Road Co., 30 Ala. 92; Mont- gomery Southern Ry. Co. v. Matthews, 77 Ala. ."is? ; City Bank v. Bartlett, 71 Ga. 797 ; Henderson v. Railroad Co., 17 Tex. 560; Occidental Ins. Co. V. Ganzhorn, 2 Mo. App. 205; In re Etna Ins. Co., Ex parte Shields, 7 Ir. R. Eq. 264. See Walker v. Mobile and Ohio R. R. Co., 34 Miss. 245; Waldo V. Chicago, etc. R. R. Co., 1 Wis. 575 ; In re Madrid Bank, Wil- kinson's Case, 36 L. J. Eq. 489 ; In re Russian Iron Works Co., Kincaid's Case, ib. 499. Compare Rutz v. Esler, etc. M'f g Co., 3 111. App. 83. It has been held that in a suit brought by a corporation against a shareholder on a note, the defendant may set off money paid by him on a stock subscription induced by fraud ; unless the rights of creditors intervene. Hamilton v. Grangers' Life, etc. Ins. Co., 67 Ga. 145. To avoid a subscription on the ground of misrepresentations of the agent obtaining it, the misrepresenta- tions must be of a fact, and not an ex- pression of opinion, and must not relate to matters controlled by the charter, as to which the subscriber is affected with knowledge. Selma M. and M. R. R. Co. v. Anderson, 51 Miss. 829 ; Jackson v. Stockbridge, 29 Tex. 394 ; Montgomery Southern Ry. Co. V. Matthews, 77 Ala. 357. In an action by a corporation on a subscription which after its execution had been raised without knowledge of the maker, when the execution of the contract as set out is denied, the cor- . poration cannot recover the amount due on the original subscription with- out showing that the alteration was not fraudulently made by it. Bery v. Marietta, P. and O. Ry. Co., 26 Ohio St., 673. ' Upton V. Tribilcock, 91 U. S. 45 ; Ruggles V. Brock, 6 Hun, 164; Michener-w. Payson, 13 Bankr. Reg. 49; Burgess's Case, 15 Ch. D. 507; Upton V. Englehart, 3 Dill. 496. 495 § 525.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. England, at least, a person can bring no action for damages against a corporation for fraudulent misrepresentations, which induced him to purchase shares, as long as he remains in the company, and does not offer to rescind.' § 524. In regard to this exceedingly difficult question of annulling subscriptions on the ground of the fraud A^erican"^ of Corporate agents, there may be a shade of differ- ■*''*^^' ence between the English and American views. In England a tendency has been shown to regard a contract of sub- scription as a conti^act strictly between the subscriber and the company. Eor instance, in Directors v. Kisch,^ the court held' that a person could dissolve a contract to take shares in a com- pany when the inducement on its part was false, and, when not himself guilty of laches, could withdraw without regard appa- rently to the subsequently accruing rights of creditors. Lord Eomilly saying, " that contracts of this description between an individual and a company, so far as misrepresentation or sup- pression of the truth is concerned, are to be treated like con- tracts between any two individuafe."^ The American cases, on the other hand, more generally recognize that a subscription contract is one on which persons other than the contracting parties are entitled to rely.^ § 525. It is submitted that to questions regarding the right to rescind a subscription contract or defend in a suit for calls, a course of reasoning somewhat like the following is applicable. In all matters within the ordinaiy scope of the corporate powers the corporation acting through whatever agency may constitute the corporate management rep- resents all persons in any way interested in, the corporate enter- prise. Consequently, the interests of all are bound by the acts of the corporate management (say, for simplicity, by the acts of the board of directors) within the scope of its authority. But the board in no way represents persons whose interests in Compare Farrar v. Walker, ib. 82. ^ h. R. 2 H. L. 99. See also § 744. ' See also Smith's Case, h. K. 2 Ch. ' Houldsworth v. City of Glasjjow 604 : and compare Houldsworth v. Bank, 5 App. Cas. 317. See Western City of Glasgow Bank, 5 Ap. Cas. Bank of Scotland v. Addle, 1 H. L. 317, ante. Sc. App. 145, 157; National Exchange * See § 521, also §§ 701, 702. Co. V. Drew, 2 Macq. 103. 496 CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 526. respect of the corporate enterprise have not yet arisen. When •A., for instance, contracts with the directors, the latter repre- sent the persons whose interests have already accrued, i. e., shareholders and existing creditors. But A., until his rights have arisen, is as to the directors an outsider, whom they in no way represent. If, in contracting with A., the directors act fraudulently, then on account of the fraud he would be allowed as between himself and those whom the directors represent, to rescind the contract ; because the fraud of the agent is the fraud of the principal, and is in this case, as to A., the fraud of the corporation, and of the persons already interested in it, whom the directors represent. Moreover, within the scope of their more restricted powers, other agents, as well as directors, rep- resent the entire mass of corporate interests.* § 526. Applying this reasoning to the right of a subscriber to annul a subscription contract induced by a fraud of the agent representing the corporation in the matter, it would seem that the contract might be annulled by the subscriber acting swiftly, unless, after his subscription and before he has taken steps to annul it, some one has acted relying on it in good faith ; that is, unless some one has subscribed subsequently, seeing on the books the name of the subscriber whose subscription was in- duced by fraud, or some one has contracted with the corpora- tion on the credit of such fraudulently induced subscription. As to such latter persons, carrying out the course of reasoning, it would seem that the subscriber could not rescind so as to prejudice their rights in any way, for the corporate agent in his fraudulent contract with the subscriber in no way represented such persons, who afterwards acted relying on the acts of the subscriber. , And if the subscription was induced by fraud, nevertheless the loss should fall on the subscriber rather than on persons who acted subsequently relying on his subscription. For the directors, when they afterwards contract with any one, represent the subscriber, and to allow him to rescind so as to affect the rights of a subsequently contracting party might visit on an innocent head the results of a fraud committed by ' It is not improper to regard the directors as representing creditors ; see §756. 32 497 § 529.] THE LAW OF PRIVATE COKPOEATIONS. [CHAP. IX. the corporate agent on a person whom at the time of the sub- sequent contract the directors represent, and who, therefore, should bear the loss rather than the parties subsequently con- tracting. § 527. To subscriptions induced by error or justifiable igno- rance of material facts a rule somewhat similar to frrof °^ *^^ °"® above stated in regard to fraudulently induced subscriptions, and a course of reasoning somewhat similar to the above would apply. " Except where a person has induced others to act on his own representations, ignorance of material facts on his part affords a sufficient reason for not holding him bound by what in such ignorance he may have said or done."^ § 528. When a contract between two individuals is violated by one of them, the other may often acquire thereby tion, how the right to rescmd ; but in such case either of the subsequent Contracting parties could have released the other. nnauthor- 'With regard to the contract between the subscriber ized or im- ^ proper and the corporation the case is manifestly difierent. the part of Ii the first place, the corporation has ordinarily no ration.'^^°" po^^r to release the subscriber, for numerous persons, creditors, and shareholders, have in regard to the contract rights which a release would infringe.^ If the corpo- rate management violates the contract with the subscriber by diverting the funds of the corporation to unauthorized piirposes, it does an act which may violate the rights of all non-consent- ing persons in respect of the corporate enterprise ; but this act is in itself clearly no ground on which one of these injured persons may claim a release from his obligation to the other injured persons.' § 529. Accordingly, after a person has subscribed for shares in the stock of a corporation he will not be released from his contract by the mismanagement of the corporate affairs ;* even ' Lindley on Part., 185. See 8a- ' The shareholder's remedy is to en- lem Mill Dam Co. v. Ropes, 9 Pick, join unauthorized acts. See Missis- 187; Payson v. Withers, 5 Biss. 269; sippi, etc., R. R. Co. v. Cross, 20 Pour Mile Val. R. R. Co. v. Bailey, Ark. 443, and the following pages. 18 Ohio St. 208. « Chetlain v. Republic Life Ins. Co., ^ See §§ 543-551. 86 111. 220 ; Southern Life Ins. Co. v. 498 CHAP. IX.] CORPORATION ANP SHAREHOLDERS. [§ 530. though the mismanagement amount to such non-user or mis- nser- of the corporate franchises as would be a ground for the state to forfeit them.' Thus, an illegal election of directors will not release a subscriber;' nor a release of other share- holders by the directors ; for if the release was made in pursu- ance of competent authority it was valid, and, if not, it was simply void.* Similarly, a plea to an action to collect a sub- scription to the stock of a railroad company, that the company has sold or leased its road, is bad on demurrer ; for, if the cor- poration had authority to sell or lease, a subscriber would not be discharged ; and if it had not, the transaction was void and would not affect his rights.* § 530. "When a radical change is effected, or is sought to be effected, in a corporate enterprise, through a legisla- tive amendment to the constitution, applied for and the^corpo'- accepted by the corporation," whether or not a dis- p^jg/w^'^' senting shareholder is released from his subscription legislative . . . , . . , . action, contract is a question involving many considerations, and in regard to it there is some conflict of authority. If the change is immaterial, or is an alteration or amendment that is conducive in the main to the successful carrying out of Lanier, 5 Fla. 110. See Merrill v. ■Keaver, 69 Iowa, 404 ; Oler v. Balti- more, etc. R. R., 41 Md. 583. * Hanover Junction, etc. R. R. Co. V. Haldeman, 82 Pa. St. 36 ; Connec- ticut, etc. Rivers R. R. Co. «. Bailey, 24 Vt. 465 ; Mississippi, etc. R. R. Co. V. Cross, 20 Ark. 443 ; Hammett V. Little Rock, etc. R. R. Co., 20 Ark. 204 ; Hannibal, etc. Plankroad Co. V. Menefee, 25 Mo. 547. See Cunningham v. Edgefield, etc. R. R. Co., 2 Head (Tenn.), 23 ; Mechanics' Building Ass' n«. Stevens, 5 Duer (N. Y.), 676. ' Eakright v. Logansport, etc. R. R. Co., 13 Ind. 404. See Western Plank- road Co. V. Stockton, 7 Ind. 500. Compare § 540. ' Hall V. Selma, etc. R. R. Co., 6 Ala. 741 ; Macon, etc. R. R. Co. v. Vason, 57 Ga. 314. Contra, Rutz v. Esler, etc. M'f g Co., 3 111. App. 83 (a more than questionable case). * Hays V. Ottawa, etc. R. R. Co., 61 111. 422 ; Ottawa, etc. R. R. Co. v. Black, 79 111. 262. But see South Georgia, etc. R. R. Co. v. Ayres, 56 Ga. 230. ' In order to be valid, a vote ac- cepting an act altering the charter, should be passed at a meeting of the corporation duly convened, after notice to all the members. Commonwealth V. CuUen, 13 Pa. St. 133. Directors cannot bind shareholders by accepting a substantial alteration. Brown v. Fairmount M'f 'g Co. 10 Phila. (Pa.) 32; Marlborough M'f 'g Co. v. Smith, 2 Conn. 579 ; see § 227. 499 § 5 31. J THE LAW OF PRIVATE COKPOKATIONS. [CHAP. IX. the originally contemplated enterprise, a shareholder Is not re- leased.' It is evident that in a large corporation there must he some surrender of opinion, and even of interest by a minority to the majority. This courts will recognize, and will not permit one shareholder to ruin the corporate enterprise by insisting on his finically strained rights. Thus, a subscriber is not dis- charged by an amendment to the charter of a railroad corpora- tion, which merely enlarges the powers of the corporation, as, for instance, by allowing it to build a branch road f nor is a subscriber discharged by a slight alteration in the route,* especially if the location of the road had not been definitely fixed when he subscribed ;* nor by a change of the corporate name by the legislature." So subscribers are not released by an amendment extending the time for the completion of the' rail- road,* and a subscriber cannot avoid payment because the char- ter has been modified so as to authorize the corporation to pur- chase stock in other railroads, even though the real terminus of the road is thereby changed.'^ § 531. On the other hand, a great number of cases hold that an alteration of the constitution effecting a radical change in ' Nugent V. Supervisors, 19 Wall. 10 Mass. 384; Buffalo, Corning, etc. 241 ; New Haven and Derby R. R. R. R. Co. v. Pottle, 23 Barb. 21 ; Co. V. Chapman, 38 Conn. 56 ; Union Kenosha, etc. R. R. Co. v. Marsh, ] 7 Agriculture Ass'n u. Neill, 31 Iowa, Wis. 13. Especially if the subscrip- 95 ; Clark v. Monongahela Nav'n Co., tion is conditional on its face. Moore 10 Watts (Pa.), 364; Everhart u. u. Hanover Junction R. R. Co., 94 Pa. Phila. etc. R. R. Co., 28 Pa. St. 339. St. 824. As to what is a substantial amendment * Eppes u. Mississippi, etc. R. R. working a material departure from the Co., 35 Ala. 83.' originally contemplated enterprise no ^ Bucksport, etc. R. R. Co. v. Buck, rule applicable to all cases can be laid 68 Me. 81 ; Commonwealth «. Pitts- down. Witter w. Mississippi, etc. R. burgh, 41 Pa. St. 278, municipal sub- R. Co., 20 Ark. 463, 493. scription. 2 Peoria, etc. R. R. Co. v. Preston, « Agricultural Branch R. R. Co. v. 35 Iowa, 115. Winchester, 13 Allen, 29; see Fry's ' Wilsop V. Wills Valley R. R. Co., Ex'r v. Lexington, etc. R. R. Co., 2 33 Ga. 466; see Buffalo and Pitts- Mete. (Ky.) 314; Commonwealth v. burgh R. R. Co. v. Hatch, 20 N. Y. Pittsburgh, 41 Pa. St. 278. 157. But a substantial change of the 'f Terre Haute, etc. R. R. Co. v. route was held to discharge a subseri- Earp, 21 111. 291. Compare Pacific ber in Middlesex Turnpike Co. v. R. R. Co. v. Hughes, 22 Mo. 291. Locke, 8 Mass. 268 ; Same v. Swan, 500 CHAP. IX.j CORPORATION AND SHAREHOLDBRS. [§ 532. the corporate enterprise releases a shareholder from his sub- scription.' These cases proceed on the theory that the corpora- tion cannot enforce the subscription of a dissenting shareholder while the constitution as altered remains in force ; since that would be to enforce a contract which the shareholder never made.' § 532. Still it seems quite possible that many of these decisions are wrong on principle ; at least, those of them where the charter was not amended in pursuance of a right reserved to the state to alter and repeal. For it is surely universally recognized law that a charter imports a contract between the corporation and the state ; and the state cannot constitutionally pass a law radi- cally changing it.^ Consequently, any such change unaccepted by the corporation would be plainly unconstitutional and void. But the corporation, or majority of shareholders, has no power to bind the minority by acts beyond the fcope of the original chartered powers, and d, fortiori no authority to bind them by any act causing a radical change in the corporate enterprise, as, for instance, by accepting a radical amendment to the corpo- rate constitution.* Therefoi'e, the state having no power to amend the constitution against the consent of the corporation, and the corporation having no power to accept an amendment against the consent of any shareholder, it would seem that no shareholder should be allowed to claim a release as long as there are other non-consenting shareholders who do not wish to be ' Manheim, etc. Turnpike Co. v. ington, etc. R. R. Co., 2 Mete. (Ky.) Arndt, 31 Pa. St. 317; Chartiers R'y 314; Richmond Street R. R. Co. v. Co. V. Hodgens, 77 Pa. St. 187 ; Caley Reed, 83 Ind. 9. V. Phila. and Chester R. R. Co., 80 ^ Hartford and N. H. R. R. Co. v. Pa. St. 363; Southern Penn. R. R. Croswell, 5 Hill (N. Y.), 383; Mid- Co. V. Stevens, 87 Pa. St. 195; Noesen dlesex Turnpike Co. v. Locke, 8 Mass. V. Town of Port Washington, 37 Wis. 268; Carlisle v. Terre Haute, etc. R. 168 ; Ashton v. Burbank, 2 Dill. 435 ; R. Co , 6 Ind. 316 ; McCray v. June- Bank V. City of Charlotte, 85 N. C. tion R. R. Co., 9 Ind. 358 ; Booe v. 433 ; Supervisors v. Mississippi, etc. Same, 10 Ind. 93 ; Hoey v. Hender- R. R. Co., 21 111. 338 ; Union Locks son, 32 La. Ann. 1069. and Canals v. Towne", 1 N. H. 44; ' See §§ 450 et seq. Marietta, etc. R. R. Co. v. Elliott, 10 * See Chapman v. Mad River, etc. Ohio St. 57; Thompson v. Guion, 5 R. R. Co., 6 O. St. 119, 137; and Jones, Eq. (N. C.) 113 ; also cases § 557. in next note. See Fry's Ex'r v. Lex- 501 § 533.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. released, but desire to have the original corporate enterprise adhered to. The plain remedy in such a case is to enjoin the .acceptance of the amendment ;' a step which should be imme- diately taken, and by those shareholders who wish the original enterprise adhered to, and wish to preserve their rights against other subscribers who may dissent from the change, but, rather than enjoin it, prefer a release ; as under such circumstances it would certainly be unreasonable to look to subscribers, who merely desire a release, to take the initiative in expensive litigation to enjoin a change.* § 533. If, however, under a power reserved to itself, the state Power re- radically changes the constitution of a corporation, it served to would seem that, unless the chansre could be held to state to . alter and have been contemplated by the subscriber on snb- repeai. scribing, such altered contract could not be enforced against him ;' for a state cannot make a contract between its citizens. Nevertheless, in order that a right to rescind result, ' the amendment must radically change the nature of the enter- prise. For instance, it has been held in New York, that an alteration by the legislature of the charter of a plank road or railroad corporation, in pursuance of powers reserved, by chang- ing its name, increasing its capital, and extending its road, does not discharge a subscriber from liability on his subscription.* These were changes, however, which the shareholder might be held to have contemplated on subscribing. As the court said in Buffalo and ITew York City R. R. Co. v. Dudley:' "The change is not fundamental. The new powers conferred are ' Fry's Ex'r v. Lexington, etc. R, ' But a shareholder (see § 502) will E. Co., 2 Mete. (Ky.) 314. See also be estopped from objecting if he im- Mississippi, etc. B,. K. Co. v. Cross, pliedly assents to the amendment by 20 Ark. 443 ; Mississippi, etc. R. R. acting (as a director) under the Co. V. Gaster, 24 Ark. 96. But see amended charter. Ross u. Chicago B. Thompson u. Guion, 5 Jones, Eq. (N. and Q. R. E. Co., 77 111. 134. C.) 113. 1 Schenectady, etc. Plank Road Co. 2 Where an amendment to a charter w. Thatcher, 11 N. Y. 102; Buffalo is passed by the legislature, but its ac- and N. Y. City R. R. Co. v. Dudley, ceptance is enjoined by a shareholder, 14 N. Y. 336. subscribers remain liable ; not having * 14 N. Y. 348. been injured. Rutland, etc. E. R. Co. V. Thrall, 35 Vt. 536. 502 CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 534 identical in kind with those originally given. They are en- larged merely, the general objects and purposes of the corpora- tion remaining still the same. It may be admitted that under this reserved power to alter and repeal, the legislature would have no right to change the fundamental character of the cor- poration and convert it into a diiferent legal being, for instance, a banking corporation, without absolving those who did not choose, to be bound." § 534. With like effect Durfee v. Old Colony, etc. E. R. Co.,» holds that a shareholder in a corporation, the charter of which is subject to alteration and repeal, cannot maintain a bill in equity to restrain the corporation from engaging in a new en- terprise in addition to that contemplated in the charter, but of the same kind, if the new enterprise is sanctioned by express legislation, and by a vote of the majority of shareholders. In this case the " new enterprise" was a considerable extension of the railroad. Giving the opinion of the court. Chief Justice Bigelow said : — " "Whatever may be the authority which is [by a reservation of the right to alter, amend, or repeal] retained by the legisla- ture to modify or change the charters of corporations without or againat their consent, there would seem to be no reason to doubt that, with the concurrence of the corporation manifested in the mode pointed out by law, the legislature may make any alteration in, or addition to the power and authority con- ferred by the original act of incorporation, and not foreign to the purposes and objects for which it was enacted, and which it was designed to accomplish, which may seem to be expedient or necessary. !N'o breach of contract would be thereby occa- sioned. Such action would be in precise accordance with the terms on which the grant of the franchise was made. . . . The stockholder cannot say that he became a member of the corporation on the faith of an agreement made by the legislar ture with the corporation, that the original act of incorporation should undergo no change, except with his assent The real contract into which the stockholder enters is, that he agrees to become a member of an artificial body, which is • 1 5 Allen, 230. - 603 § 535.J THE LAW OF PRIVATE CORPORATIONS. [OHAP. IX. created and has its existence by virtue of a contract with the legislature^ which may be amended or changed with the consent of the company, ascertained or declared in the mode pointed out by law. . . . All that we mean to determine is that the obligation of the contract which subsists between the cor- poration and a stockholder, by virtue of his being a proprietor of shares in the corporate stock, is not impaired by an act of the legislature which amends and alters the charter, and authorizes the corporation to undertake new and additional enterprises of a nature similar to those embraced within the original grant of power, if such act is accepted by a majority of the stockholders in the mode provided by law."' § 535. A somewhat different view was taken iti the ITew Jersey ease of Zabriskie v. Hackensack, etc. E.. E,. Co.,^ where Chancellor Zabriskie said :' " There is no other alternative to the proposition that while the power reserved authorizes the legis- lature, within certain limits, to make such alterations as they choose to impose, it gives no authority when the legislature does not impose them, for the majority to adopt such alterations or enter upon such enterprises as are allowed by the legislature. Again the power of the legislature has its limits. It can repeal or suspend the charter; it can alter or modify it ; it. can take away the charter ; but it cannot impose a new one, and oblige the stockholders to accept it. It can alter or modify the old one ; but the power to alter or modify anything can never be held to imply a power to substitute a thing entirely different. It is not the meaning of the words in their usually received sense." Nevertheless, it is hard to see why the power to alter and amend, the power to impose new terms, does not include the power to make the alteration subject to the will of a majority of the shareholders. What the legislature could do without the assent of this majority it surely could- do with it, and in this respect Durfee v. Old Colony, etc. R. E. Co. is more satis- factory than Zabriskie v. Hackensack, etc. E. E. Co.* ' Durfee o. Old Colony, etc. R. R. " 18 N. J. Eq., 178. Co., 5 Allen, 230, US et seq. See ' lb., 192. Atchison T. and S. F. R. R. Co. v. * See also Bish v. Johnson, 21 Ind. Fletcher, 85 Kan. 236. 299. 604 • CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 536. § 536. Without special authority a corporation cannot con- solidate with another; and an attempted wrongful j-g- * f consolidation may be enjoined by a shareholder, like consoiida- any other ultra vires act.* Nevertheless, that an un- authorized consolidation, if actually effected, will release a dis- senting subscriber, has been held in more than one instance.'' Every subscription, however, must be regarded as made with reference to any statute in force at the time allowing consolida- tion, and therefore by a consolidation will not be released ;' and if the original subscriptions Avere conditional, the consoli- dated company may entitle itself to sue by performing the con- dition.^ Further, when a corporation is formed under a law respecting which the right to alter and repeal is reserved to the state, a consolidation authorized by an amendment will not re- lease a subscriber, when the consolidation takes place with ' Mowrey v. Indianapolis, etc. R. R. Co., 4 Biss. 78. See §§ 419 et seq. ' McCray v. Junction R. R. Co., 9 Ind. 358 ; State u. Bailey, 16 Ind. 46 ; Shelbyville, etc. Turnpike Co. v. Barnes, 42 Ind. 498. A railroad company authorized to do so, may transfer its property to another company and dissolve ; thus effecting a consolidation. A share- holder cannot prevent this, as he can- not prevent the majority from dis- solving. But he cannot be forced into a new enterprise, nor can he be com- pelled to take in payment for his stock the stock of the consolidated company, and he may enjoin the proceeding until he has received security. Lau- man v. Lebanon Valley R. R. Co., 30 Pa. St. 42. See Hamilton Mut. Ins. Co. V. Hobart, 2 Gray, 543 ; Gardner V. Hamilton Mut. Ins. Co., 33 N. Y. 421. When a consolidation is effected wrongfully, and against the protest of a shareholder who has partially paid up his shares, the consolidated com- pany is liable to him for the value of them. International, etc. R. R. Co. V. Bremond, 53 Tex. 96. See §§ 323, 324. 3 Bish V. Johnson, 21 Ind. 299 ; Sparrow u. Evansville, etc. R. R. Co., 7 Ind. 369 ; Edwards v. People, 88 111. 340; Mansfield, etc. R. R. Co. V. Brown, 26 Ohio St, 233 ; compare Same v. Stout, ib. 241. Otherwise, if the consolidation effects a radical change in the nature of the enterprise, and a practical abandonment of the original scheme. Illinois Grand Trunk R. R. Co. V. Cook, 29 111. 237. Where a corporation, without author- ity, issues a scrip dividend in fraud of another corporation with which it was about to consolidate, the scrip may be declared void at the suit of shareholders in the latter corporation; and even bona fide purchasers of the scrip may have to return it. Bailey v. Citizens' Gas Light Co., 27 N. J. Eq. 196. * Mansfield, etc. R. R. Co. <-. Stout, 26 O. St. 241. 505 § 538.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. IX. another corporation of the same character, and does not work a fundamental change in the nature of the original objects of incorporation.' § 537. When a person has subscribed for shares in a de facto ^, , existing corporation, he cannot plead to a suit brought ecribercan- on his Subscription that there are irregularities in the nui tiei cor- Organization of the company ; even though the irregu- poration. ]arities are such as would be fatal on a quo warranto.^ Thus, it is no defence to an action by a railroad corporation to recover a subscription that the articles of association were de- fective in not stating definitely the termini of the road and the counties through which it passed.' Moreover, the signature of the defendant to a subscription to shares in the stock of an alleged corporation reciting that a corporation had been formed under the general enabling act, and that articles of association with the necessary affidavits had been filed, is conclusive evi- dence of incorporation as against such subscriber.* § 538. When, however, a person signs articles of association and subscribes for shares, the organization of the may."^* Corporation not being at the time completed, he is not afterwards estopped thereby from pleading to an ' Sprague v. Illinois River R. R. see Oregon' Central R. R. Co. v. Co., 19 111. 174; Hanna v. Cincinnati, Scoggin, 3 Oreg. 161 ; Hunt v. Kan- etc. R. R. Co., 20 Ind. 30. See sas, etc. Bridge Co., 11 Kans. 412. Bishop V. Brainerd, 28 Conn. 289. A subscriber to shares, who has ac- Cotnpare Illinois River R. R. Co. v. cepted the charter and assisted in Zimmer, 20 111. 654. putting it in operation, cannot plead ' Chubb V. Upton, Assignee, 95 U. to a suit on his subscription that the S. 665 ; Sanger ». Upton, Assignee, charter had been obtained by fraud. 91 U. S. 56 ; Home Stock Ins. Co. v. Smith v. Heidecker, 39 Mo. 157. See • Sherwood, 72 Mo. 461 ; Monroe v. Slocura v. Providence Steam and Gas Fort Wayne, etc. R. R. Co., 28 Mich. Pipe Co., 10 R. I. 112; Slocum ». 272; Montpelier, etc. R. R. Co. o. Warren, ib. 116. Compare Occiden- Langdon, 46 Vt. 284 ; McCarthy v. tal Ins. Co. v. Ganzhorn, 2 Mo. App. Lavashe, 10 Chi. Leg. N. 342 ; Ossi- 205. See also §§ 738, and 145 et seq. pee Hosiery, etc. Co. u. Canney, 54 ' Cayuga LakeR. R. Co. v. Kyle, K H. 295; McHose v. Wheeler, 45 64 N. Y. 185. Pa. St. 32; Freeland v. Pennsylvania * Black River, etc. R. R. Co. t). Central Ins. Co., 94 Pa. St. 504; Clarke, 25 N. Y. 208. Compare Road Bulfalo, etc. R. R. Co. v. Cary, 26 N. Co. v. Creeger, 5 Har. & J. (Md.) Y. 75 ; Eaton v. Aspinwall, 19 N. Y. 122 ; St. Charles M'fg Co. v. Britton, 120 ; Mead v. Keeler, 24 Barb. 20 ; 2 Mo. App. 290. 506 CHAP. IX.J CORPORATION AND SHAREHOLDERS. [§ 540. action on his subscription, that the steps necessary to complete the organization of the corporation have not been taken.' " The 'ground upon which a party who has contracted with a corporation as such is estopped to deny its existence is, that by his contract he has recognized the existence of the corporation. The contract in question, instead of purporting to be made with an existing corporation, utterly excludes the idea of present existence, but contemplates the future organization of the cor- poration to which he was to pay the amount of his subscrip- tion."2 § 539. On not dissimilar principles a subscriber to the stock of a railroad corporation may, in a suit brought against him for assessments by a new corporation formed by the consolida- tion of the original corporation with another, question the con- solidation proceedings in which he has taken no part, although they be sufficient to constitute the consolidated conipany a cor- poration de fcucto? For in an action brought by a consolidated corporation to recover subscriptions to the stock of one of the original corporations based on the right of succession under the statute, it is essential that a consolidation in accordance with the statute be proved ; and it is not enough that the consoli- dated company be shown to be a corporation de facto.* % 540. To a suit for calls, unless affected with some special estoppel, a shareholder may plead that the officers gtare- making them were not legally officers of the corpo- ^°^'^?'l^jy ration. Accordingly, where the notice of a meeting officers contained nothing about electing directors, directors caiis'afe chosen at that meeting are not validly elected, and an eiected?'^^ ' Rikhoflf V. Brown's Sewing Ma- tution. St. Louis Colonization Ass'n chine Co., 68 Ind. 388; Indianapolis v. Hennessy, 11 Mo. App. 555. Con- Furnace, etc. Co. a. Herkimer, 46 tra, McCarthy u. Lavashe, 10 Chic. Ind. 142 ; see Knight v. Flatrock, etc. Leg. N. 342. Turnpike Co., 45 Ind. 134. ' Tuttle v. Michigan Air Line R. R. ' Indianapolis Furnace, etc. Co. v. Co., 35 Mich. 247. See Rodgers v. Herkimer, 46 Ind. 142, 149. Wells, 44 Mich. 411. It has been held that a shareholder * Mansfield, etc. R. R. Co. v. is not estopped by his subscription to Drinker, 30 Mich. 124; Same v. deny the lawful existence of a corpo- Brown, 26 Ohio St. 223 ; Same v. ration prohibited by the state consti- Stout, ib. 241. 507 § 541.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. assessment or call made by them is void. These facts a share- holder may plead. ^ § 541. When a corporation increases its capital stock and „ ^ .^ issues further shares, a subscriber to them, when sued QtiDscriDsrs to shares on his subscription, cannot avail himself of any ir- or megaiiy regularities in their issue, if he has acquiesced or issued. taken part in the proceedings by which they were issued,'' or has paid voluntarily an assessment on his new shares,' or has subscribed subsequently to their issue and may be pre- sumed to have waived any irregularities.* But when the sub- scriber has done nothing by which he may be held estopped, he may decline to receive stock improperly issued," and may be in a position to defend in a suit brought to enforce his subscrip- ' People's Mut. Ins. Co. v. West- cott, 14 Gray, 440. Accord, How- beach Coal Co. V. Teague, 5 H. & N. 151. Compare Ginrich v. Patrons' Mill Co., 21 Kan. 61 ; and § 529. In a suit to recover a subscription it will be presumed, in the absence of proof to the contrary, that the meeting of directors authorizing the assessment was legally noticed. Chouteau Ins. Co. V. Holmes, 68 Mo. 601 ; see also §190. 2 Clarke v. Thomas, 34 Ohio St. 46 ; Kansas City Hotel Co. v. Harris, 51 Mo. 464. So a transferee, even one who has taken the shares as col- lateral, may be estopped. Pullman v. Upton, 96 U. S. 328. ' Delano v. Butler, 118 U. S. 634. * Kansas City Hotel Co. v. Hunt, 57 Mo. 126. 5 See American Tube Works v. Boston Machine Co., 139 Mass. 5 ; Reed v. Boston Machine Co., 141 Mass. 454. Holders of increased shares have no standing in court to contest the validity of other (preferred) shares issued at the same time, on the ground that formalities required by the statute authorizing the increase had not been 508 complied with. Columbia National Bank's Appeal, 5 6 Weekly Notes of Cases (Pa.), .'157. A sale of stock in a railroad company by the directors at a less rate than that fixed by the char- ter is a fraud in law. The issuing of a bond convertible into stock has the same effect as issuing stock ; and the sale of such a bond at a discount is unlawful ; and this though the charter contain no prohibition against taking a subscription at less than the charter price. These facts constitute a defence to an action on an executory contract to take such stock, when the subscriber has acted in good faith and without notice. Sturgesf. Stetson, 1 Biss. 246. Compare Fosdick v. Sturges, 1 Biss. 255 ; Hollingshead v. Woodward, 35 Hun (N. y.), 410. When a statute exists forbidding the issue of shares below par, and declaring void shares so issued, a subscriber to stock at less than par is in pari delicto with the corporation and cannot sue on the con- tract to force it to issue such stock to him, nor can he sue to recover back moneys paid on account. Clarke v. Lincoln Lumber Co., 59 Wis. 655. Comipare § 545. CHAP, IX.] CORPORATION AND SHAREHOLDERS. [§ 542. tion to it.i Further, when the capital stock is limited by the charter, all. stock issued in excess of such limit is void, and a holder thereof is not entitled to the rights of a shareholder,^ nor is he estopped from setting up its invalidity as a defence to an action in the interest of creditors, brought to recover the balance unpaid thereon.' But when the corporation has become bankrupt, the holder of void stock is not entitled to have money paid thereon applied as a credit on the unpaid balance due on authorized stock held by him.^ In an action by a cor- poration to recover a subscription, the fact that it has taken subscriptions in excess of its limit does not itself bar a recovery, if the corporation has retained a sufficient amount of its author- ized stock which it is ready and able to issue." § 542. Insolvency of the corporation is no defence to a suit brought to collect a subscription.' And the assignee or receiver of the corporation succeeds to all its rights and may recover unpaid subscriptions for the benefit of shareholders and creditors.' But a receiver can- not enforce the payment of a subscription which the corporation could not have enforced at the time of his appoint- ment f for the corporation or corporate management, just as much as a receiver, represents the interests of all persons, credi- tors as well as shareholders, the main difference being that, as Insolvency of corpora- tion no de- fence. Ca- pacities of I'eceiver. • See last note. = New York and N. H. K. R. Co. V. Schuyler, 34 N. Y. 30 ; Scoville v. Thayer, 105 U. S. 143 ; Oler v. Balto. and Randallstown R. R. Co., 41 Md. 583 ; Grangers' Life, etc. Ins. Co. v. Kamper, 73 Ala. 325. ' Scoville V. Thayer, supra; Clark V. Turner, 73 Ga. 1. * Scoville V. Thayer, supra. ' Oler V. Balto. and Randallstown R. R. Co., 41 Md. 683. That the corporation has illegally increased its stock, is no defence to a note given for a subscription, when it is not alleged that the illegal cannot be distinguished from the legal stock. Merrill v. 'Rear- ver, 50 Iowa, 404. ' Dill V. Wabash Valley R. R. Co., 21 111. 91. It is no defence to a suit on a subscription to its stock, brought by a railroad company, that the gov- ernor of the state had seized the road. MuUins V. North and South R. R. Co., 54 Ga. 580. The fact that a railroad has not been and is not likely to be completed is no defence to an action on an unconditional subscription. Smith V. Gower, 2 Duv. (Ky.) 1 7. ' Sawyer v. Hoag, 17 Wall. 610. Upton V. Tribilcock, 91 U. S. 45; Shockley v. Fisher, 75 Mo. 498 ; Lion- berger v. Broadway S'v'gs B'k, 10 Mo. App. 499. 8 Cutting w. Damerel, 88 N. Y. 410 ; Billings V. Robinson, 2S Hun, 122. 509 § 543.] THE LAW OF PRIVATE COEPORATIONS. [CHAP. IX. a receiver is ordinarily appointed only when the corporation is insolvent, the rights of creditors in the corporate funds are then especially prominent ; and a receiver is more apt to be regarded as the representative of creditors.* "A receiver is appointed upon a principle of justice for the benefit of all concerned. Every kind of property of such a nature that, if legal, it might be taken on execution, may, if equitable, be put into his pos- session. Hence the appointment has been said to be an equita- ble execution. He is virtually a representative of the court, and of all the parties in interest in the litigation wherein he is appointed."^ It has been held that to a suit by a receiver to collect an un- paid subscription, a shareholder may aver that the receiver was improperly appointed by a decree not binding on the share- holder.^ But this doctrine may perhaps be of questionable correctness, or at least application, since the shareholder could have intervened in the proceeding by which the receiver was appointed.* § 543. The discretionary authority of directors to make calls „ cannot be delegated, for instance, to the treasurer of Directors • » t i • , . , . , cannot the corporation." And there is also a case in which autiKM-ity it is said that although a corporation may assign a caiis^When ^^^^ already due on a stock note, it cannot commit to calls un- the assignee the discretion of making future calls.* necessary. t-> i ^i n -i • i •/■ i m • ±5ut the scope oi this remark, it sound at all, is very limited, for after a corporation is insolvent, and has ceased to be a going concern, that a call should be made by the corporate authorities is no longer pre-requisite to the collection of a sub- ' A receiver represents not onlythe ^ Chandler v. Brown, 77 111. 333. corporation, but also creditors and ' Schoonover v. Hinckley, 48 Iowa, shareholders, and in his character of 82. trustee for the latter, may disaflarm ^ Silver Hook Koad v. Greene, 12 illegal and fraudulent transfers of cor- K. I. 164. See §§ 283, 234. porate property, and recover its funds ^ Schultz v. Sutter, 3 Mo. App. and securities misapplied. Attorney- 137. After the whole amount of the General v. Guardian Mut. Ins. Co., subscription has been called, it may be 77 N. Y. 272. Compare Ellis v. assigned. Wells v. Rogers, 50 Mich. Little, 27 Kan. 707. 294; Schultz v. Sutter,' supra. See " Davis V. Gray, 16 Wall. 203, 218. Morris v. Cheney, 51 111. 451. 510 CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 545. scription :• and an insolvent corporation can include in an assignment for the benefit of creditors its right to the unpaid balance of subscriptions for which no call has been made.^ § 544. It has also been held that in the absence of special authorization, a railroad company cannot purchase subscription notes given by shareholders in another corporation, and enforce them against the subscribers; and the fact that one railroad company has bought the road-bed of another, intending to com- plete the road, gives the purchaser no right to buy and enforce the vendor's stock subscriptions." § 545. In payment for its shares a corporation, unless pro- hibited by statute,* may receive any property which it is authorized to purchase, and if property (or ser- tion may vices) so received is fairly equivalent to the par value property in of the shares for which it is taken, the shares will fo/"g^''' have the status of full-paid stock.* Such transactions shares. ' See § 703. ' Bppright V. Nickerson, 78 Mo. 482. Compare Wooldridge v. Holmes, 78 Ala. 568. ' West End R. R. Co. v. Dameron, 4 Mo. App. 414. See also Minnea- polis Harvester Works v. Libbey, 24 Minn. 327. Compare Wells v. Rod- gers, 50 Mich. 294. * See Baile v. Educational Society, 47 Md. 117. * Coffin J). Ransdell, 110 Ind. 417;^ Searight v. Payne, 6 Lea (Tenn.), 283 ; Boynton v. Hatch, 47 N. Y. 225; Peck V. Coalfield Coal Co., 11 111. App. 88 ; Chouteau v. Dean, 7 Mo. App. 210 ; Drumraond's Case, L. R. 4 Ch. 772. Payment of stock subscriptions "may be in whatever, considering the situation of the corporation, represents to that corporation a fair, just, lawful, and needed equivalent for the money subscribed." Liebke v. Knapp, 79 Mo. 22. A subscriber may pay for stock of a corporation organized to build a bridge across the Mississippi River by publishing its articles and favoring the project in his newspaper. Liebke v. Knapp, supra; Van Cott v. Van Brunt, 82 N. Y. 536, appears to hold that if a person pays in services or otherwise an amount equal to the actual value of the shares received by him in return, they will be treated as fully paid up, without regard to whether the actual value was equal to their par value or not. If this case is authority for the above proposition, it points to the conclusion that a corpo- ration may issue its stock (as fully paid up) below par ; which certainly con- travenes the fundamental doctrine of corporation law, that the nominal capital stock of the corporation is held out to all the world as its actual capital, and every one is entitled to contract with the corporation on the assumption either that it has actually been paid in or that it may be reached. See §§ 654, 655. Without special sta- tutory authority no assessment can be imposed on the fully paid up stock. 511 § 546.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. IX. may be opened to show fraud, and if the property received is grossly unequal in value to the par value of the shares, the shareholder who received the shares originally, or his subse- quent transferee with notice of the circumstances, may be com- pelled to make up the difference in value in a suit brought by or on behalf of persons injured thereby.' It is manifestly in- competent for the corporate management to agree with a share- holder that shares issued to him for a nominal consideration shall be treated as fully paid up.^ But the equivalency of the property taken to the par value of the shares cannot (unless some statute warrants a contrary doctrine^) be inquired into when the shares as fully paid have come into the hands of a bona fide purchaser who has no notice of the value of the pro- perty originally given for them.* § 54.6. The corporation or the corporate management may Forfeiture fo^'f^it sharcs for non-payment of calls, when power of shares to do SO is given by the constitution of the corpora- payment of tion.° Since, however, by a valid forfeiture of shares the relations between the shareholder and the corpo- Atlantic De Laine Co. v. Mason, 5 K. I. 463. See§ 541, notes. A contract by a corporation to sell its stock below par has been held valid on the face of it ; when it did not appear how the corporation had acquired the stock, and could not be inferred that it was not fully paid stock subsequently acquired. Otter v. Brevoort Petro- leum Co., 50 Barb. 247. ' Jackson v. Traer, 64 Iowa 469 ; Bailey v. Pittsburgh and Connellsville Gas Coal and Coke Co., 69 Pa. St. 334; Boynton v. Hatch, 47 N. Y. 225 ; Tallmadge v. Fishkill Iron Co., 4 Barb. 382 ; see Fortman v. Bigelow, 4 Clifford, 508, 543 ; Pell's Case, L. R. 5 Ch. 11. See especially §§ 700 et seq. ' Ex parte Damill, 1 De G. and J. 372 ; Dent's Case, L. K. 15 Eq. 407 ; Bailey v. Pittsburgh and Connellsville 512 Gas Coal and Coke Co., 69 Pa. St. 334. ' See § 723. * Phelan v. Hazard, '5 Dillon, 45 ; Steacy v. Little Rock, etc. R. R. Co. ib. 348 ; Foreman v. Bigelow, 4 Clif- ford, 508 ; McCracken v. Molntyre, 1 Duv. (Canada), 479. See Waterhouse V. Jamieson, L. R. 2 H. L. Scotch. 29. And see § 702. ^ A corporation cannot by a by-law subject shares to forfeiture, unless the power is expressly granted. Matter of Long Island R. R. Co., 19 Wend. 37 ; compare Bergman v. St. Paul Mutual Building Association, 29 Minn. 275 ; Gorman v. Guardian Savings Bank, 4 Mo. App. 180. But it has been held that a stock corporation not having express power to declare a for- feiture of shares for non-payment of calls, may sue for the amount due, and CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 547. ration are terminated, the corporation can maintain no subse- quent action for calls.' But the power to forfeit as long as un- exercised does not^ impliedly preclude the corporation from suing for calls instead of declaring a forfeiture.* § 547. To the validity of a forfeiture of shares it is essential that all the conditions precedent should have been strictly com- plied with.^ A reasonable notice, which should specify the place of sale,* must first be given to the delinquent share- holder ;* and all statutory provisions, and provisions in the by- laws, that may apply regulating the nature and contents of the on failure to collect on its judgment the whole amount, may collect the residue by a sale of the shares. Chase V. Railroad Co., 5 Lea (Tenn ), 415. ' Small V. Herkimer M'f'g Co., 2 N. Y. 330. When a corporation forfeits shares, it cannot recover on a note given for a prior unpaid assess- ment. Ashton V. Burbank, 2 Dill. 435. The power to sue a shareholder, after a forfeiture, may be given by statute. Lexington, etc. R. R. Co. v. Chandler, ' 13 Mete. (Mass.) 311; Troy, etc. R. R. Co. v. Newton, 1 Gray, 544; Great Northern R'y Co. V. Kennedy, 4 Exch. 417. * Delaware, etc. Navigation Co. v. Sansom, 1 Binn. (Pa.) 70 ; Freeman V. Winchester, 18 Miss. 677; Goshen Turnpike Road v. Hurtin, 9 Johns. 217 ; Dutchess Cotton Manufactory v. Davis, 14 Johns. 238 ; New Hamp- shire Central R. R. Co. v. Johnson, 30 N. H. 390 ; Rutland, etc. R. R. Co. V. Thrall, 35 Vt. 536 ; Beene v. Ca- hawba, etc. R. Co., 3 Ala. 660; Selma, etc. R. R. Co. v. Tipton, 6 Ala. 787 ; Instone v. Frankfort Bridge Co., 2 Bibb (Ky.), 576; Mann v. Cooke, 20 Conn. 178; Stokes o. Lebanon, etc. Turnpike Co , 6 Humph. (Tenn.) 241 ; Troy Turnpike and R. R. Co. V. M'Chesney, 21 Wend. 296 ; Buffalo and N. Y. City R. R. Co. v. 33 Dudley, 14 N. Y. 336; Sagory v. Dubois, 3 Sandf. Ch. (N. Y.) 466. Contra (semble) Chester Glass Co. V. Dewey, 16 Mass. 94; though the doctrine of this case is rather to the effect that there is no implied promise to pay, than that any implied promise is excluded by an express power of forfeiture. See also Franklin Glass Co. V. Alexander, 2 N. H. 380 ; Giles V. Hutt, 3 Exch. 18 ; Richboro Dairymen's Association v. Ryan, 16 Weekly Notes (Pa.), 383. Where the charter of a railroudi company pro- vides that on the failure of subscribers to pay calls, the company may sell the shares at public auction, and, sue the subscriber for the balance, if any ; the company may sue the subscriber with- out making such sale. Western R. R. Co. V. Avery, 64 N. C 491. ' Johnson v. Lyttle's Iron Agency, 46 L. J. Eq. 786 ; see Germantown, etc. R. R. Co. V. Fitler, 60 Pa. St. 124; Mitchell v. Vermont M'g Co., 40 N. Y. Super. Ct. 406; Eastern Plank Road Co. u. Vaughan, 20 Barb. 157; Knight's Case, L. R. 2 Ch. 321. * Lexington, etc. R. R. Co. v. Staples, 6 Gray, 620. ' Lewey's Island R. R. Co. v. Bol- toi), 48 Me. 451 ; Hughes v. Antietam M'f'g Co., 34 Md. 317 ; Matter of Long Island R. R. Co., 19 AVend. 37. 513 § 549.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. notice,' and the manner of conducting the sale must be strictly followed.'' A forfeiture declared by illegally chosen directors may be set aside f or one declared by a board composed of a less number of directors than are authorized by the articles of association to transact business for the company.* And a sale of shares for the non-payment of several assessments, one of which is illegal, is void.° § 548. The option to declare a forfeiture rests with the corpo- ration, and cannot be exercised by the delinquent forfeitures, shareholder.* " The power to forfeit, like the power to manage all the affairs of the corporation, is vested in the directors, upon the assumption that they will exercise it in the best manner practicable for the promotion of the interests of the company and its creditors ; that they will not forfeit the stock unless the interest of all will be promoted thereby. Should they forfeit it for the purpose of defrauding the corpo- ration, or any creditor, such forfeiture would, for that reason, be set aside."' § 549, It is incompetent for the directors,' or for the body corporate,' to permit the holder of partially paid-up subscriber shares, or shares to the ownership of which indivi- ''° ■ dual liability attaches, to withdraw in any way not authorized by the constitution of the corporation. Such per- ' Watson V. Bales, 23 Beav. 294; 305, 323; Gower's Case, L. R. 6 Eq. Van Diemen's Land Co. v. Oockerell, 77 ; In re St. Marylebone B'k'gCo., 1 C. B. N. S. ,732. Stanhope's Case, 3 DeG.*& Sm. 198. 2 Portland, etc. E. R. Co. v. Gra- « Chouteau Ins. Co. v. Floyd, 74 ham, 11 Mete. (Mass.) 1 ; York, etc. Mo. 286 ; Hughes v. Antietam M'f 'g R. R. Co. V. Ritchie, 40 Me. 425. Co., 34 Md. 316 ; Bedford R. R. Co. 3 Garden Gully M'g Co. v. Mc- k. Bowser, 48 Pa. St 29 ; Hall's Case, Lister, L. R. 1 App. Cas. 39. L. R. 5 Ch. 707. See Thomas's Case, * In re Alma Spinning Co., 29 W. L. E. 13 Eq. 437. R- 133. A plea to an action on a subscription 5 Stoneham Branch R. R. Co. v. that the directors released the defend- Gould, 2 Gray, 277; Lewey's Island ant, is bad on demurrer, unless it avers R. R. Co. V. Bolton, 48 Me. 451. a consideration, and that there were no « Klein v. Alton, etc. R. R. Co., 18 creditors of the corporation at the time, m. 514 ; Railroad Co. v. Rodrigues, Zirkel v. Joliet Opera House Co., 79 10 Rich. L. (S. C.) 278. 111. 334. ' Mills V. Stewart, 41 N. Y. 384, » See Mann w. Cooke, 20 Conn. 178, 390. Collusive forfeitures may be set 188. aside. Richmond's Case, 4 Kay & J. 514 CHAP. IX.] CORPORATION AND SHARBHOLDBRS. [§ 550. mission is plainly ultra vires, and will ordinarily affect the rights only of those assenting to it. The question, whether the release or withdrawal of a shareholder is valid, may arise be- tween the withdrawing shareholder and the corporation ; or formally between such shareholder and other shareholders -j^ or between such shareholder and creditors of the corporation f or, finally, as is frequently the case, between such shareholder and a receiver or assignee of the corporation when insolvent, who represents creditors as well as shareholders.' § 550. A leading English case in point is Spackman v. Evans.* There the directors granted to a dissenting shareholder leave to retire from the company on conditions which they deemed prudent and advantageous ito be granted in his case, but which were not in accordance with the deed of settlement. The shareholder performed the conditions, his name wa^ for years removed from the list of shareholders, the company changed its business without his knowledge, and dividends were received, in which he did not participate. Nevertheless, it was held that his name should be inserted in the list of contributories on the final winding up of the company." So in Tuckerman v. Brown,* where for the purpose of in- creasing the capital stock of the corporation to the amount required by law, in order that the" corporation might pass the examination of the commissioners appointed by the comptroller, a premium note' was given upon an agreement that after the examination the note might be withdrawn and a lesser one sub- stituted, it was held that the agreement was a fraud, and that the maker of the note continued liable thereon, although it had been withdrawn and destroyed.^ 1 See § 779. contributory were those of the share- 2 As in Slee v. Bloom, 19 Johns, holders who had not consented to his (N. Y.) 456. withdrawal (though they might have » E. g., as in Upton v. Tribilcock, been estopped by their laches) and 91 (U. S.) 45. those of creditors. In such cases, how- ' L. K. 3 H. L. 171. ever, the rights of creditors seem to be 6 The decision in Spackman v. less regarded in England than with us. Evans is perhaps extreme, and Lords See Dixon's Case, L. R. 5 Ch. 79. St. Leonard and Romilly dissented. « 33 N. Y., 297. In this ease the real rights demanding ' It was held in Teasdale's Case, L. the insertion of defendant's name as a R. 9 Ch. 54, that a company might by 515 § 653.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. § 551. A person who has subscribed for shares caunot annul his subscription by giving notice to the agent with whom he contracted.' The circumstances of a late Pennsylvania case, which may be regarded as authority on this point, were note- worthy. A person was active in soliciting subscriptions to build a railroad. He took a subscription book from the agent of thf company, subscribed therein, persuaded others to do so, and kept the book about six months. Then, because of a dif- ference with the company's agent in regard to his remunera- tion, he cut out his own name, and returned the book to the company. The company sued him on his subscription, and it was held, that he had perfected a contract with the company and was bound as much as if he" had left his name in the book." § 552. If the corporation is in failing circumstances, or if for any other reason it cannot legally acquire its own of'shares shares, a shareholder will not avoid any liability he by the cor- jjiay be subject to, by surrendering his shares to it ; even thongh the corporation reissue them ;* and what- ever money or property he receives from the corporation in pay- ment for his shares transferred to it, he will hold subject to the claims of its creditors.* § 553. As against all persons, so as against the individual shareholders, or a minority of shareholders, the cor- the corpo- poration has the right to carry on the corporate en- controi*°the terprisc in the manner and for the purposes 'set forth corporate jn jtg constitution ; and within the scope of their enterprise. ^ ^ powers the reasonable and fair discretion of the board of directors can be controlled, if at all, only through action of a majority of shareholders taken in the manner indicated by the. special resolution vary its articles so ' Matter of Reciprocity Bank, 22 as to give itself the power to accept N. Y. 9. For the power of a corpo- surrenders of old shares in exchange ration to purchase its own shares, see for new. § 134, and for the effect of such a pur- ' Lowe V. E. and K. R. R. Co., 1 chase on the relations between the Head (Tenn.), 659 ; Rider v. Morri- shareholder and creditors, see § 747. son, 84 Md. 429. * Crandall v. Lincoln, 62 Conn. 73, ^-Greer v. Chartiers R'y Co., 96 100. Pa. St. 391. 516 CHAP. IX.] COKPORATION AND SHAREHOLDERS. [§ 554. corporate constitution.* "Each and every shareholder con- tracts that the will of the majority shall govern in all matters coming within the limits of the act of incorporation ; and in cases involving no breach of trust, but only error or mistake of judgment on the part of directors who represent the company, individual stockholders have no right to appeal to the courts to dictate the line of policy.to be pursued by the corporation."'' Or, as Chief Justice Bigelow said in Durfee v. Old Colony Railroad Co. :' " We suppose it may be stated as an indispu- table proposition, that every person who becomes a member of a corporation aggregate by purchasing and holding shares, agrees by necessary implication that he will be bound by all acts and proceedings within the scope of the powers and authority con- ferred by the charter, which shall be adopted and sanctioned by a vote of the majority of the corporation duly taken and ascer- tained according to law. This is the unavoidable result of the fundamental principle that the majority of shareholders can regulate and control the lawful exercise of the powers conferred on a corporation by its charter. A holder of shares in an in- corporated body, so far as his individual rights and interests may be involved in the doings of the corporation, acting within the legitimate sphere of its corporate power has no legal con- trol over them than that which he can exercise by his single vote in the meetings of the compan3\"* § 554. Accordingly, a court will not ordinarily interfere with the corporate management in matters respecting the q^^^^^ ^ju internal administration of the corporate affairs;" nor notinter- , „ . „ ^ ■ i n i • fere at the examine into the affairs oi a corporation to determine suit of the expediency of its action, or its motives, as long ^oi^cts! ' Gravenstine's Appeal, 49 Pa. St. New Orleans, ate. R. R. Co. w. Har- 310; Smith v. Prattville M'fg Co., ris, 27 Miss. 517, 537. 29 Ala. 503. See chap. 12. ^ Carlen v. Drury, 1 Ves. 8eB. 154 ; 2 Dudleys. Kentucky High School, Foss v. Harbottle, 2 Hare, 461; Moz- 9 Bush (Ky.), 576, 578. ley u. Alston, 1 Phil. 790; Bailey w. " 5 Allen, 230, 242. See § 534. Birkenhead, etc. R'y Co., 12 Beav. * See also Newhall v. Galena, etc. 433 ; Bach v. Pac. Mail S. S. Co., 12 R. R. Co., 14 111. 273; Joslyn v. Pa- Abb. Pr. N. S. (N. Y.) 373. See 2 cific Mail S. S. Co., 12 Abb. Pr. N. Lindley on Part., 895-902; Hawes «. S. (N. Y.) 329 ; Gifford v. 'Se-w Jer- Oakland, 104 U. S. 450. The power sey R. E. Co., 10 N. J. Eq. 171, 174 ; of a shareholder to sue on a right of 517 § 556.] THE LAW OK PRIVATE CORPORATIONS. [OHAP. IX. as the action itself is lawful.' And a shareholder cannot enjoin the corporation from doing what is in direct furtherance of the objects of its incorporation and beneficial to shareholders as such, because the contemplated action will injure him in an- other character.^ § 555. To warrant the interference of a court, at the instance of a shareholder, to restrain an act intended by the restrain body corporate or the corporate management, the act IreJ^a^ should be beyond the corporate powers ; or, if in- »»™»'.o'' tended by the corporate management, a manifestly a breach of improper act which the body corporate is not in a position to prevent, owing perhaps to the fact that the management cannot be changed in time.^ The reasons for this are thus stated in Foss v. Harbottle:^ " Whilst the court may be declaring the acts complained of to be void at the suit of the present plaintiffs, who in fact may be the only proprietors who disapprove of them, the governing body of proprietors may defeat the decree, by lawfully resolv- ing upon the confirmation of the very acts which are the sub- ject of the suit. ... In order then that the suit may be sustained, it must be shown either that there is no such power as I have supposed remaining in the proprietors, or at least that all means have been resorted to and found ineffectual to set that body in motion."' § 556. The legal effect of ultra vires acts was discussed in a previous chapter.' A single shareholder has ample' power to restrain the corporation from diverting the corporate funds from the purposes for which they were subscribed, and ordi- action belonging to the corporation is Union Pac. R'y Co., 19 Fed. Rep. discussedin §§ 138 e« se?. 283. A shareholder may restrain an 1 Oglesby v. Attrill, 105 U. S. 605. act which, if done, would be a ground See Mayor, etc. of Baltimore v. Bal- of forfeiture of the charter. Kendall timore and O. R. R. Co., 21 Md. 50, v. Crystal Palace Co., 4 Kay & J. 92. 326. ' Baltimore and Ohio R. R. Co. v. * 2 Hare, 493, 494. Wheeling, 13 Gratt. (Va.) 40. See « See Railway Co. v. AUerton, 18 Thompson v. Erie R'y Co., 11 Abb. Wall. 233; Dimpfell v. Ohio, etc. R. Pr. N. S. (N. Y.) 188. Co., 110 U. S. 209, § 140. ' See Hersey v. Veazie, 24 Me. 9 ; ' Chap. 7, part iii. Cogswell V. Bull, 39 Cal. 324 ; Leo v. 518 CHAP. IX.] CORPORATION AND SHAREHOLDKRS. [§ 557. narily can prevent the doing of any ultra vires act ;' provided, he is not chargeable v^ith acts or omissions by which his rights can be held waived or forfeited.* Thus, a shareholder in a rail- road corporation may enjoin the carrying out of an ultra vires lease of the road ;' or the performance of an illegal contract.* A minority or a single shareholder may restrain the corpora- tion, or the corporate management, from diverting the corporate funds to unauthorized purposes.* Accordingly, a shareholder may enjoin a railroad corporation from using its funds or pledging its credit in order to extend its road beyond the termini designated by the charter ;* or from purchasing, without authority to do so, stock in another railroad company." And a company, incorporated to manufacture pig iron, may be enjoined by one of its shareholders from erecting a corn and flour mill.* § 557. Unless the right to alter and repeal is reserved to the state,' or some express provision in the original con- stating instrument covers the matter, the charter or eharehoid- the articles of association cannot, against the will of enjoin the a single shareholder, be substantially altered by the ^f''^^'*"'^® legislature," even with the consent of the majority." amend- And a shareholder has his remedy by injunction to ' Natusch V. Irving, Gow on Part., road Co., 24 Pa. St. 378 ; Cumberland ed. 3, App. 676; Const ?/. Harris, Valley R. R. Co.'s Appeal, 62 Pa. St. Turn. & R. 496; Gifford v. New Jer- 218; Charlton ». Newcastle, etc. R'y sey R. R. Co., 10 N. J. Eq. 171; Co., 5 Jur. N. S. 1096. Dodge V. Woolsey, 18 How. 331; « March w. Railroad, 43 N. H. 515 ; Stewart v. Erie, etc. Trans. Co., 17 Simpson c. Westminster Palace Hotel Minn.372, 398. See Angell and Ames Co., 8 H. L. Cas. 712; Lyde v. on Corp., § 398 ; Coleman v. Eastern Eastern Bengal R'y Co., 36 Beav. 10. Counties R'y Co., 10 Beav. 1 ; March ^ Stevens v. Rutland, etc. R. R. V. Eastern R. R. Co., 40 N. H. 548. Co., 29 Vt. 545. Compare Durfee v. 2 SeeDimpfellu. Ohio, etc. R. Co., Old Colony, etc. R. R. Co., ante, 110 U. S. 209; Cozart v Georgia R. §534. K., ;etc. Co., 54 Ga. 379; Gray v. ' Central R. R. Co. v. Collins, 40 Chaplin, 2 Russ. 126 ; Graham v. Bir- Ga. 582; see Pratt v. Pratt, 33 Conn, kenhead R'y Co., 2 Mac. & G. 146. 446. ' Board, etc. Tippecanoe County v. * Cherokee Iron Co. u. Jones, 52 Lafayette, etc., R. R. Co., 50 Ind. Ga. 276. 85 ; Mills V. Central R. R. Co., 41 N. « See §§ 523, 534. J. Eq. 1. w See §§ 450 ei sej. * Morrill v. Boston and Maine R. " New Orleans, etc. R. R. Co. v. R., 55 N. H. 531 ; Sandford v. Rail- Harris, 27 Miss. 517; Black v. Dela- 519 § 558.] THE LAW OF PKIVATB CORPORATIONS. [CHAP. IX. restrain the aeeeptance of a radical amendment.' Accordingly, in a case where a person subscribed for shares in the stock of a railroad corporation, which afterwards, by a vote of a majority of shareholders, accepted legislation transferring all its fran- chises and rights to another corporation, the legislation and the transfer depending on it were alike held void, and the latter corporation failed to enforce the subscription.^ But the legis- lature may confer on the corporation such additional powers as tend to facilitate the accomplishment of the original purposes of incorporation ; and acts done in pursuance of such powers will ordinarily be binding, unless they conflict with vested rights or impair the obligation of some contract.' § 558. It is the duty of the corporate management to con- duct the aff'airs of the corporation in the interests of Corporate i t i " • affairs must the shareholders as such ;* and the management is aged tain- i^ot justified in promoting the outside interests of a tereetB of majority of shareholders in disregard of the interests holders as in the corporate enterprise of never so small a such. . . . . minority. A court will interfere at the suit of a minority when the majority seek to appropriate the assets of the company, or to obtain for themselves advantages not shared by the minority." ware and Raritan Canal Co., 24 N. J. Eq. 465 ; Mowrey v. Indianapolis, etc. R. R. Co., 4 Biss. 78. See Hope Mut. Fire Ins. Co. v. Beckmann, 47 Mo. 93, 97. ' Mowrey v. Indianapolis, etc. R. R. Co , 4 Biss. 78. But he must be guilty of no laches. Chapman u. Mad River and L. E. R. R. Co., 6 O. St. 119. ^ New Orleans, etc. R. R. Co. v. Harris, 27 Miss. 517. ' Gifford V. New Jersey R. R. Co., 10 N.J. Eq. 171. See §227. Mower V. Staples, 32 Minn. 284, holds that a majority of shareholders can accept an amendment to the charter increasing the number of directors from five to nine. In this case the charter was 520 subject to alteration and amendment, see Laws of Minn. 1851, p. 22. It has been held that shareholders may be bound by provisions not actu- ally found in the charter, when the charter authorizes the directors to make by-laws, not contrary to the law of the land, for the general administra- tion of the corporate afiairs. Dnion Bank v. Guioe, 2 La. Ann. 249. * Compare Baltimore and Ohio R. R. Co. V. Wheeling, 13 Gratt. (Va.) 40. ^ Menier v. Hooper's Telegraph Works, L. R. 9 Ch. 350. See Jones V. Morrison, 31 Minn. 140 ; Ervin v. Oregon R'y, etc. Co., 28 Blatchf. 517. A complaint alleged that the officers of a corporation were members of one CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 559. § 559. In the case of Goodin v. Cincinnati, etc. Canal Co.,* a railroad company, having purchased a majority of the stock of a canal company, elected for the latter a board of directors in their own interest ; and then with the assent of such board appropriated the entire property, including the canal, of the canal company as a railroad track, paying a price agreed on between the directors of the two companies, which was far below the value of the pro- perty. It was held that the shareholders and creditors of the canal companj' could not, after the road had been completed, reclaim the property or enjoin its use ; but could compel the rail- road company to pay them the difference between the value of the property and the price which the railroad company paid for it. Justice Welsh said, giving the opinion of the court : " To undertake by getting control of the company, and then, under pretence of acting as agents and trustees for all the stockholders and creditors, deliberately to trample under foot the rights, of the minority, is rather a sharp practice, and one which a court of equity will never tolerate. A director whose personal interests are adverse to those of the corporation, has no right to act as a director. As soon as he finds that he has interests in conflict with those of the company, he ought to resign, no matter if a family, owned a majority of the stock, In dealing with the relations between had combined to appropriate the profits the corporation and its officers on, the of the corporation in the shape .of one hand, and shareholders on the salaries, and, through a contract with other, courts of equity will look a firm in which some of the officers beyond the mere observance of the were partners, had obliged the corpo- forms of law. At the instance of ration to take all its contracts in the shareholders they will restrain acts firm's name; that the plaintiff did not even within the scope of corporate know the terms of this contract, and powers, if such acts, when done, was excluded from inspecting the cor- would, under the particular circum- porate books, and that, though the stances, amount to a breach of the profits were large, the dividends were very trust upon which the authority small. The complaint was held to was conferred. And a court will have stated a sufficient ground for relieve an injured shareholder even equitable relief. Sellers u. Phoenix after the act is done, unless the su'pe- Iron Co., 18 Fed. Kep. 20. See also rior equities of innocent persons have, Jones V. Morrison, 31 Minn. 140 ; and in the meanwhile, attached. Wright §§ 608, 609. Compare Metropolitan v. Oroville M'g Co., 40 Cal. 20. Elevated R. R. Co. v. Manhattan i 18 0. St. 169. Elevated R. R. Co., U Daly (N. y.), 373, 516. ^2^ § 560.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. IX. majority of stockholders, as well as himself, have personal in- terests in conflict with the company. He does not represent them as persons, or represent their personal interest. He re- presents them as stockholders, and their interests as such. He is trustee for the compau_y, and whenever he acts against its interests — no matter how much he thereby benefits foreign interests of the individual stockholders, or how many of the individual stockholders act with him — he is guilty of a breach of trust, and a court of equity will set his acts aside, at the in- stance of stockholders or creditors who are damnified thereby. Any act of the directors by which they intentionally diminish the value of stock or property of the company is a breach of trust, for which any of the stockholders or creditors may justly com- plain although all the other stockholders and creditors are bene- fited in some other way more than they are injured as such."' § 660. A minority of shareholders, on behalf of themselves and other shareholders, may, for conspiracy and fraud, share- whereby their interests have been sacrificed, maintain sue the cor- ^ ^'^^^ ^^ equity against the corporation, its oflicers, ^nd*'t°° ^^^ others who have participated in the wrongful officers for acts.^ But a bill in equity brought by shareholders conspiracy. • j i • i i against the corporation, and persons who were its directors in former years, for fraud and conspiracy whereby the interests of the corporation had been sacrificed, cannot be main- tained unless the bill show either that an effort has been made by an application to the directors in office at the time of bringing the bill to set the corporation in motion to redress the wrong, or that such application would have been useless. And this requirement is not satisfied by an allegation that a majority of directors are acting in the interests and under the control of persons charged with the fraud.' A formal application and re- fusal need not be alleged, however, if enough appear to show that such an application would be unavailing. And allegations that individual defendants control the majority of the stock and the ' Goodin V. Cincinnati, etc. Canal Unless by unreasonable delay they Co., 18 Ohio St. 169, 182. See State forfeit their right to equitable relief, V. Brown, 64 Md. 199, 206. See ib. §§ 627 et seq. » Cases in next note. 2 Peabody v. Flint, 6 Allen, 52. 522 CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 562. proceedings at the corporate meetings, and that a majority of the directors are knowingly and fraudulently colluding with them to continue to them the control of the corporation and its property, suflSciently show that no redress can be obtained through the corporation or its directors.* § 561. A shareholder, in matters outside of his relationship as such, has the same capacity to sue the corporation as any other person having a right of action against siders,'a it.^ Thus a shareholder, who is also an officer, may sue t,oi5er may the corporation for iniuries caused by the negcligence suethecor- ^ '' J s o _ poration. of the corporation in allowing a ditch belonging to it to break and overflow his lands ; he having often protested against the mode in which the ditch was constructed, and hav- ing offered to reconstruct it himself, which the corporation would not permit.* § 562. From what has preceded it appears that, as long as the corporation carries on its business, the general right of individual shareholders in the corporate funds is holders to have them applied to the purposes of incorpora- uncondi- tion in a reasonable and proper manner, so that, due t^ ^^div^''* regard being had to the continuing solvency of the sion of corporation, profits may accrue. When profits have arisen from corporate transactions, shareholders have no uncon- ditional right to» their immediate distribution as dividends.* For it ordinarily lies within the discretion of the corporate management to decide whether profits shall be distributed ' Brewer v. Boston Theatre, 104 ^ Burbank v. West Walker Kiver Mass 378; Rogers u. Lafayette AgrI- Ditch Co., 13 Nev. 431. See also cultural Works, 52 Ind. 296; Pond w. O' Conner ». North Truckee Ditch Co., Vermont Valley K. R. Co. , 1 2 Blatchf. 1 7 Nev. 245. 280. See Heath v. Erie R'y Co., 8 * Phelps «. Farmers and Mechanics' Blatchf. 347. See also §§ 686-691. Bk., 26 Conn. 269; Goodwin w. Hardy, Compare Cannon v. Trask, L. R. 20 57 Me. 145 ; Minot v. Paine, 99 Mass. Eq. 669; Merchants and Planters' 101. See Gordon «. Richmond, etc. Line v. Waganer, 71 Ala. 581. R- R- Co., 78 Va. 501, 518. An un- 2 Bripham v. Wellersburg Coal Co., conditional agreement to pay a share- 47 Pa. St. 43 ; Life Association v. holder a specified dividend each year Levy, 33 La. Ann. 1203 ; Barker v. is ultra vires, and cannot be enforced Cairo, etc. R. R. Co., 3 T. & C. (N. against the corporation. Elevator Co. Y.) 328. See Criswell's Appeal, 100 v. Memphis, etc. R. R. Co., 85 Tenn. Pa. St. 488. 703- 523 § 563.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. among the shareholders, or whether they shall be applied to the payment of the debts of the corporation or be retained as a surplus fund.' Should the question arise of applying the profits to a substantial extension of the corporate business, its decision would probably rest with the body corporate ; and if the ex- tension is within the powers of that body, and a majority in a duly summoned meeting decide in favor thereof, the minority cannot prevent the application of the corporate funds thereto.' § 563. A court of equity, however, may interfere when there is a palpably wrongful refusal to declare a dividend ;' especially when a certain percentage of dividends is promised or guaranteed on certain shares. " While, as a general rule, courts of equity will not exercise visi- torial powers over a corporation, and its officers are the sole judges of the propriety of declaring dividends, and in this respect the court will not interfere with a proper exer- cise of their discretion, yet where the right to the dividend is clear and fixed by the contract, and requires the directors to take action before it can be asserted in a court of law,^ and a restraint by injunction is essential to maintain the right of the stockholder, the injunction of a court of equity is a proper ex- ercise of its power, and should be upheld."' In general it may But courts will some- times Interfere, especially in favor of preferred share- holders. ' Ely V. Sprague, Clarke, Ch. (N. ' Y.) 551 ; State of Louisiana v. Bank of Louisiaha, 6 La. 746 ; see Pratt v. Pratt, 33 Conn. 446 ; Karnes v. Ro- chester, etc. R. R. Co., 4 Abb. Pr. N. S. (N. Y.) 107 ; Barry v. Merchants' Exchange Co., 1 Saiidf. Ch. (N. Y.) 280, 303 ; Smith v. Prattville M'f g Co., 29 Ala. ,503 ; Howell v. Chicago and N. W. R'y Co., 51 Barb. 378. * See Durfee v. Old Colony, etc. R. R. Co., ante, § 634. ' Scott V. Eagle Fire Co., 7 Paige (N. Y.), 198, 203. See Beers v. Bridgeport Spring Ca., 42 Conn. 17; Browne v. Monmouthshire R'y Co., 13 Beav. 32. If the body corporate by vote in- structs the directors to pay a dividend at some future dav specified, if the 524 corporation shall then have sufficient funds applicable to the payment of dividends, though a court will give due weight to the decision of the directors on the point of the corporation's ability to pay the dividend, the court will not treat that decision as conclusive. Bar- nard V. Vermont, etc. R. R. Co., 7 Allen, 512 ; Richardson v. Railroad Co., 44 Vt. 613. • In general, a shareholder cannot sustain an action for a dividend with- out proof of a making of the dividend and a demand of payment. Scott u. Central R. R., etc. Co., 52 Barb. 45. ' Boardman v. Lake Shore, etc. R'y Co., 84 N. Y. 157, 180. See Park v. Grant Locomotive Works, 40 N. J. Eq. 114. CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 565. be said, witli regard to the payment of dividends on preferred shares, that the decision of the directors is not conclusive ; and if the corporation has funds applicable to the payment of divi- dends, preferred shareholders may compel a payment in accord- ance with the terms on which the preferred shares were issued.' § 564. That dividends on preferred shares are " guaranteed," authorizes the interpretation that they are cumula- Preferred tive ; and the arrears must be paid before any divi- dividends dend can rightfully be paid on the common stock.* '^"^™" **'^*' § 565. Rightfully, dividends can only be paid out of profits; and the distribution in dividends of the capital of the corpora- ' Boardman v. Lake Shore, etc. R'y Co., 84 N. Y. 1 57 ; West Chester, etc. R. R. Co. V. Jackson, 77 Pa. St. 321 ; Bates V. Androscoggin, etc. R. R. Co., 49 Me. 491 ; Nickals v. New York, L. E. & W. R. Co., 15 Fed. Rep. 575 ; see St. John v. Erie R. R. Co., 22 Wall. 136 ; compare Williston v. Michigan Southern, etc. R. R. Co., 13 Allen, 400 ; Belfast and M. L. R. R. Co. V. Belfast, 77 Me. 445. The holders of common stock are not necessary parties to an action by preferred shareholders to compel the payment of dividends claimed to be due the latter. Thompson v. Erie R. R. Co., 45 N. Y. 468. It has been held, however, that an agreement between two corporations whereby one guarantees to the other a certain specified annual dividend on its capital stock, is not a guaranty to the shareholders individually, but only to the corporation ; that the respective boards of directors have power to modify such an agreement ; and that a court of equity will not interfere if that power is fairly exercised. Flagg V. Manhattan R'y Co., 10 Fed. Rep. 413 ; S. C, 20 Blatchf. 142 and 21 Am. Law Reg. N. S. 775 ; People v. Metropolitan Ry. Co., 26 Hun, 82. See Sheffield Nickel Plated Co. v. Unwin, 36 L. T. N. S. 246; S. C, L. R. 2 Q. B. Div. 214. ' Boardman v. Lake Shore, etc. R'y Co., 84 N. Y. 157 ; Westchester, etc. R. R. Co. V. Jackson, 77 Pa. St. 321 ; Bates V. Androscoggin, etc. R. R. Co., 49 Me. 491 ; Prouty v. Michigan Southern, etc. R. R. Co., 1 Hun, 665. Compare Williston v. Same, 13 Allen, 400 ; New York, L. E. and W. R. R. Co. V. Nickals, 119 U. S. 296. The right of preferred shareholders is substantially a right to interest at the stipulated rate chargeable exclu- sively on profits, and payable, with arrears, before qpything be divided among ordinary shareholders. Henry V. Great Northern R'y Co., 3 Jur. N. S. 1 133. But it may be provided ex- pressly that the dividends on preferred shares are not to be cumulative. See Bailey v. Railroad Co., 17 Wall. 96. Or this may be inferred from the lan- guage of the by-law providing for the dividends on the preferred shares. Belfast and M. L. R.R. Co. v. Belfast, 77 Me. 445. For the respective rights of preferred and common shareholders on dissolution, see § 786. 525 § 565.] THE LAW OF PRIVATE CORPOKATIONS. [CHAP. IX. tion may be enjoined by a shareholder.' " 'Net earnings," said Judge Blatchford, with reference to a railroad com- can'be'imid P^^J' "are, properly, the gross receipts, less the ex- oniy out of penses of operating the road to earn such receipts. In. terest on debts is paid out of what thus remains, that is, out of net earnings. Many other liabilities are paid out of net earnings. "When all the liabilities are paid, either out of gross receipts or out of the net earnings, the remainder is the profit of the shareholders, to go towards dividends, which in that way are paid out of the net earnings."' Even a holder of " preferred ' Carpenter v. New York and N. H. E'y Co., 5 Abb. Pr. (N. Y.) 277; Macdougall v. Jersey Imperial Hotel Co., 2 Hem. and M. 528 ; Bloxam v. Metropolitan R'y Co., L. R. 3 Ch. 337. See Fawcett v. Laurie, 1 Dr. and Sm. 192 ; Carlisle v. South Eastern E'y Co., 1 Mac N. and G. 689 ; Browne V. Monmouthshire R'y Co., 13 Beav. 32 ; Coates v. Nottingham Waterworks Co., 30 Beav. 8G. " By loss or misfor- tune or misconduct of the managing officers of a corporation, its capi- tal stock may be reduced below the amount limited by its charter ; but whatever property it has up to that limit must be regarded as its capital stock. When its property exceeds that limit, then the excess is surplus. Such surplus belong^ to the corpora- tion, and is a portion of its property, and, in a general sense, may be re- garded as a portion of its capital, but in a strictly legal sense, it is not a portion of its capital, and is always regarded as surplus profits. . . . The surplus may be in cash, and then it may be divided in cash ; it may be in property, and if the property is so situated that a division thereof among the stockholders is practicable, a divi- dend in property may be declared, and that may be distributed among stock- 626 holders." Williams v. Western Union Tel. Co , 93 N. Y. 16?, 188. 2 St. John u. Erie R'y Co., 10 Blatchf. 271, 279 ; S. C, 22 Wall. 136. It does not necessarily follow that all debts of a floating character should be paid before a dividend is declared; only such need be paid as good judgment requires under the cir- cumstances. Belfast and M. L. R. R. Co. V. Belfast, 77 Me. 445. See also as to payment of dividends when the corporation is indebted. Mills v. North- e'rn R'y Co.,' L. R. 5 Ch. 631. In estimating profits for purposes of Federal taxation, earnings are not to be included, unless they represent profits of the company in its business as a whole, i. e., the excess of the aggregate of gains from all sources over the aggregate of losses. The burden of proof is on the United States to show what is due. Little Miami, etc. R. R. Co. v. United States, 108 U. S. 277. " As a gene- ral proposition, net earnings are the excess of the gross earnings over expenditures defrayed in producing them, aside from and exclusive of the expenditure of capital laid out in con- structing and , equipping the works themselves." Union Pacific R. R. Co. V. United States, 99 U. S. 402, 420 ; opinion of the court per Bradley, CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 565. and guaranteed" stock is entitled to be paid his guaranteed percentage only out of the profits of the corporation legally applicable to the payment of dividends.* He is not a creditor, it being really a dividend and not a debt that is guaranteed.^ Thus, in a recent case in the Federal Supreme Court, prefeVred shares had been issued with certificates in the following form : "The preferred stock is to be and remain a first claim upon the property of the corporation after its indebtedness, and the holder thereof shall be entitled to receive from net earnings of the company seven per cent, per annum, payable semi-annually, and to have such interest paid in full in each and every year before J. See also Sioux City and P. K. K. Co. V. United States, 110 U. S. 205. See also regarding what constitutes "net earnings," Union Pac. R. R. Co. V. United States, 99 U. S. 402 ; United States v. Central Pac. R. R. Co , ib. 449 ; Sameu. Kansas Pac. R'y Co., ib. 465. ' St. John V. Erie Railway Co., supra. Taft v. Hartford, etc. R. R. Co., 8 R. I. 310 ; Chaffee v. Rutland R. R. Co., 55 Vt. 110. Compare Gordon v. Richmond, F. and P. R. R. Co., 78 Va. 501, 517. A contract by the corporation to pay annual dividends to preferred shareholders, without re- ference as to whether there are earn- ings (i. e., an implied agreement to pay dividends, although there are no profits), is opposed to public policy and void. Lockhart v. Van Alstyne, 31 Mich. 76. See Elevator Co. v. Mem- phis, etc. R. R. Co., 86 Tenn. 703. But the terms on which "preferred shareholders" receive their interest may be €uch that courts will regard them as creditors ; e. g., when they have no right to vote, and four per cent, annually is guaranteed them, with repayment of the principal at a time specified, and a mortgage is exe- cuted to secure them. Burt v. Rattle, 81 Ohio St. 116; see Totten v. Tiaon, 54 Ga. 139. Compare West Chester, etc. R. R. Co. V. Jackson, 77 Pa. St. 321 ; Williston U.Michigan Southern, etc. R R. Co., 13 Allen, 400. In a late Massachiisetts case, a statute au- thorizing a corporation to issue ' ' pre- ferred stock" provided: (1) "the said company to give its guaranty that each share of said stock shall receive semi- annual dividends of four dollars on each share; provided, that no share of such preferred stock shall be issued until the said company shall receive one hundred dollars therefor." (2) No dividends more than four dollars per share semi-annually to be paid on said stock under any circumstances, but any holder may exchange for com- mon stock share for share. (3) "In case of dissolution . . . the holders of preferred stock shall be entitled to payment of the same in full next after payment of the debts of the company, and before any payments to the holders of stock not preferred. ' ' Held, that the guaranty of dividends was not con- ditional on the earning of profits. Williams v. Parker, 136 Mass. 204. s Taft V. Hartford, etc. R. R. Co., 8 R. I. 310; Branch v. Jesup, 106 U. S. 468 ; Belfast and M. L. R. R. Co. V. Belfast, 77 Me. 445. Compare preceding note. 527 § 567.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. any payment of dividend upon the common stock." The holders of these shares were held to be merely shareholders, and entitled to no lien on the property of the corporation prior to the lien of the corpo"rate indebtedness contracted after their issue ; but were entitled only to a priority over the common shares.* § 566. If a dividend has been paid.from funds of the corpora- tion other than those out of which dividends may SvWend^s"^ legally be paid, the corporation may recover it back, illegally Thus an insurance corporation is not justifiable in treat- ing premiums received upon unexpired risks as profits subject to division when it has no independent fund sufficient to meet all liabilities that may accrue on pending risks. And dividends paid from such a source may be reclaimed by the corporation.* § 567. A share has been defined as " a right to partake, ac- cording to the amount of the party's subscription, of the surplus profits obtained from the use arid disposal of the capital stock of the company to those purposes for which the company is constituted."^ It is to be noted that Shares of stock. ' Warren v. King, 108 U. S. 389. * Lexington Life, etc. Ins. Co. v. Page, 17 B. Men. (Ky.) 412. The statute of limitations runs in favor of shareholders bona Jide receiving such dividends, from the time they were declared, as against the corporation and its creditors. lb. Compare, also, Scott V. Eagle Fire Co., 7 Paige, 198 ; De Peyster v. American Fire Ins. Co., 6 Paige, 486 ; see also § 708. s Angell and Ames on Corp., § 557. " The capital stock is that money or property which is put into a single corporate fund, by those who by sub- scription therefor become members of the corporate body. That fund be- comes the property of the aggregate body only. A share of the capital stock is 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 528 so much of the fund thus created as remains unimpaired, and is not liable for the debts of the corporation." Burrall v. Bush wick K. E. Co., 75 N. Y. 21 1, 216. Compare State v. Morris- town Fire Ass'n, 23 If. J. L. 195; Williams v. Western Union Tel. Co., 93 N. Y. 162, 188. An attachment of shares does not encumber the property of the company or prevent the company from assigning it. Gottfried v. Miller, 104 U. S. 521. Compare Van Norman v. Jackson Cir- cuit Judge, 45 Mich. 204. A share- holder has no interest in real estate owned by his corporation that will entitle him to a vendor's lien thereon as against a company formed by the consolidation of his company with another. Cross v. B. and S. W. R. Co., 58 Iowa, 62. Sharesarenot "securities." Camp- bell V. Morgan, 4 111. App. 100 ; Ogle CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 568. a share is called a right to partake in profits " obtained from the Use and disposal of the capital stock ... to those purposes for which the company is constituted." Should the capital be employed for unauthorized purposes the shareholders might not be absolutely entitled to the profits arising from such use even after they had been declared in the form of a dividend, but circumstances are conceivable under which the shareholders might, at least to the extent of dividends received by them, be called on to meet any liability subsequently arising from the improper employment of the capital. And those directors or shareholders who had actively participated in the improper acts might possibly be held liable personally to persons inj ured thereby. § 568. After a dividend has been declared each shareholder has as against the corporation an unconditional right Kights of to his portion of it ;' but cannot sue the corporation ^qj^^^s for it without a previous demand.'' The discretion afteradm- . . ■ . - dend has of the corporate management is exhausted in de- been de- claring the dividend ; thereupon their only function is to pay it to the shareholders. But it has been held that when a corporation has voted to issue further stock out of surplus profits — in effect to declare a stock dividend' — but has taken no further steps to file a certificate of the increase or to issue certificates of stock, a shareholder who stands by for a year until many shares have changed hands cannot compel the issue to him of his proportionate number of shares.* It appeared in this case that the increase had been voted for a special purpose which had become impracticable. The complainant argued that a stock dividend was like a cash dividend, and that he acquired V. Knipe, L. K. 8 Eq. 434 ; Collins v. ' State v. Baltimore and O. E. R. Collins, L. R. 12 Eq. 455 ; Hudleston Co., 6 Gill (Md.), 363. V. Gouldsbury, 10 Beav. 547. Shares ' A corporation having earned a are choses in action. Keyser v. Hitz, dividend, and having power to increase 2Mackey (Bist. of Col.), 473. its capital stock, may make a stock ' Beers v. Bridgeport Spring Co., dividend. Howell v. Chicago and N. 42 Conn. 17; King v. Paterson, etc. W. R'y Co., 51 Barb. 378; Williams R. R. Co., 29 N. J. L. 82. See Mat^ u. Western Union Tel. Co., 93 N. Y. ter of Le Blanc, 14 Hun, 8 ; aff 'd 75 162. N. Y. 598. * Terry v. Eagle Lock Co., 47 Conn, 141. 34 529 § 569.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. a vested right to it from the moment of the vote. But the court said :^ " There is a difference between a cash and a stock dividend. The former is created by a simple vote of the di- rectors, and the amount thereby becomes severed from the general fund and belongs to the stockholders prorata. The latter can be initiated only by a vote of the stockholders. That is followed by issuing the stock, and the increase can only be completed legally by filing with the town clerk and with the secretary of state the certificates required by law. . . . Again, a cash dividend entitles the stockholder to so much money, the ordinary way in which he receives from time to time the fruits of his investment. Such dividends do not materially affect the value of the stock. A stock dividend is exceptional. It does not add to his ready cash, but changes the form of his invest- ment by increasing the number of shares, thereby diminishing the value of each share, leaving the aggregate value of his stock substantially the same. It is of no special importance whether that value be divided into a few or many shares."* § 569. The power of a corporation to purchase its own shares or increase or decrease its capital stock has already Eight to , _ 1 , T^ 1 • -1 1 ■ ■ IT subscribe been discussed.^ it the capital stock is increased by tionai '' the proper authorities, the right to take the addi- shares on tional shares vests in the shareholders pro rata. This an increase ^ ^ ^ ■* ^ of the oapi- right may be waived ; but the directors cannot deprive a shareholder of it,* nor burden it with conditions unauthorized by the charter or enabling act, as for instance, the payment of so much per share for the privilege of subscribing.' ' 47 Conn. 164. (as was competent) to increase the ' Still the decision of this case seems stock, which was worth much more really to have turned on the plaintiff's than par, and to allow the old share- own laches. holders to subscribe in proportion to ' § 133. their shares. This privilege was lim- * Eidman v. Bowman, 58 111. 444 ; ited in time to a shorter period than Hart V. St. Charles St. R. R. Co., 30 was possible for the plaintiff to act in La. Ann. Ft. I. 758 ; Jones v. Mor- the matter, as the rest knew. It was rison, 31 Minn. 140. In the last case held that he had a right to subscribe the stock of a corporation was all held after such period had expired, by a few holders, the plaintiff owning "Cunningham's Appeal, 108 Pa. about one-third of it. While he was St. 546. absent in Europe, a vote was passed 530 CHAP. IX.] COEPORATION AND SHAKEHOLDERS. [§ 570. Accordingly, when a corporation is issuing new stock generally and refuses to issue to a shareholder his due proportion, he can compel it to do so by a suit in equity ; at least so long as there remains stock undisposed of.' And when new stock is issued to share equally with the existing stock, it is the right of each shareholder that it shall be so distributed as not to divest him of his vested proportionate right in the corporate property, including the accumulated profits.^ But this rule is held not to apply to old stock purchased by the company, on which the right to vote is merely suspended. Such stock directors in their discretion may reissue or sell for the benefit of the cor- poration.' A corporation having the power to issue further stock, may issue it in exchange for an equal amount of its in- debtedness ; and no particular form of subscription is necessary.^ When the officers of a corporation decide upon an increase of its stock, and give notice thereof to the shareholders, such shareholders as subscribe and pay their subscriptions may main- tain an action to recover them, if the corporation fails to fulfil the conditions of the subscription contract.' § 570. Conversely, when a national bank under the United States Eeyised Statutes, S 5143, reduces the amount u.„^^.„ ' o ' Kigats on a of its capital stock, it must return to the shareholders decrease of jyro rata the amount of capital set free, and cannot retain a portion of it for a surplus.' When a corporation com- petently reduces the amount of its capital stock, a shareholder ' Dousman v. Wisconsin, etc. M'g State Bank v. Fox, 3 Blatchf. 431 ; Co., 40 Wis. 418. It seems, also, Williams v. Savage M'f g Co., 3 Md. that the shareholder could have main- Ch. 418. tained an action for damages against * Lohraan v. New York and Erie the corporation. lb. R. R. Co., 2 Sandf. (N. Y.) 39. See When a corporation has issued the cases in last note, full number of shares authorized, no ' Eaton v. Pacific National Bank, court can compel it to issue further 144 Mass. 260. Provided, of course, shares unless some of the shares origi- that the shareholder suing for his nally issued were void. Smith v. money has done nothing to estop him- North Am. M'g Co., 1 Nev. 423. self, and no right of creditors of the See § 541. corporation intervene. " State V. Smith, 48 Vt. 266 ; Gray « Seely v. New York Nat. Exch. V. Portland Bank, 3 Mass. 364. Bk., 8 Daly, 400; S. C, 4 Abb. N. " State V. Smith, 48 Vt. 266. See C. {N. Y.) 61. 531 § 572.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. cannot restrain the division among the shareholders of the surplus over and above the amount to which the stock is re- duced, provided that amount exceeds the liabilities of the com- pany ; even though the statute authorizing the reduction makes no provision for such division.' § 571. Whether, when not specially authorized, a corporation on the first issue of its stock may divide the same issue into classes, and issue a portion as preferred stock, is share"^^ not altogether settled by authority. There seems to be no decision in this country, however, forbidding a corporation to issue preferred shares provided it keep within the limits of the stock which it is authorized to issue, and does not in any way impair the vested rights of any shareholder.'' And it has been held that where it appears necessary to raise further capital and to issue preferred shares, the legislature may authorize the issue on a vote of the holders of common shares, and a dissenting shareholder cannot prevent the issue of pre- ferred shares nor the payment of dividends thereon.' Never- theless, unless the right to alter and repeal is reserved to the legislature, it would seem that no constitutional legislation could authorize the issue of preferred shares when such an issue would impair the rights of any shareholder in the corporate funds. § 572. A leading case on the power of a corporation to issue preferred shares is Kent v. Quicksilver Mining Co.;* a case in which a number of ajipeals, taken in actions brougjht to deter- mine the validity of certain preferred shares, were heard together before the JS'ew York Court of Appeals. The follow- ing somewhat extended citation is from the opinion of that court delivered by Judge Folger : " "We know nothing in the ' Strang p. Brooklyn Cross-town ' City of Covington v. Covington, E. R. Co., 93 N. Y. 426. As to the etc. Bridge Co., 10 Bush (Ky.), 69. division of surplus assets of a mutual This on the principle that such amend- insurance company, see Carlton v. inents to the charter may be made by Southern Mutual Ins. Co., 72 Ga. 371 . the legislature as are necessary to en- ^ Hazelhurst v. Savannah, etc. R. able the original enterprise to be par- R. Co., 43 Ga. 13. See for what was ried out. lb. See also Rutland, etc. held authority to issue preifen-ed shares,' R. R. Co. v. Thrall, 36 Vt. 536. Gordon v. Richmond, etc. R. R. Co., • 78 N. Y. 159. 78 Va. 601. 532 CHAP. IX.] CORPORATION AND SHARKHOLDERS. [§ 572. Constitution or the law that inhibits a corporation from begin- ning its corporate action by classifying the shares in its capital stock with peculiar privileges to one share over another, and thus offering its stock to the public for subscription thereto. "Ro rights are got until a subscription is made. Each subscriber would know for what class of stock he put down his name, and what right he got when he thus became a stockholder. There need be no deception or mistake ; there would be no trenching upon rights previously acquired : no contract, express or im- plied, would be broken or impaired. " This corporation did otherwise. A by-law was duly made, which declared the whole value of its property and the whole amount of its capital stock, and divided the whole of it into shares equal in amount, and directed the issuing of certifi- cates of stock therefor. It is not to be said that this by-law authorized anything but shares equal in value and in right ; or that the taker of one did not own as large an interest in the corporation, its capital, affairs, and profits to come, as any other holder of a share. Certificates of stock were issued under this by-law, that gave no expression of anything different from that. When that by-law was adopted, it was as much the law of the corporation as if its provisions had been a part of the charter. (Presbyterian Church v. City of l^Tew York, 5 Cow. 538.) So it is said in Grant on Corporations, page 80, in a qualified way. Thereby, and by the certificate, as between it and every stock- holder, the capital stock of the company was fixed in amount, in the number of shares into which it was divisible, and in the peculiar and relative value of each share. The by-law entered into the compact between the corporation and every taker of a share ; it was in the nature of a contract between them. The ' holding and owning of a share gave a right which could not be divested without the assent of the holder and owner; or unless the power so to do had been reserved in some way. (Mech. Eank v. N. Y. and K H. R. R. Co., 13 K Y. 599-627.) Shares of stock are in the nature of choses in action, and give the holder a fixed right in the division of the profits or earnings of a company so long as it exists, and of its effects when it is dis- solved. That right is as inviolable as is any in property, and can no more be taken away or lessened against the will of the 583 § 572.] THE LATV OF PKIVATB CORPOKATlONS. [CHAP. IX. owner than can any other right, unless power is reserved in the first instance, when it enters into the constitution of the right ; or is properly derived afterwards from a superior law giver. The certificate of stock is the muniment of the shareholder's title, and evidence of his right. It expresses the contract be- tween the corporation and his co-stockholders and himself; and that contract cannot, he being unwilling, be taken away from him or changed as to him without his prior dereliction, or under the conditions above stated. Now it is manifest that any action of a corporation which takes hold of the shares of its capital stock already sold and in the hands of lawful owners, ?ind divides them into two classes, one of which is thereby given prior right to a receipt of a fixed sum from the earnings before the other may have any receipt therefrom, and is given an equal share afterwards with the other in what earnings may remain, destroys the equality of the shares, takes away a right which originally existed in it, and materially varies the effect of the certificate of stock.* "It is said that when a corporation can lawfully buy property or get money on loan, any known assurance may be exacted and given, which does not fall within the prohibition, express or implied, of some statute (Curtis v. Leavitt, 15 I^. Y. 66-67); and that is sought to be applied here. But the prohibition to such action as this is found, not, indeed, in a statute commonly so called, but in the constitutional provision which forbids the impairment of vested rights, save for public purposes and on due compensation. The right which a stockholder gets on the > In the absence of authority in its ferred stock does not authorize the articles of association, a company can- issue of partly preferred and partly not authorize the directors to issue the common stock. ' Covington, etc. Bridge unallotted shares as preferred stock, Co. v. Sargent, 1 Cin. Sup. Ct. (Ohio), against the wishes of a minority ; and 354. That a corporation has accepted a shareholder may enjoin such issue, an amendment to its charter, authoriz- Hutton 0. Scarborough Cliff' Hotel ing it to issue preferred shares, besides Co. (Limited), 4 DeG. J. & S. 672; its common stock, does not release a Melhado v. Hamilton, 28 L. T. N. S. dissenting subscriber to the common 578. Compare Harrison v. Mexican stock from his subscription. Everhart E'y Co., L. R. 19 Eq. 358. Author- u. Philadelphia and W. C. R. R. Co., ity to issue an increased amount of pre- 28 Pa. St. 389. Quaere f CHAP. IX.] , . CORPORATION AND SHAREHOLDERS. [§ 672. purchase of his share and the issue to him of the certificate therefor is such a vested right. " It is contended that the power so to do is an incidental and implied power necessary to the use of the other powers of the corporation, and is a legitimate means of raising money and securing the agreed consideration therefor. We have already conceded that it is legitimate to borrow money, and to secure the repayment of it, with a compensation for the use of it. But that is when it is done in such way as to put the burthen upon every share of stock alike, and to enable every share of stock to be relieved therefrom alike, in such way as to preserve the equality of right and privilege and value of the shares, and maintain intact the contract thereto with the stockholder. " Citations are made to us for the converse of this, but they do not come up — sometimes in their facts, sometimes in their declarations — to the necessity of the proposition. Either it is where the capital is not limited and it is new shares that may be issued with a preference, and where there is express power to borrow on bond and mortgage (2 Redf. on RaUways, chap. 33, sec. 4, § 237 ; Harrison v. Mex: R. W., 12 Eng. Rep. 793), or the amount of the capital has not been reached, and such stock is issued therefrom (Hazelhurst w. Savannah R. R.,43 Gra. 63; Tottan v. Tison, 64 id. 139), or there was legislative au- thority (Davis V. Proprietors, 8 Metcf. 321 ; Rutland R. R. Co. V. Thrall, 36 Vt. 545), br a restriction to authorized capital, and there was unanimous consent of the stockholders (Prouty v. M. S. and iN". I. R. R., 1 Hun, 663 ; 43 Ga. 63, supra), or there was power to redeem, which was a transaction in the nature of a debt (Westchester, etc. R. R. Co. v. Jackson, 77 Penn. St. 321), or the opinion was obiter (Bates v. Androscoggin R. R. Co., 49 Maine, 491), or it was the case of a subscription for stock with a condition for interest until the corporation was in operation (Richardson v. Vt. and Mass. R. R. Co., 44 Vt. 613), or it was an action on a subscription more favorable to defendant than to other subscribers, and it was held that defendant could not set up the lack of equalit}' (Evansville R. R. Co. v. Evansville, 15 Ind. 396), or a solemn determination of this question was not necessary for the disposal of the case (Williston v, M. S. and K I. R. R. Co., 13 Allen, 400), or the issue was authorized by 535 § 573.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. the articles of association {In re A. D. St. Nav. and Col. Co., 20 L. E. [Eq.] 339), or there was full knowledge on the part of all concerned (Loekhart v. Van Alstyne, 81 Mich. 81), or the power in the corporate body was conceded , and it was denied that it existed in the directors (McLaughlin v. D. and M. E,. R., 8 id. 100). ... It needs not that we consider the position that the issue of the preferred stock was an authorized increase of the capital and so legal. It did not profess to be, nor was it in fact. For each share of preferred stock given out a share of common stock was taken in, so that the gross amount of the capital was still the same, and so were the number of shares and the nominal value of each share."' § 573. Each shareholder has a right .to have the corporate funds managed and applied in the manner prescribed ttfcorfo-"*^ by the constitution of the corporation. It is his. ration. right that the directors shall act regularly by a proper quorum :^ that corporate meetings shall be summoned and shall act regularly,* and that he shall receive due notice of them.^ " It is not only a plain dictate of reason but a general rule of law, that no power or function entrusted to a body consisting of a number of persons can be legally exercised without notice to all of the members composing such body."* The notice should specify the time and place of the ' Kent V. Quicksilver Mg. Co., 78 Stevens «. Eden Meeting-house Soe'y, N. Y. 159, 179 et seq. 12 Vt. 688. Compare Citizens' Ins. It is held that a corporation is not a Co. v. Sortwell, 8 Allen, 21 7 ; Sar- trustee for preferred any more than for gent v. Webster, 13 Mete. (Mass.) common shareholders, and the former 497. At a. meeting duly convened a have no special control over the corpo- majority may transact business, though ration and its management. Thomp- a minority of the whole number. " sona. ErieR'y Co., 11 Abb. Pr. N. S. Granger v. Grubb, 7 Phila. (Pa.) (N. Y.) 188. 350. When a company disables itself from * The King v. Th^odorick, 8 East, issuing preferred stock subscribed for, 543 ; see Shortz v. Unangst, 3 W. & the subscriber may refuse to take com- S. (Pa.) 45; Commonwealth v. Cul- mon stock, and may recover his sub- len, 13 Pa. St. 133. scription as for a failure of considera- ^ People v. Batchelqr, 22 N. Y. 128, tion. Covington, etc. Bridge Co. v. 134; see Rex u. Langhorn, 4 A. & E. Sargent, 1 Cin. Sup. Ct. (Ohio) 354. 538 ; Reilly v. Oglebay, 25 W. Va. 2 See § 184. 36. ' See Stow V. Wyse, 7 Conn. 214; 536 CHAP. IX.] CORPORATION Al^D SHAREHOLDERS. [§ 574. meeting, the nature of the business to be transacted, and, if the constitution of the corporation contains provisions as to the manner of giving notice, they should be followed.' § 574. The time of the meeting should be stated with pre- cision,* and no business should be transacted before the time set,' nor aftel" the meeting has apparently adjourned.* A meet- ing held at a different place from the one notified is irregular;' and the notice should be reasonable in every respect, and, unless otherwise provided, served in person on the shareholders.* The notice of a special or extraordinary meeting should specify the proposed business, and at such a meeting business not referred to in the notice cannot properly be transacted.' But no notice of the business to be transacted at a stated meeting is necessary, unless the business be of an extraordinary nature. S"or need further notice be given of an adjourned meeting where there is transacted only such business as was duly notified for the meet- ing which was adjourned.' And in general no notice at all need be given of a stated meeting, for which the time and place are set either by usage or by the constitution of the corporation.' ' Stockholders, etc. v. Louisville, * Stow v. Wyse, 7 Conn. 214 ; etc. K. R. Co., 12 Bush (Ky.), 62; Viggin v. Freewill Baptist Church, Johnston v. Jones, 23 N. J. Eq. 216 ; 8 Mete. 301 ; Matter of Long Island Stevens v. Eden Meeting-house Soc'y, R. R. Co., 19 Wend. 37. See Tuttle 12Vt. 688; People's Ins. Co. u. West- v. Michigan Central Air Line R. R. cott, 14 Gray, 440. Co., 35 Mich. 247, 252. ' San Buenaventura M'f g Co. v. ' Atlantic De Laine Co. v. Mason, Vassault, 50 Cal. 634. 5 R. I. 463 ; People's Mut. Ins. Co. ' People y. Albany, etc. R. R. Co., v Westeott, 14 Gray, 440; Howbeach 55 Barb. 844. Coal Co. v. Teague, 5 H. & N. 151 ; ' State V. Bonnell, 35 Ohio St. 10 ; In re Bridport Old Brewery Co., L. see South School Dist. v. Blakeslee, R 2 Ch. 191; In re Silkstone Fall 13 Conn. 227 ; compare Hardenburgh Colliery Co., L. R. 1 Ch. D. 38. V. Farmers', etc. Bank, 2 Green (3 ' Warner w. Mower, 11 Vt. 385. N. J. Eq.), 68. ° State v. Bonnell, 35 Ohio St. 10, 5 Miller V. English, 21 N. J. L. 15; People v. Batchelor, 22 N. Y. 317 ; Den v. Pilling, 24 N. J. L. 653 ; 128. Notice of a meeting is immate- compare McDaniels v. Flower Brook rial when the party raising the ques- M. Co., 22 Vt. 274 ; Corbett v. Wood- tion was present by proxy and voted, ward, 5 Sawyer, 403. Meetings of Jones v. Milton, etc. Turnpike Co., 7 shareholders cannot be held outside Ind. 647 ; see Zabriskie v. Cleveland, the state. § 382. etc. R. R. Co., 23 How. 381. 537 § 576.] THE LAW OF'PRIVATK CORPORATIONS. [CHAP. IX. § 575. The meetings must be called by the proper authori- ties.i In business corporations when there is no pro- Zi°iXl vision for calling meetings the managing agents may '°^®- call them.2 Generally, however, the charter, articles of association, or by-laws, specify the manner of calling meet- ings, and such directions should be followed.' Consequently, the president cannot call a meeting to elect officers when au- thority to call meetings is vested by the by-laws in the trustees.* But even where from the by-laws other officers have power to call meetings, the managing board has also that power.* § 576. The methods of voting, and of conducting the meet- ings may be regulated by by-laws,* provided the by- By-iaws. j^^^g j^j,g qq^ inconsistent with the terms of the BuBineES tit, a i n irregularly charter or other statutes applicable.' And generally tranBacted. ,. .t-t j j^ j.i. -j^ business transacted in disregard of the required torm- 1 Reilly v. Oglebay, 25 W. Va. 36 ; Congregational Society v. Sperry, 10 Conn. 200. The proper officers may be compelled by mandamus to call a meeting. State v. Wright, 10 Ne v. 167; People v. Board of Governors^ 61 Barb. 397; McNeely v. Woodruff, 13 N. J. L. 352 ; compare Goulding i'. Clark, 34 N. H. 148. 2 Stebbins v. Merritt, 10 Cush. 27. ' See Evans v. Osgood, 18 Me. 213, and § 573. ' State V. Petteinli, 10 Nev. 141. 5 Citizens' Mut. Fire Ins. Co. v. Sortwell, 8 Allen, 217. Compare Chamberlain v. Painesville, etc. R. R. Co., 15 Ohio St. 225. ^ Commonwealth v. Woelper, 3 S. & R. (Pa.) 29 ; Juker v. Common- wealth, 20 Pa. St. 484; People v. Crossley, 69 111. 195. See Matter of Long Island ii. R. Co., 19 Wend. 37. ' When the statute prescribes the mode of electing directors, it cannot be changed by by-law. Brewster v. Hart- ley, 37 Cal. 15. When the charter provides that annual meetings shall be 638 held by the shareholders for the elec- tion of directors, the directors cannot by a by-law so change the time of hold- ing the annual election that they will continue themselves in office more than a year against the wishes of a holder of a majority of stock. Elkins v. Camden and Atlantic R. R. Co., 36 N. J. Eq. 467. Compare S. C. on Appeal, 37 N. J. Eq. 273, which further holds that directors who are in office cannot dispute the rights of shareholders to obtain a new election, in accordance with the by-laws, and thus prolong their own authority, on the ground that the proposed election is a step towards the illegal and improper con- trol of the property or business of the corporation, and that the complainant stockholder, who holds a majority of the stock, has bought it with the money of rival companies and means to use his rights for purposes detrimental to the corporation. Camden and A. R. R Co. V. Elkins, 87 N. J. Eq. 273. Compare Ryder v. Alton, etc. R. R. Co., 13 111. 516. CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 577. alities may be set aside, unless the divergence was trivial, or the right#of outsiders who have acted without notice of the irregu- larities intervene.^ § 577. At corporate meetings every shareholder has a right to vote ; and shareholders cannot be deprived of the right, nor can it be changed by legislation unless the Election of charter of the corporation is subject to alteration and °^'''''^®- repeal.^ It is also the right of every shareholder that the elec- tions of corporate officers shall be conducted legally f and that only the shareholders shall vote who are rightfully entitled to do so. But an election of officers will not be set aside because illegal votes were admitted, if their rejection would not have changed the result.* Votes cast for an ineligible candidate will . ' Peoples. Albany, etc. K. K. Co., 65 Barb. 344. See § 184. * Article 16, § 4 of the Pennsylvania Constitution of 1874, permits every shareholder to cast the whole number of his votes for one candidate at an election for directors, or distribute them upon two or more candidates as he may prefer. This provision does not, and could not constitutionally, apply to the charter of a corporation, not subject to alteration and appeal, chartered before 1874, which permitted each share- holder to cast one vote for every share of stock held by him ; i. e., one vote for each officer to be elected. Hays a. Commonwealth, 82 Pa. St. 518 ; State V. Greer, 78 Mo. 1 88. But it is held that an amendment accepted by the corporation, changing the voting power of shares, does not release a dissenting subscriber. Everhart u. Philadelphia and W. C. E. R. Co., 28 Pa. St. 339. But directors cannot accept art. 16, § 4 (stipra), as an amendment to the constitution of their corporation. Ba- ker's Appeal, 109 Pa. St. 461. ' In re Election of St. Lawrence Steamboat Co., 44 N. J. L. 529; San Buenaventura M'f 'g Co. v. Vassault, 50 Cal. 534 ; Matter of Long Island K. K. Co., 19 Wend. 37 ; State ». New Orleans, etc. R. R. Co., 20 La. Ann. 489. The appointment of a receiver does not affect the right of shareholders to elect directors. At a meeting to elect directors the right of choosing inspec- tors is in the shareholders, not in the directors. State u. Merchant, 37 Ohio St. 251. The corporation should be made a party to an application to set aside an election. Matter of Pioneer Paper Co., 86 How. Pr. (N. Y.) 102. A person who becomes a shareholder after an election, receiving his certifi- cate of stock from a person who took part therein, has no standing in court (under a certain statute) to compel a new election. In re Application of Syracuse, etc. R. R. Co., 91 N. Y. 1. * Ex parte Chenango County Mut. Ins. Co., 19 Wend. 635; McNeely v. Woodruff, 13 N. J. L. (1 Green) 352. That inspectors were not sworn as prescribed by statute is no ground to set aside an election. Ex parte Mo- hawk, etc. R. R. Co., 19 Wend. 135 ; Ex parte Chenango County Mut. Ins. 539 § 578.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. not be thrown away, so as to elect a candidate having a minority of votes, unless the persons casting such votes knew thfet the person for whom they voted was disqualified.' And persons who at an election have a minority only of the votes received by the judges of the election, cannot on a quo warranto proceed- ing brought to oust the improperly elected officers, be declared elected and inducted into office, although it appear that enough legal votes to have given them a majority were offered in their favor and rejected by the judges of election." § 578. The general rule is that the transfer books of the cor- poration are the evidence as to the persons who are entitled to the rights and privileges of shareholders, including the right to vote." And the inspectors of election need not and, perhaps, cannot go behind the transfer books to question the right to vote of one who appears Transfer books evi- dence of right to vote. Co., supra. Nor the fact that votes were received, which though legal were not properly proved to be so. Conant v. Millandon, 5 La. Ann. 542. Nor that certain persons were excluded from voting by the injunction of a court of competent jurisdiction. Brown V. Pacific Mail S. S. Co., 5 Blatchf. 525. ' In re Election of St. Lawrence Steamboat Co., 44 N. J. L. 529; Jordy V. Hebrard, 18 La. Ann. 456. See Keg. v. Mayor of Tewkesbury, L. R. 3 Q. B. 629. Yet in Baker's Ap- peal, 109 Pa. St. 461, it was held that the court should in determining who were elected disregard votes impro- perly (cumulatively) cast. At a share- holders' meeting a majority vote of those voting is good, though the vote so cast is not a majority of all the stock. State V. Chute, 34 Minn. 135. When seven directors are voted for, yet only five obtain the requisite pluralities (under the cumulative system of vol;- ingj, their election is valid. Wright V. Commonwealth, 109 Pa. St. 560. 2 State V. McDaniel, 22 O. St. 354. 540 Persons who take part in the election of officers and the formation of the com- pany, knowing of the non-fulfilment of conditions precedent, cannot afterwards bring quo warranto on these grounds against the officers. Cole v. Dyer, 29 Ga. 434. ' In re Election of St. Lawrence Steamboat Co., supra; People v. Robinson, 64 Cal. 373 ; State v. Fer- ris, 42 Conn. 560, 568 ; Hopkin v. Buflum, 9 R. I. 513. See Wilson v. Proprietors, ib. 590. A registered shareholder may vote though he has not paid for his shares. Savage v. Ball, 17 N. J. Eq. 142; Downing v. Potts, 23 N. J. L. 66. Transferee of shares cannot vote until the transfer is registered. McNeil u. Tenth Nat. Bk., 46 N. Y. 325, 332, An assign- ment of shares, with power of attor- ney, executed by a foreign executor, is valid, and the company is bound to record the transfer ; it is not necessary that letters testamentary should be taken out here. Middlebrook v. Mer- chants' Bank, 3 Keyes (N. Y.), 135. CHAP. IX.] CORPORATION AND SHAREHOLDKRS. [§ 579. by them to be a holder of legally issued stock.* But the books are not under all circumstances or for all purposes conclusive as to the right to vote ;* nor are they conclusive evidence of the qualification of directors, where a statute requires that directors shall be bona fide holders of stock.' Shares held by the corpo- ration, or in trust for it, cannot be voted on.' § 579. It is held that shareholders have no implied right to vote by proxy,* but it is competent for a corporation by a by-law to authorize votes to be cast in that man- I°oxyf ^^ ner.' And inspectors cannot reject a vote offered by proxy because the written proxy is not acknowledged. A share- holder must give his agent such written evidence of the agent's right to act as will reasonably assure the inspectors that the agent is acting by the authority of the principal. But the power of attorney need not be in any particular form, or exe- ' In re Election of St. Lawrence Steamboat Co., supra: Ex parte Long Island R. R. Co., 19 Wend. 37; Morrsseaux v. Urquhart, 19 La. Ann. 482. A shareholder may vote though he has hypothecated his shares. Ex parte Willcox, 7 Cow. (N. Y.) 402; Ex parte Barker, 6 Wend. 509. A person may vote on shares standing in his name as trustee. Ex parte Barker, supra. See Ex parte North Shore, etc. Ferry Co., 63 Barb. 656. See also McHenry v. Jewett, 90 N. Y. 58; Johnston v. Jones, 23 N. J. Eq. 216,228. An administrator can vote ; In the Matter of the North Shore Staten Island Ferry Co., 63 Barb. (N. Y.) 556. A bankrupt may vote on shares standing in his name, with the assent of his assignee in bankruptcy. State V. Ferris, 42 Conn. 560. ' Strong V. Smith, 15 Hun, 222. A shareholder cannot vote on shares previously assigned, but not trans- ferred on the books of the company, even with the assent and in the pres- ence of the assignee. Commonwealth V. Woodward, 4 Phila. 124. Compare U. S. R. S., § 5144. Holders of illegally issued stock are not entitled to vote thereon. Mc- Manus v. Philadelphia, etc. R. R. Co., 58 Pa. St. 330. ' In re Election of St. Lawrence Steamboat Co., supra. * McNeely v. Woodruff, 13 N. J. L. (1 Green) 352 ; Brewster v. Hart- ley, 37 Cal. 15; Ex parte Holmes, 5 Cow. (N. Y.) 426; Ex parte Des- doity, 1 Wend. 98. See §§ 136, 185. ^ Commonwealth v. Bringhurst, 103 Pa. St. 134; Philips v. Wickham, 1 Paige (N. Y.), 690, 598 ; People v. Twaddle, 18 Hun, 427 ; Craig v. First Presbyterian Church, 88 Pa. St. 42 ; Taylor v. Griswold, 14 N. J. L. 222. None of these cases, except the first and last, were cases of stock corpora- tions. 6 People V. Crossley, 69 111. 195; State V. Tudor, 5 Day (Conn.) 329. See Philips v. Wickham, 1 Paige, 590, 598. Contra, Taylor v. Griswold, 14 N. J. L. 222, 228. 541 § 581. J THE LAW OF PKIVATB CORPORATIONS. [CHAP. IX, cuted with any particular formality.^ A shareholder represented by proxy at a meeting is chargeable with knowledge of facts con- nected with the proceedings of that meeting known to his proxy." § 580. At common law each member of a corporation was Each share- entitled to onc vote; and this rule is still of general holder has application to corporations other than stock corpora- votes as tions. With regard to the latter, by statute and by- Combina- laws, and by custom so general as to amount to sh°are°^ -accepted law, a shareholder is entitled to as many holders. votes as he holds shares.^ A number of shareholders may by agreement combine to control a corporate election and elect proper officers in the best interests of the corporation.^ But it has been held that such agreements must not contain provisions restricting the right of shareholders to alienate their shares and vote by proxy." And in Massachusetts it is held that an agreement between shareholders to vote for one of them or for a third perSon as manager, and to vote to increase the salaries of all the officers, including the manager, is void as against public policy ; at least unless assented to by all the shareholders.* § 581. A court of law is the proper tribunal to determine the A court of validity of a corporate election. For, unless specially imnaUodel authorized by statute, a court of equity has no au- termine the thority to try this question, and pronounce judgment corporate of amotion.' But when the question of the validity in^unctioriB. °^ ^ Corporate election necessarily arises in the de- ' In re Election of St. Lawrence the constitution of a number of states. Steamboat Co., supra; Matter of See § 577, note. Cecil, 36 How. Pr. (N. Y.) 477. •• Faulds v. Yates, 57 111. 616 ; An irrevocable power of attorney or Havemeyer v. Havemeyer, 11 J. & S. proxy to a trustee, executed by a num- 506 ; aff'd 86 N. Y. 618 ; see Barnes ber of shareholders, is not against v. Brown, 80 N. Y. 527, 537. public policy. Brown v. Pacific Mail " Fisher v. Bush, 35 Hun (N. Y.), S. S. Co., 5 Blatchf. 525. 641. " Thames v. Central City Ins. Co., ^ Woodruff v. Wentworth, 133 49 Ala. 577. Mass. 309; Guernsey v. Cood, 120 ' The old rule, however, was ap- Mass. 501. See § 788. plied to a stock corporation in Taylor ' Mechanics' Nat. B'k t'. Burnett V. Griswold, 14 N. J. L. 222, 237. M'f g Co., 32N. J. Eq. 236 ; Owen ». Cumulative voting is authorized by Whitaker, 20 N. J. Eq. 122 ; Neall 542 V. Hill, 16 Cal. 146. CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 582. termination of a suit properly cognizable by a court of equity, , it will determine that question as it would any other ques- tion of law or fact necessary to be decided in order to settle the rights of the parties.' And a court of equity has jurisdic- tion of a bill brought by a shareholder to procure the cancella- tion of illegal shares and incidentally to restrain' the holders from voting on them.^ Similarly, an injunction may be granted, at the suit of shareholders, restraining other shareholders from voting shares in a manner contrary to the purport of a provision in the charter.* But, it is submitted, courts should be chary of granting injunctions at the suit of shareholders restraining other shareholders from voting at corporate elections: and certainly a preliminary injunction should not be granted so near the time of an election as to take away the votes of share- holders without giving them a chance to be heard.* § 582. Every stock corporation has the implied power to make by-laws for the regulation of its affairs ;" and p^^^^. ^^ the majority may competently pass any reasonable make by- by-law within the general scope of the corporate pur- poses that is calculated to effect them.* The power to make by-laws is in the shareholders (not in the board of directors) when there is no law or valid usage to the contrary.' 1 Mechanics' Nat. B'k v. Burnett v. Pacific Mail S. S. Co., 5 Blatchf. M'fg Co., iupra. Compare New 525. England Mut. Life Ins. Co. v. Phillips, * Hilles v. Parish, 14 N. J. Eq. 380. 141 Mass. 535. Compare § 794. 2 Wood V. Church B'ld'g Ass'n, 63 ^ Martin v. Nashville B'ld'g Ass'n, Wis. 9. But it has been held that an 2 Coldw. (Tenn.) 418. See also §§ injunction will not be granted restrain- 6, 12, 15, 20. ing shareholders from voting on alleged ^ See Came ». Brigham, 39 Me. 35 ; illegal stock, at least unless irreparable State v. Tudor, 5 Day (Conn.), 329. (threatened) injury to the plaintiff or By-laws contained in a book issued to the company be showij. Reed v. shareholders are evidence against a Jones, 6 Wis. 680. shareholder in an action by the re- ' Webb V. Ridgely, 38 Md. 364. ceiver of the corporation to collect a An election of officers may be legal subscription. Frank v. Morrison, 58 though less than one-half of the stock Md. 423. be voted thereat, the other shares ' Morton Gravel Road Co. v. Wy- being excluded by injunction. Brown song,' 51 Ind. 4 ; Carroll v. MuUanphy S'v'gs B'k, 8 Mo. App. 249. 543 § 585.J THE LAW OF PRIVATE COKPOKATIONS. [CHAP. IX. § 583. By-laws must be reasonable,' and not in contravention of the law written or unwritten, and particularly must not con- travene the charter or enabling act and articles of association.^ A by-law that would deprive a shareholder of vested rights is invalid,' as, for instance, one prohibiting a shareholder from alienating his shares.^ And a majority cannot by a by-law im- pose on shareholders individual liability for corporate indebted- ness.* A by-law consisting of several distinct and independent parts may be valid in one part and void in another.* § 584. The authority which is competent to enact by-laws is competent to repeal them ;' but no more can their repeal than their passage affect a vested right.* § 585. A shareholder has a right to inspect the corporate books at reasonable intervals ;' and may enforce this right by ' Cartan w. Father Matthew Soc'y, 3 Daly, 20 ; State v. Merchants' Ex- change, 2 Mo. App. 96. Whether a by-law is unreasonable or not is a question solely for the court ; but its unreasonableness must be demon- strated. Hibernia Fire Engine Co. V. Harrison, 93 Pa. St. 264. * Martin v. Nashville B'ld'g Ass'n, 2 Coldw. (Tenn.) 418; State v. Cur- tis, 9 Nev. 325 ; Andrews v. Union Mut. Fire Ins. Co., 37 Me. 256; Seneca County Bank v. Lamb, 26 Barb. 595 ; Bergman v. St. Paul Mut. B'ld'g Ass'n, 29 Minn. 275. See Adley u. Reeves, 2 Maule & S. 53 ; Gordon v. Muohler, 34 La. Ann. 604. Compare Goddard v. Merchants' Ex- change, 9 Mo. App. 290; aff'd 78 Mo. 609. ' See Kent v. Quicksilver M'g Co., 78 N. Y. 159, 182 ; Pentz v. Citizen's Fire In?. Co., 35 Md. 73. But it is held that a person becoming a member of a corporation (not a stock corpora- tion) may be bound by an agreement that his relations thereto shall be sub- 544 ject to by-laws then in force or there- after to be enacted. Supreme Com- mandery v. Ainsworth, 71 Ala. 436. * Moore v. Bank of Commerce, 52 Mo. 377; In re Klaus, 67 Wis. 401. Compare Spurlock v. Pacific Railroad, 61 Mo. 319. 5 Reid V. Eatonton M'f'g Co., 40 Ga. 98; Trustees v. Flint, 13 Mete. 539. As to the reasonable construction that should be placed on by-laws, see In re Dunkerson, 4 Biss. 227 ; State V. Conklin, 34 Wis. 21.' •■ Amesbnry v. Bowditch Mut. Fire Ins. Co., 6 Gray, 596 ; State u. Curtis, 9 Nev. 325, 337. ■ Smith V. Nelson, 18 Vt. 511. * See Kent v. Quicksilver M'g Co., 78 N. Y. 159, 182. ' Deoderick v. Wilson, 8 Bax. (Tenn.) 108. See Angelland Ames on Corp., § 681 ; 2 Lindley on Part., 809- 814. Cases in next note. Penalties are sometimes attached by statute to a refusal of corporate oificers to allow a shareholder to inspect the books. See Lewis V. Brainerd, 53 Vt. 510. CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 586. mandamus.^ His right of inspection may be exercised through an expert or an agent when he is himself too igno- rant to exercise it intelligently .^ And where share- ta^^'^ect" holders are permitted by the articles to inspect the ""■'porate . 1 T 1 T BOOKS. register, a shareholder (an attorney) may inspect it, although he is really acting in the interests of his clients who are in litigation with the company.* § 586. On a transfer of shares legal relations ordinarily cease to subsist between the corporation and the share- holder transferring his shares, and— a novation taking ofXam. place — attach themselves to the transferee.* It is the SS!^'^*- , - , ^ When cor- American doctrine, however, that a transfer of shares portion is in an insolvent corporation, made to an irresponsible person for the purpose of getting rid of liability on the shares, is void both as to the corporation and as to its creditors." The ^ Cockburn v. Union Bank, 13 La. Ann. 289 ; Commonwealth v. Phoenix Iron Co., 105 Pa. St. Ill; Stettauer V. N. Y. etc. Cons. Co., 42 N. J. Eq. 46 ; People v. Lake Shore, etc. R. E. Co., 11 Hun, 1 ; People v. Pacific Mail S. S. Co., 50 Barb. 280. The granting of the writ is discretionary and not reviewable on appeal. Matter of Sage, 70 N. Y. 221. 2 State t'. Bienville Oil Works Co., 28 La. Ann. 204 ; Phoenix Iron Co. v. Commonwealth, 113 Pa. St. 563. ' Regina v. Wilts, etc. Canal Navi- gation, 29 L. T. N. S. 922. * This principle is sometimes de- clared by statute, as in regard to national banks, U. S. Rev. Stat. § 5139. "When an original subscriber to the stock of an incorporated com- pany, who is bound to pay the instal- ments on his subscription from time to time as they are called in by the com- pany, transfers his stock to another person, such other person is substituted not only to the rights, but to the obli- gations of the original subscriber ; and 35 he is bound to pay up the instalments called for after the transfer to him. The liability to pay up instalments is shifted from the outgoing to the incom- ing shareholder. A privity is created between the two by the assignment of the one and the acceptance of the other ; and also between them and the corporation, for it would be absurd to say upon general reasoijing, that if the original subscribers have the power of assigning their shares, they should, after disposing of them, be liable to the burdens which are thrown upon the owners of the stock." Angell and Ames on Corp., § 534 ; Hartford, etc. R. R. Co. V. Boorman, 12 Conn. 530; Mann v. Cnrrie, 2 Barb. 294 ; Isham V. Buckingham, 49 N. Y. 21 6 ;. Cowles V. Cromwell, 25 Barb. (N. Y.) 413. See Billings v. Robinson, 94 N. Y. 415. ' Nathan v. Whitlock, 9 Paige (N. Y.), 152; Marcy v. Clark, 17 Mass. 330 ; Rider v. Morrison, 54 Md. 429. See § 749. A corporation was in- debted beyond the amount of its assets. 545 § 586.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. English cases on the other hand, hold that a shareholder, for the sole purpose of escaping liability, may transfer his shares to a man of straw for a nominal consideration or as a mere gift, even when the company is in a failing condition ; and if the transfer be absolute, the transferrer, will be freed from his lia- bility.* Ifot so, however, if the transfer be merely colorable, so that the transferee as between himself and his transferrer remains a trustee for the latter.^ A transfer to an infant does not divest the transferrer of his liability ; ^ nor a transfer to the company or to its directors on its account,^ or to a mere nominee of the directors.' The defendant, an original subscriber to its stock, and a director, objected to tlie management, threatening to bring proceedings for a winding up. Thereupon, with the consent of the trustees and all the shareholders who had made any payments on their shares, he transferred his shares, which were not fully paid up, and resigned from his position as trustee, which was taken by his transferee, who on his part agreed to indemnify defendant from further liability on his subscription or to creditors, and loaned to the cor- poration enough money to make it solvent. The transfer was recorded on the books of the corporation. That the purpose of the whole transaction was to free defendant from all further liability was understood by all. Held, that the receiver could not recover from the defendant the unpaid portion of the shares subscribed for by him. The court said that there were no cred- itors having equities against defendant by virtue of his having been a share- holder, and that the receiver repre- sented only the corporation which had assented to the substitution of the transferee's liability for that of defen- 546 dant. Billings v. Kobinson, 94 N. Y. 415. ' In re London, etc. Assurance Co., Jessopp's Case, 2 DeG. & J. 638 ; In re Mexican, etc. Co., De Pass's Case, 4 DeG. & J. 544 ; Harrison's Case, L. E. 6 Ch. 286 ; King's Case, ib. 196 ; Master's Case, L. R. 7 Ch. 296, note ; Williams's Case, 1 Ch. Div. 576. See Thompson's " Liability of Stockhold- ers," § 213. ^ Chriinock's Case, Johns. (Eng. Ch.) 714; la re Mexican, etc. Co., Hyman's Case, 1 De G. P. & J. 75 ; In re Mexican, etc. Co., Costello's Case, 2 De G. F. & J. 302; Payne's Case, L. R. 9 Eq. 223 ; In re Bank of Hindustan, Ex parte Kintrea, L. K. 5 Ch. 95 ; Gilbert's Case, ib. 559. ' Symon's Case, L. R. 5 Ch. 298 ; Weston's Case, ib. 614 ; Castello's Case, L. R. 8 Eq. 504. * Richmond's Ex'rs' Case, 3 De G. & Sm. 96 ; In re Newcastle, etc. Ins. Co., Ex parte Henderson, 19 Beav. 107 ; Daniell's Case, 22 Beav. 43. In America, however, unless the corpo- ration were insolvent, a transfer to it would be valid for most purposes. See §§ 134, 135, 747. ' Eyre's Case, 31 Beav. 177. CHAP. IX.J COEPORATION AND SHARBHOLDBKS. [§ 588. § 587. The transferee (on the books of the corporation) of shares that are not fully paid up is liable for calls made for the unpaid portion during his ownership.i tIans-''^°^ A person becomes legally entitled to shares by having *^^'"^^- them transferred to him on the books of the corporation ; a cer- tificate being but evidence." It is also held that an assignment and delivery of the stock certificate will pass the legal title to shares transferable only on the books of the company, though there be no such transfer.^ And a transferee of shares, who procures a transfer to be made to himself on the books of the corporation, is liable to the assignee in bankruptcy of the cor- poration, for the unpaid balance on the shares, although he merely holds them as collateral security for the debt of his transferrer.* § 588. In a recent IS'ew York case a person transferred his shares by delivery of the certificate with a power of attorney, the name of the transferee was entered on the dividend book, and the corporation paid him dividends for four years. The stock was not transferred on the transfer book, but no provision in the constitution or by-laws required it. The court held that the corporation could not recover of the transferrer, having so long recognized the transfer, and, the corporation being insol- vent, the receiver stood in no better position.' 1 Webster v. Upton, 91 U. S. 65 ; and Connellsville E. R. Co. v. Clarke, Hartford and N. H. K. K. Co. v. 29 Pa. St. 146 ; Graff v. Pittsburgh Boorman, 12 Conn. 530; Bend v. and Steubenville R. R. Co., 31 Pa. Susquehanna Bridge Co., 6 Har. & J. St. 489. (Md.) 128; Hall v. United States ^ jjawley u. Upton, 102 U. S. 314; Ins. Co., 5 Gill (Md.), 484; Merri- Agricultural Bank v. Burr, 24 Me. mac M'g Co. v. Bagley, 14 Mich. 256. See Agricultural Bank v. Wil- 501 ; Huddersfield Canal Co. v. Buck- son, ib. 273 ; First Nat. Bk. v. Gif- ley, 7 T. R. 36; Cowles u. Cromwell, ford, 47 Iowa, 575, 583. 25 Barb. 413. ' Leitch v. Wells, 48 N. Y. 585; A contrary doctrine seems to pre- Robinson v. National Bank, 95 N. Y. vail in Pennsylvania. Pittsburgh, etc. 637. Coal Co. V. Otterson, 4 Weekly Notes * Pullman v. Upton, 96 U. S. 328 ; of Cases, 545 ; Frank's Oil Co. v. National Bank v. Case, 99 U. S. 628. McCleary, 63 Pa. St. 317 ; Palmer v. So the executor of a shareholder may Ridge M'g Co., 34 Pa. St. 288 ; Canal become liable. See Diven v. Duncan, Co. V. Sansomj 1 Binney, 70, 75. See 41 Barb. 520. See § 741., Messersmith v. Sharon S'v'gs Bk., 96 ' Cutting w. Damerel, 88 N. Y. 410. Pa. St. 440. Compare Pittsburgh 547 § 589.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. Irregular transfers. 689. The constitution or by-laws of the corporation may contain provisions regulating the transfer of shares. If these provisions are not observed, neither the shareholder nor his transferee may take advantage of their non-observance,* though on the one hand the corpora- tion may refuse to recognize an irregular transfer,* and in most cases of irregular transfers the shareholder will not divest him- self of any liability toward creditors,' although liability may attach to his transferee.^ If, however, the corporation, or those of its officers who have charge of the transfers of shares, recognize a transfer made in good faith though irregularly, the corporation may be estopped from denying its validity." And ' Johnson v. Underhill, 52 N. Y. 203 ; Bank of Utica u. Smalley, 2 Cow. (N. Y.) 770 ; Quiner v. Mar- blehead Social Ins. Co., 10 Mass. 476 ; Parrott v. Byers, 40 Cal. 614 ; New- berry V. Detroit, etc. M'f'g Co., 17 Mich. 141 I Duke v. Cahawba Nav. Co., 10 Ala. 82 ; Cheltenham, etc. R'y Co. V. Daniel, 2 Eng. R'y Cas. 728. Compare Weston 1!. Bear River, etc. Water and M'g Co., 5 Cal. 186; S. C, 6 Cal. 425 ; Naglee v. Pacific Wharf Co., 20 Cal. 529. * Holbrook y. F,auquier, etc. Turn- pike Co., 3 Cranch Cir. Ct. 425 ; Hall V. Rose Hill Road Co., 70 111. 673; Helm V. Swiggett, 12 Ind. 196 ; com- pare State V. New Orleans Gas Light Co., 25 La. Ann. 413; Townsend v. Mclver, 2 S. C. 25. A consent of the board of directors to the transfer of stock must, when made necessary, be evidenced by a recorded resolution of the board. Pittsburgh and Connells- ville R. R. Co. u. Clarke, 29 Pa. St. 146 ; semble, contra, Ellison v. Schnei- der, 25 La. Ann. 435. See also re- garding the consent of directors to a transfer. Shepherd's Case, L. R. 2 Eq. 564 ; Slee v. International Bank, 17 L. T. N. S. 425 ; In re Gresham 548 Life Assurance Soc. ; Ex parte Pen- ney, L. R. 8 Ch. 446. ^ Shellington v. Rowland, 53 N. Y. 371 ; see § 748. Still it is held in England that if the transferrer has done all in his power to perfect the transfer, he is discharged from his lia- bility as shareholder. Shortridge v. Bosanquet, 16 Beav. 84; Nation's Case, L. R. 8 Eq. 77 ; Pyfe's Case, L. R. 4 Ch. 768; Ward & Garfit's Case, L. R. 189. But see § 748. Prima facie a person whose name appears on the books of the corpora- tion is a shareholder as to it and as to the public. State v. Ferris, 42 Conn. 560; Holyoke Bank v. Burnham, 11 Cush. 183; Skowhegan Bank v. Cut- ler, 49 Me. 315; Matter of Empire City Bank, 18 N. Y. 200 ; Stanley v. Stanley, 26 Me. 191 ; Worrall v. Jud- son, 5 Barb. 210. * Upton V. Burnham, 3 Biss. 431 ; StrafFon's Exr's Case, 1 De G. M. & G. 576 ; Cheltenham, etc. R'y Co. v. Daniel, 2 Eng. R'y Cas. 728. ° Isham V. Buckingham, 49 N. Y. 216 ; Bargate v. Shortridge, 5 H. L. C. 297; Scripture v. Francestown Soapstone Co., 50 N. H. 571. CHAP. IX.j CORPORATION AND SHAREHOLDERS. [§ 590. if the corporation, on the demand of a transferee of shares, refuses without legal reason, i. e., wrongfully, to register a trans- fer, it will be deenoied to have waived the requirement that transfers shall be registered, and the transferee, as against the corporation, will have the full rights of a shareholder.* § 590. The following is from the opinion of the Ifew York Court of Appeals by Judge Davis in New York and l^ew Haven E. R. Co. V. Schuyler:'' "Where the stock of a corporation is by the terms of its charter or by-laws transferable only on its books, the purchaser who receives a certificate with power of attorney, gets the entire title, legal and equitable, as between himself and his seller, with all the rights the latter possessed ; but as between himself and the corporation he acquires only an equitable title which they are bound to recognize and permit to be ripened into a legal title, when he presents himself, before any effective transfer on the books has been made, to do the "acts required by the charter or by-laws in order to make a transfer.* Until those acts be done he is not a stockholder, and has no claim to act as such, but possesses as between himself and the corporation, by virtue of the certificate and power, the right to make himself, or whomsoever he chooses, a stockholder by the prescribed transfer. The stock not having passed by the de- livery of the certificate and power of attorney, the legal title remains in the seller, so far as affects the company and subse- quent bona fide purchasers who take by transfers- duly made on the books. And hence a buyer in good faith of a person in whose name the stock stands on the books, who takes a transfer in conformity to the charter or by-laws, permitted to be made by the authorized ofl&cer of the corporation, becomes vested with a complete title to the stock, and cuts off all the rights and equities of the holder of the certificate to the stock itself. "What other rights and equities he may possess is another question, but if the transferee has taken in good faith, and for value, the stock is gone beyond his reach, and beyond recall by the corporation." ' Robinson v. National Bank, 95 ' 34 N. Y. 30, 80. N. Y. 637. ' Townsend v. Mclver, 2 S. C, 25. 549 § 593.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. IX. § 591. The case from which the above citation is taken decided that a corporation is liable in damages to the corporation bouafide holder of certificates of shares issued b}' the for exces- proper Corporate officers in due form, but fraudulently 8iye issues. ,. ., n ■ i i and in excess of the amount oi capital stock au- thorized by its charter.' § 592. In registering transfers the corporation owes to the Liabiiitv of iii implied power in a corporation to pass a by-law which creates a lien on its shares, or in any material way interferes with their transferability.* But in order to decide some of the cases where the opinion of the court in terms denies the power of a corporation to pass a by-law of this character, it was only necessary to hold (what these cases also hold' with perfect justice on their side, and little or no authority against them), that the rights of a person purchasing shares without actual notice of such a by-law are not aftected by it.^ § 602. It may also be held contrary to public policy to allow certain corporations to acquire a lien on their shares. Thus, a, national bank organized under the act of 1864, cannot even by provisions in its articles of association and by-laws, acquire a Hen on its own shares for debts owing it from shareholders ; as that would be against the spirit and policy of the act.* But a national bank may have a right to hold a cash dividend as pledged for a debt owing it from a shareholder.* § 603. When by statute a corporation has a lien on its shares for debts owing it from shareholders, its lien is bind- Ueaf °^ "ig ^^ to shareholders, their creditors and assignees in insolvency, and also as to persons who purchase shares M'f g Co., 59 N. Y. 96 ; Chouteau Granger's Bank, 63 Cal. .359. Corn- Spring Co. V. Harris, 20 Mo. 382 ; pare Walker's Case, L. R. 2 Eq. 554. Moore v. Bank of Commerce, 52 Mo. ^ Farmers', etc. Bank v. Wasson, 377. 48 Iowa, 536 ; Discroll v. West Brad- ' Mobile Mut. Ins. Co. v. CuUum, ley, etc. M'f g Co.," 59 N. Y. 96 ; Bank 49 Ala. 558 ; Carroll v. Mullanphy of Attica v. Manufacturers' Bank, 20 S'v'gs Bk., 8 Mo. App. 249; Driscoll N. Y. 505; Bank of Holly Springs v. V. West Bradley, etc. M'f'g Co., Pinson, 58 Miss. 421. See People v. supra; Bank of Attica v. Manufac- Crockett, 9 Cal. 112. For the general turers' Bank, 20 N. Y. 505 ; Bryon v. rule is that outsiders are not affected Carter, 22 La. Ann. 98 ; People v. with notice of the by-laws of a corpo- Crockett, 9 Cal. 112; Moore v. Bank ration. See §§ 196, 197. of Commerce, 52 Mo. 377; Farmers', ^BuUard v. Bank, 18 Wall. 589; etc. Bank v. Wasson, 48 Iowa, 33§. Delaware, L. & W. R. R. Co. v. SSe Steamship Dock Co. v. Heron's Oxford Iron Co., 38 N.J. Eq. 340. Administratrix, 52 Pa. St. 280 ; But see Young v. Vough, 23 N. J. Nesmith v. Washington Bank, 6 Pick. Eq. 325. Compare Bank v. Lanier, 324 ; Weston's Case, L. R. 4 Ch. 20 ; 11 Wall. 369 ; Conklin v. Second Nat. Robinson v. Chartered Bank, L. R. 1 B'k, 45 N. Y. 655. Eq. 32; Anglo California Bank v. * Hager v. Union Nat. Bank, 63 558 Me. 509. CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 605. from prior holders* or take them as collateral security.^ Accord- ingly, if a corporation has a statutory lien on its shares for unpaid subscriptions, it may refuse a certificate to a purchaser for value from a prior holder uptil the subscription due on the shares pur- chased is paid. Under such circumstances the purchaser acquires as against the corporation only the rights of the prior holder.^ § 604. Unless expressly restricted to a certain class of debts, a statutory lien covers all debts owing from the share- ,,,.,, , ■ J A • • • ^ .1 Its scope. holder to the corporation.* A provision in the articles of a bank that the shares of its stock should not be transferable until the shareholder should discharge all debts due by him to the bank, includes liabilities not yet matured, and creates a valid lien as against an assignee of the shares, who takes with notice while the shareholder is under a contingent liability as indorser, and does not inform the bank of his claim until after the indorser's liability has become fixed.* And when a bank has a lien on its shares for all indebtedness of the shareholder, its lien covers not only the indebtedness of the legal holder, but also of a subsequent transferee whose title has not yet been perfected, but who has become the equitable owner.* § 605. After a bank, which has, by its charter, a lien on its shares, has applied the proceeds arising from a sale of shares to the satisfaction of a debt due from the holder, it will be postponed until the general creditors of the holder shall have been made equal out of his other estate, the residue of which will thereupon be distributed pro rata.'' 1 Union Bank v. Laird, 2 Wheaton, ' McCready v. Rumsey, 6 Duer, 390; McCready v. Rumsey, 6 Duer 574. See also Spurlock v. Pacific (N. Y.), 574 ; Tuttle v. Walton, 1 Ga. Railroad, 61 Mo. 319. 43. See Dobbins v. Walton, 37 Ga. * Mobile Mut. Ins. Go. v. Cullom, 614. Compare St. Louis Perpetual 49 Ala. 558. See Schmidt v. Hen- Ins. Co. V. Goodfellow, 9 Mo. 149; nepin, etc. Co., 35 Minn. 511. Bryon v. Carter, 22 La. Ann. S8. ^ Leggett v. Bank of Sing Sing, 24 2 Mount Holly Paper Co.'s Appeal, N. Y. 283. Compare Kahn v. Bank 99 Pa. St. 513 ; Piatt v. Birmingham of St. Joseph, 70 Mo. 262. Axle Co., 41 Conn. 255; Bradford « Planters', etc. Mut. Ins. Co. v. Banking Co. u. Briggs, 31 Ch. Div. Selma S'v'gs Bank, 63 Ala. 585. 19. Such a lien, given by statute, ' German Security Bank v. Jeffer- will be recognized and given effect to son, 10 Bush (Ky.), 326. Compare in another state. Bishop v. Globe Petersburg Savings, etc. Co. v. Luras- Co., 135 Mass. 132. den, 75 Va. 327. 559 § 607.] THE LAW OF PRIVATE COKPOKATIONS. [CHAP. IX. § 606. By issuing a new certificate to a transferee of shares in which certificate is expressly stated that the shares Waiver of ^^.^ transferable after the, liabilities of the holder to the bank are discharged, a bank waives any lien it may have had for the debts of the prior holder.* But when' a bank has a lien by its charter, it does not waive its lien by using ?tock certificates (on their face transferable only on the books of the bank) which make no mention of the lien ; for a person purchasing or lending money on the security of the shares is afiected with notice of the lien.^ When a bank releases its lien for a specified time, and within that time the shares are pledged for a debt, the right of the bank after the expiration of the time to re-acquire its lien is subordinate to the right of the pledgee, until the debt for which the shares were pledged is paid, or the pledge released.* § 607. In another case a bank charter contained the follow- ing provision : " The stock of the bank shall be assignable and transferable on the books of the corporation only, and in the presence of the president or cashier, in such manner as the by- laws shall ordain ; but no stockholder indebted to the bank for a debt actually due and unpaid shall be authorized to make a transfer or receive a dividend until such debt is discharged, or security to the satisfaction of the directors given for the same." A., a shareholder indebted to the bank, delivered his stock cer- tificate with power of sale to B. as collateral security for a debt. On default of payment, B. sent the certificate to the cashier, ' Hill c. Pine River Bank, 45 N. stock certificates were to be exchanged H. 300. _ when the notes given to secure the 2 Bohmer u. City Bank, 77 Va. 445. payment of the subscription were 3 Bank of America v. McNeil, 10 paid. It negotiated these notes, and Bush (Ky.), 54. A clause in a char- afterwards issued unconditional certifi- ter that no shareholder shall sell his cates to the original subscribers, who shares without giving the corporation were the makers of the notes. The ten days' refusal of them, applies only makers failed to pay the notes, and the to voluntary sales ; and does not affect company was held liable to pay the the rights of a purchaser at a sheriff's judgments recovered by the holders sale on an execution. Barrows v. Na- against the makers, to the extent of tional Rubber Co., 12 R. I. 173. A the value of the unconditional certifi- railroad company issued conditional cates; Houston, etc. Ry. Co. v. Bre- stock certificates, for which ordinary mend, 66 Tex. 159. 660 CHAP. IX.] CORPORATION AND SHAREBOLDERS. [§ 608. who made the requisite entries on the stock-ledger, where it was his practice to keep account of transfers without consulting in each case the directors, who had adopted no by-law regulating the matter. The cashier then sold a portion of the shares for B. on B.'s power of attorney, having told B. that he needed no certificate. Subsequently A. became insolvent, being indebted to the bank. It was held that as between A. and B. the title to the shares passed by A.'s delivery of the certificate ; also, that the acts of the cashier were binding on the bank, and the transfer made by him on the stock-ledger vested in B. a com- plete and unincumbered title to the shares with a right to the usual certificate ; and it was further held that even if B. had acquired merely an equity based on an executory contract for a transfer, the right of the bank to assert its lien was lost by its laches, and the enforcement of its lien would have operated as a fraud.' § 608. Although it would seem that there is no method by which a shareholder can, against the will of the ma- . ... ,. Rights of jority, force the corporation to continue its operations, ehaie- a shareholder has important rights respecting the respectof manner of discontinuing the business and winding ^'""^'"^ up the corporate affairs.'' Thus, where a statute pro- vides a way for winding up a company or reducing its capital stock, the company cannot in a way unauthorized by the stat- ute, against the will of a dissentient shareholder, purchase its own shares with a view to dividing its assets. And in such a case a clause in the articles of association, that the shares of any shareholder who begins directly or indirectly a suit against the company or the directors, shall be forfeited on payment to him of their full market value, cannot avail the company.' It has also been held that the directors and a majority of share- holders cannot sell out the entire property of a solvent and ' National Bank v. Watsontown to the disposition made of corporate Bank, 105 U. S. 217. funds on dissolution. St. Louis, etc. 2 But a subscriber who has never Coal, etc. Co. v. Sandoval Coal, etc. paid anything on his shares, and Co., 116 111. 170. whose shares have been forfeited, has ' Hope v. International Financial no standing as a shareholder to object Society, L. K. 4 Ch. Div. 327. 36 561 § 610.] THE LAW OF PRIVATE CORPORATIONS. [CHAP, IX. paying railroad company against the consent of a minority.^ And a railroad company has no authority to sell, or lease in per- petuum, all its property and business to another corporation, and compel a dissenting shareholder to accept stock in the other com- pany, or a fixed and arbitrary price per share of its own stock.^ § 609. ^Nevertheless, if under the authority of the board of directors, whose action is ratified by the holders of all the stock represented at a shareholders' meeting, a conveyance is made of the total assets of a corporation in payment of its sole debt, the conveyance will be valid as against other shareholders, when there is no fraud and a continuance of the business would have been ruinous.* § 610. The majority of shareholders, moreover, acting as the body corporate, may, when the rights of the state do majority to not prevent, dissolve the corporation and wind up its minority °^ affairs.* Likewise it is held competent for the share- holders by a by-law adopted at their first meeting to ' Keanu. Johnson, 9 N. J. Eq. 401. The owners of a m ijority of shares of a corporation under the form of dissolving it and disposing of its prop- erty and distributing the proceeds, be- came the purchasers of such property at an unfair price, through a new cor- poration, in which they were share- holders, to the exclusion of the mi- nority shareholders in the old corpora- tion. In a suit in equity by the latter against the new corporation, it was held that plaintiffs had a lien, to the extent of the moneys of which they had been deprived by the sale, on the property of the old corporation in the hands of the new. Ervin v. Oregon Ry. etc. Co., 23 Blatchf. 517. The court followed the idea that when a majority combine, they constitute themselves the corporation, and so are bound to exercise their powers with due regard to the interests of the minority. See also Meeker v. Win- throp Iron Co., 17 Fed. Kep. 48. 662 ^ Boston and Providence E. E. Co. V. New York and N. E. R. R. Co., 13 R. I. 260 ; Mason v. Pewabic M'g Co., 25 Fed. Eep. 882. See also Frothingham v. Barney, 6 Hun, 366 ; Taylor v. Barle, 8 Hun, 1 ; Lauman V. Lebanon Valley R. R. Co., 30 Pa. St. 42 ; In re Empire Assurance Co., Ex parte Bagshaw, L. R. 4 Eq. 341 ; Clinch V. Financial Co., L. R. 4 Ch. 117; McCurdy v. Myers, 44 Pa. St. 535. Compare Buford u. Keokuk Northern Packet Co., 3 Mo. App. 159. " Hancock v. Holbrook, 9 Fed. Eep. 353. See also Buford v. Keokuk Northern Packet Co., 8 Mo. App. 159 ; Sheldon Hat Blocking Co. v. Eickemeyer Hat Blocking, etc. Co., 90 N. Y. 607. ' Treadwell v. Salisbury M'f g Co., 7 Gray, 393 ; Lauman v. Lebanon Val- ley R. R. Co., 80 Pa. St. 42 ; Mer- chants', etc. Line v. Wagner, 71 Ala. 581. See Webster v. Turner, 12 Hun, CHAP. IX.] CORPORATION AND SHAREHOLDERS. [§ 611. limit the terra of the corporate existence.* But a minority can- not compel a dissolution unless there exist most substantial reasons against the further prosecution of the corporate enter- prise f nor has the minority, in the absence of fraud or wrong- doing on the part of the directors, an absolute right to have a receiver of the corporate property appointed, although the cor- poration be utterly insolvent; this last being discretionary with the court.^ Thus, it is no ground for dissolving a manufactur- ing corporation on the petition of shareholders — a majority in number though a minority in interest — that a person owning a majority of stock has for many years controlled the electiori of officers and elected himself agent ; and that he has for a long time " managed the affairs of said corporation according to his own will and choice, regardless of the wishes and interests of the other stockholders ;" that, according to his statement, the corporation has been doing a losing business, that he refuses to purchase the shares of complainants, and that if the affairs of the corporation were properly managed the business might be a source of profit to all.^ § 611. Independent of statute, moreover, a court of equity has no power to dissolve a corporation and divide its j„risdic- property at the suit of a shareholder,' or remove tionof corporate officers.* Under statutes in some of the 264; Ervin v. Oregon Ry., etc. Co., ' Denike v. New York, etc. Lime 23Blatchf. 517. In regard to national Co., 80 N. Y. 699. See Har'don u. banks the statute (U. S. Rev. St., Newton, 14 Blatchf. 376. § 5220) provides that they may go * Pratt v. Jewett, 9 Gray, 34. into liquidation and be closed by a « Strong u. McCagg, 55 Wis. 624 ; vote of the shareholders owning two- Bayless «. Orne, 1 Freem. Ch. (Miss.) thirds of the stock. 161; Howe v. Deuel, 43 Barb. 504'; ' Merchants', etc. Line v. Wagner, Belmont v. Erie R'y Co., 52 Barb. 71 Ala. 581. 637; Waterbury v. Merchants Un. ^ See matter of Pyrolusite Manganese Exp. Co., 50 Barb. 157; Fountain Co., 29 Hun, 429. It has been held Fen-y Turnpike Co. v. Jewell, 8 B. that an insolvent corporation may be Mon. (Ky.) 140. Compare Baker v. dissolved at the suit of a shareholder. Backus, 32 111. 79; Terhune v. Mid- Masters V. Eclectic Life Ins. Co., 6 land R. R. Co., 38 N. J. Eq. 423 ; Daly, 455. But see Denike v. New Baker v. Louisiana Portable R. R. York, etc. Lime Co., 80 N. Y. 599 ; Co., 34 La. Ann. 754. Harden v. Newton, 14 Blatchf. 376. « Neall v. Hill, 16 Cal. 1^6. See §581. 563- § 611.J THE LA.W OF PRIVATE CORPORATIONS. [CHAP. IX. states, however, an information in the nature of a quo warranto may be filed at the relation of a shareholder against an illegally existing corporation to compel a dissolution.' And, finally, a court has power, on the application of a shareholder, to open or vacate a judgment dissolving a corporation, although the share- holder was not a party to the action instituted by the attorney- general, when it is shown the court that there is reasonable ground to believe that there was fraud or collusion in obtaining the judgment operating to the injury of the shareholder.* ' See Albert v. State, 65 Ind. 413. " People v. Hectogrraph Co., 10 Abb. N. C. (N. Y.) 358. 564 CHAP. X.] CORPORATION AND OFFICERS. t§ 612. CHAPTER X. LEGAL RELATIONS BETWEEN THE CORPORATION AND ITS OFFICERS. Fiduciary position of corporate officers, §§ 612, 613. Liability to pay for qualification shares, § 614. Directors' duties enforceable by the corporation or its receiver. Joinder, § 615. Liability of directors for fraud, neglect of duty, and acts in violation of by- laws, § 616. Ordinary care required, §§ 617-619. Directors not liable for errors of judg- ment, §§ 620, 621. Liability for ultra vires acts, §§ 622, 623. Liability of directors for the acts of other corporate agents, §§ 624-626. Corporate officers should not place their interests in opposition to those of the corporation, § 627. They cannot contract with themselves, § 628. Secret profits, § 629. Transactions fraudulent as a matter of law, § 630. Remedies of the corporation, § 631. Loans by directors to the corporation, §§ 632-634.- Invalidity of transactions in which officers are interested, §§ 635-637. Railroad construction companies, §§ 638, 639. Transactions in which officers act for two adversely interested corpora- tions, §§ 640-644. Directors' authority ; their right to in- demnification, § 645. Compensation of directors and other agents, §§ 646-648. Removal of officers, §§ 649, 650. § 612. Directors and other corporate officers and agents occupy towards the corporation which they represent positions of trust and confidence, and owe to it all position of the duties which persons occupying such positions 0^^'°™*® ordinarily owe to their cestuis que trustent.^ And the ' See Warden v. Railroad Co., 103 U. S. 651. This proposition can hardly apply when the directors them- selves are the only shareholders. Thus, in a recent case, directors issued the entire stock of a corporation to themselves in payment for property transferred to the corporation, and then sold the stock to innocent out- siders. The issue of the stock was such as was authorized by statute, and the directors at the time of the issue were the only shareholders. It was held that the proceeding could give no cause of action to the corporation. Foster v. Seymour, 23 Blatchf. 107. 565 § 613.J THE LAW OF PRIVATE COUPORATIONS. [CHAP. X. duties of corporate officers — at least directors — are more com- plicated than those of ordinary agents of individuals. Primarily they are accountable for the proper performance of their duties to the corporation or body corporate as such. But it must be remembered that the bodj'^ corporate not only represents the interests of all the shareholders, but is also bound to regard the interests of the creditors of the corporation, whom in a certain sense it also represents ; and the directors, of course, are affected with knowledge of the fact that the powers of the body cor- porate must be exercised with due regard to the interests of all persons in any way interested in the corporate enterprise. § 613. The powers of directors are either given them directly by the constitution of the corporation, or delegated to them by the majority of shareholders.' It would seem, accordingly, that those powers which directors receive directly from the constitu- tion must be exercised with due regard for the interests of all persons entitled to rely on its provisions, and that the powers which directors receive by vote of a majority of shareholders must also be exercised with due regard for the interests of all, because that majority was bound to exercise its powers for the interesis of all, and, therefoi-e, only in the interests of all could it delegate power to others. Accordingly, the directors cannot act with blind devotion for the interests of the majority of shareholders,' or even of all the shareholders,' but must regard at the same time the interests of creditors.'' And the truth of this is not affected by the fact that ordinarily in the first instance directors are accountable for the abuse of their powers only to the body corporate ; because, as before pointed out, it is to this body as representing all the interests in the corporate enterprise that they are accountable, and if this body fails to enforce the rights of all persons against the directors, the per- sons injured may themselves take action to bring the directors to account.' Compare Metropolitan Elevated R. R. properly applicable to the payment of Co. V. Manhattan Elevated R. R. Co., dividends, maybe managed exclusively 11 Daly (N. Y.), 373, 516. in the interests of shareholders or paid ' See §§ 219 et seq. over to them, and the creditors have 2 See Goodin v. Cincinnati, etc. no ground to complain. See § 750. Canal Co., 18 Ohio St. 169, § 559. * See §§ 756 et seq. » Certain corporate funds, i.e., those ^ See §§ 686, 687, 757, 758. 566 CHAP. X.] CORPORATION AND OFFICERS. [§ 614. To such an extent may the duties of directors hecorae compli- cated by the divergency in interest of the different persons to whom they owe duties, that it may often be difficult for them to discriminate properly, and, 'by giving due and proportionate consideration to the rights of all persons, keep themselves free from liability. It is only by acting always in accordance with the corporate constitution, where that appears silent, using a sound and honest discretion, and in all cases of difficulty taking the advice of counsel, that directors may keep themselves free from liability and carry out the trusts imposed upon them. , § 614. By accepting the office of director a person impliedly undertakes to discharge its duties, and assumes the liabilities attached to it. Accordingly, where by the payfor^ constitution of the corporation, the ownership of a ttonehares. certain number of shares is a condition precedent to eligibility as a director, any one accepting the office and acting therein is liable to pay for the requisite number of shares.' A person, however, who has merely accepted the office of director, but has not acted as one, and without laches has retracted his acceptance on the ground of misrepresentations made to him by the promoters, will not be held liable as contributory on the qualification shares, if as a matter of fact he has never taken them ; for the acceptance of the office of director merely implies an agreement to take the requisite number of shares within a reasonable time after assuming the office.^ A director, more- over, is not bound to take the shares directly from the com- pany, but may acquire them by purchase or gift from some prior holder.' ■ Fowler's Case, L. K. 14 Eq. 316 ; 226 ; In re Election of St. Lawrence Leeke's Case, L. K. 6 Ch. 469 ; Har- Steamboat Co., 44 N. J. L. 529. ward's Case, L. K. 13 Eq. 30; Sid- = Karuth's Case, L. R., 20 Eq. 506 ; ney's Case, L. R. 13 Eq. 228 ; Miller's see Hewitt's Case, 25 Ch. Div. 283. Case, 3 Ch. D. 661. Compare De 'State v. Leete, 16 Nev. 242; Ruvigne^s Case, 6 Ch. D. 806. , Dent's & Forbe's Case, L. R. 8 Ch. There is no general rule of law 768; Brown's Case, L. R. 9Ch. 102; making the holding of shares an indis- see Chapman's Case, L. R. 2 Eq. pensable qualification to the office of 567; Austin's Case, L. R. 2 Eq. 435; director. State v. McDaniel, 22 Ohio Jenner's Case, 7 Ch. D. 132. See St. 354 ; Wight v. Springfield and also § 578. But see In re Carriage Kew London R. R. Co., 117 Mass. Co-operative Supply Ass'n, 27 Ch. ' Div. 323. 567 § 616.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. duties en- forceable by the cor- poration or its receiver. Joinder. § 615. Directors' duties are ordinarily enforceable in the Directors' name of the corporation ;' as it is only after failure or neglect on the part of the corporation to enforce the rights which it represents that the creditors or shareholders may themselves proceed to enforce such rights as pertain to them respectively. A receiver, however, or an assignee of the corporation has all the rights and capacities of action possessed by the corporation against its officers.^ And in suits against them for damages arising from their negligent or wrongful acts or omissions all the guilty officers may be joined, or any one of them may be sued sepa- rately.^ § 616. In brief, then, the duties of directors and other officers towards the corporation are to act for the furtherance of the complex mass of interests which it possesses or represents, and to do no act infringing the rights of the possessors of any of those interests ; these duties include all the duties considered in their correlations and due proportions owed by the directors to any of the classes of persons interested in the -corporate enterprise. For the consequences of a breach of this trust on their part, the officers are liable in damages ; and first of all, for any fraud or unfair dealing towards the corporation ;* then for gross negli- gence in attending to the corporate aft'airs. or gross mismanage- ment whereby the corporate assets are wasted ;'' and finally for any acts in violation of the by-laws that occasion loss to the corporation.' Liability of directors for fraud, neglect of duty, and acts in vio- lation of by-laws. ■ Hersey .u. Veazie, 24 Me. 9 ; Smith V. Hurd, 12 Mete. 371. ' 2 Hun V. Gary, 82 N. Y. 65; Shultz V. Christman, 6 Mo. App. 338 ; Aus- tin V. Daniels, 4 Den. (N. Y.) 299. 3 Hun u. Gary, 82 N. Y. 65. • * First Nat. Bk. v. Reed, 36 Mich. 263 ; see Shultz v. Ghristman, 6 Mo. App. 338. If a treasurer misappro- priates funds 6f his corporation and le^ds them to a third person, an action of contract brought by the corporation against the borrower is not a ratifica- 568 tion of the treasurer's unauthorized act, and does not discharge him from his liability to the corporation. Good- year Dental Vulcanite Go. v. Gaduc, 144 Mass. 85. ° Austin V. Daniels, 4 Den. (N. Y.) 299 ; Gitizens' l^oan Ass'n v. Lyon, 29 N. J. Eq. 110. See Merchants' Bank v. Jeffries, 21 W. Va. 504. ^ Gitizens' Building Ass'n d. Goriell, 34 N. J. Eq. 383 ; Williams v. Riley, 34 N. J. Eq. 398 ; Oakland Bank v. Wilcox, 60 Gal. 126. An officer, e. g., CHAP. X.] CORPORATION AND OFFICERS. [§ 617. § 617. " The first question to be considered is the measure ot fidelity, care, and diligence which such trustees [trus- tees of a savings bank] owe to such a bank and its care re- depositors. The relation existing between the cor- i™"*^"^- poration and its trustees is mainly that of principal and agent, arid the relation between the trustees and the depositors is sim- ilar to that of trustee and cestui que trust. The trustees are bound to observe the limits placed upon their powers in the charter, and if they transcend such limits and cause damage, they incur liability. If they act fraudulently, or do a wilful wrong, it is not doubted that they may be held for all the damage they cause to the bank or its depositors. But if they act in good faith, within the limits of powers conferred, using proper prudence and diligence, they are ii6t responsible for mere mis- takes or errors of judgment. That the trustees of such corpo- rations are bound to use some diligence in the discharge of their duties cannot be disputed. All the authorities hoid so. What degree of care and diligence are they bound to exercise ?' Not the highest degree, not such as an extremely vigilant and very careful person would exercise. ... It would not be proper to answer the question by saying the lowest degree When one deposits money in a savings bank, or takes stock in a corporation, thus divesting himself of the immediate control of his property, he has the right to expect that the trustees or directors, who are chosen to take his place in the management and control of his property, will exercise ordinary care and prudence in the trusts committed to them — the same degree of care and prudence that men prompted by self-interest generally a cashier, is not liable to the corpora- when, with the acquiescence of the tion for acts done in good faith, but in board of directors, it holds no meet- violation of a by-law, when the board ings. Second National Bank v. Burt, of directors, who have power to make 93 N. Y. 233. by-laws and prescribe his duties, prac- ' Not keeping property of the cor- tically disregard the by-law which he poration insured is not per se negli- has violated, and render his observance gence on the part of directors : the of it impossible. Thus, where a by- complaint in such a case should allege law provided that the cashier should facts showing that the directors vio- consult a committee of directors in lated their duty in not keeping it in- making discounts, he is not liable for sured. Charleston Boot, etc. v. Dans- neglecting to consult such committee more, 60 N. H. 85. 569 § 619.] THE LAW OF PRIVATE CORPORATIONS.' [CHAP. X. exercise in their own affairs. "When one voluntarily takes the position of trustee or director of a corporation, good faith, ex- act justice, and public policy unite in requiring of him such a degree of care and prudence, and it is a gross breach of duty — crassa negligentia — not to bestow them."' § 618. Like directors, other corporate officers and agents are bound to observe the utmost good faith towards the corpora- tion ; and, perhaps, may be held to even a stricter performance of their duties ; for agents and officers, other than directors, usually receive salaries, and are supposed to devote a greater portion of their time to the service of the corporation f and, generally, all agents and servants of a corporation are bound to act with care and diligence, and, while engaged in the perform- ance of their functions, to act wholly and entirely in its interests.' § 619. An admirable exposition of the liability of directors to the corporation for neglect of their duties is contained in a case decided by the greatest of England's chancellors as long ago as the year 1742. The facts of Charitable Corporation v. Sut- ton* were briefly as follows: The committee-men (directors), into whose hands the general charge of the corporate affairs had been confided, had been guilty either of positive frauds ' Hun V. Cary, 82 N. Y. 65, 70. fare, but received the ordinary fare. Opinion of the court per Earl, J. bought tickets himself, and punched See Citizens' Building Ass'n v. Cori- and gave them in, concealing the facts, ell, 34 N. J. Eq. 383. It was held that this did .pot consti- 2 Commercial Bank v. Ten Eyck, tute a payment, and that the railroad 48 N. Y. 305 ; Austin «. Daniels, 4 company could, notwithstanding, re- Den. (N. Y.) 299; East N. Y., etc. cover the fares collected by him in R. R. Co. V. Elmore, 5 Hun, 214; assumpsit as money had and received. Pangborn v. Citizens' Building Ass'n, Concord R. R. Co. v. Clough, 49 N. 35 N. J. Eq. 341 ; First Nat. B'k v. H. 257. Compare Taylor v. Taylor, Reed, 36 Mich. 263. For disobeying 74 Me. 582. The cashier of a bank, an order of court regarding investment though authorized to loan its funds of funds of a savings bank, its presi- with or without security, is liable for dent may be punished for contempt, money loaned without security to an though the bank sufl'er no loss. Una individual, and not entered up for sev- V. Dodd, 39 N. J. Eq. 173. eral years; such loan being evidently ^ A railroad company had a rule concealed from the trustees. San Jo- that persons not buying tickets before aquin Valley Bank v. Bours, 65 Cal. entering should pay ten cents extra. 247. A conductor did not collect this extra * 2 Atkyns, 400. 570 CHAP. X.] CORPORATION AND OFFICERS. [§ 619. and breaches of trust, or of gross negligence. The corporation had been formed for the purpose of lending on pledges, and, in contravention of its rules or by-laws, its affairs and the whole power and discretion of lending were left in charge of one or two persons in such a way as to afford them abundant opportu- nity to defraud the corporation, of which opportunity they took everj' advantage. In his opinion. Lord Hardwicke said:' "The grounds upon which the plaintiffs found their relief against the committee- men are these: 1. That they have been guilty of manifest breaches of trust, or, at least, of such supine and gross negli- gence of their duty, and so often repeated, that it will amount to a breach of trust. These are great and important questions. It will be proper to state what are the actual breaches of trust: Ist. Passing of notes, etc. 2dly. Signing notes for loans upon pledges, called renewal pledges, though they knew at the same time that the money originally lent was not paid. 3dly. Sign- ing notes of John Thompson, warehouse-keeper. 4thly. Taking off all checks upon him, etc. 5thly. Making several. orders to put it in the power of Thompson, Wooley, and Warren to com- mit those frauds. " As to the three first, they are actual breaches of trust, and the committee-men are clearly guilty who have been concerned in them. The by-law prescribes that when notes were to be issued by the cashier, they should be signed by one of the committee-men, and intended as a check upon the warehouse- keeper and cashier. Now several notes have been issued with- out observing this rule, which is an express contravention of the by-law As to the third breach of trust, the com- mittee-men's behavior with regard to Thompson, their ware- houscrkeeper. It is such a notorious fraud, or at least gross inattention to suffer him, who was to set a value upon all the pledges, to borrow money upon them himself, that I shall direct those who shall appear to be guilty of it, to make good the loss. " As to the fourth and fifth breach of trust, the taking off all checks upon Thompson, and making several orders to put it in 1 2 Atkyns, 403 et seq. 571 § 619.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. X. the power of Thompson, Wooley, and "Warren to commit those frauds. These are not so clearly breaches of trust, though at the same time they appear to me to have tended greatly to the loss and prejudice of the corporation. But whether they are criminal will be the question. JSTow I think the persons present are only liable who issued out the orders, which invested Thomp- son, Wooley, and Warren with such powers. " But then another head of charge has been made under the crassa negligentia, which has been divided into these several branches : 1st. The committee-men's non-attendance upon their employment ; 2dly. Their not observing the by-law of laying the balance of cash regularly before them ; 3dly. ISot taking any notice of forfeited pledges ; 4thly. ISTever once inspecting the warehouse to see what number of real pledges were there ; Sthly. Putting the whole power into the hands of Thompson, Wooley, and Warren. Now from all these an accumulated charge is made against the whole body of directors or com- mittee-men. Consider first the foundation of this general charge. . . . Committee-men are most properly agents of those who employ them in this trust, and who empower them to direct and superintend the afi'airs of the corporation. In this respect they may he guilty of acts of commission or omission, of raal-feasance or non-feasance. Vide Domat's Civil Law upon this head (2 B. Tit. 3, §§ 1 and 2). Now where acts are ex- ecuted within their authority, as repealing by-laws and making orders, in such cases though attended with bad consequences, it will be very difficult to determine that these are breaches of trust. For it is by no means just in a judge, after bad conse- quences have arisen from such executions of their power, to say that they foresaw at the time what must necessarily happen ; and, therefore, were guilty of a breach of trust. " Next as to mal-feasance and non-feasance. For instance, in non-attendance, if some persons are guilty of gross non-attend- ance, and leave the management entirely to others, they may be guilty by this means of the breaches of trust that are committed by others. By accepting of a trust of this sort a person is obliged to execute it with fidelity and reasonable diligence ; and it is no excuse to say that they had no benefit from it, but that 572 CHAP. X.] CORPORATION AND OFFICERS. [§ 620. it was merely honorary ; and, therefore, they are within the case of a common trust.* " Another objection has been made, that the court can make no decree upon these persons which will be just ; for it is said every man's non-attendance or omission of his duty is his own default, and that each particular person must bear such a pro- portion as is suitable to the loss arising from his particular neglect, which makes it a case out of the power of this court. Now, if this doctrine should prevail, it is, indeed, laying the axe at the foot of the tree. But, if upon inquiry before the master, there should appear to be a supine negligence in all of them, by which a gross complicated loss happens, I will never determine that they are not all guilty. Nor will I ever determine that a court of equity cannot lay hold of every breach of trust, let the person be guilty of it either in a private or public capacity. The tribunals of this kingdom are wisely formed, both of courts of law and equity, and so are the tribunals of most other nations; and for this reason there can be no inquiry but there must be a remedy in all or some of them ; and therefore I will never determine that frauds of this kind are out of the reach of courts of law or equity , for an intolerable grievance would follow from such a determination. In the present case one thing is clear [those who were engaged in the confederacy to divert the funds of the corporation], are certainly liable to make good the losses which the corporation have sustained in the first place, and the committee-men who were not partners in this afi"air are liable in the second place only. Therefore, in the present case, I am of opinion, if there is no evidence, to charge the committee-men of being privy to the original design, yet they will be guilty in the second degree, by conniving at the affair, and not making use of the proper power invested in them by the charter, in order to prevent the ill consequences arising from such a confederacy."^ § 620. Directors acting in good faith are not liable, in the absence of gross negligence, for doing what they have been au- ' Citing Coggs v. Bernard, 1 Salk. Eq. 123; afifd 41 N. J. Eq. 566; 26. Williams v. McKay, 40 N. J. Eq » See also Henry y. Jackson, 37 Vt. 189. 431 ; Wilkinson v. Dodd, 40 N. J. 573 § 621.] THE LAW OP t>EIVATE CORPORATIONS. [CHAP. X. thorized to do, even though it was imprudent ;' nor for errors in Directors judgment in matters within the scope of their dis- not liable cretjon, even when the errors seem palpable, and of judg- such as men of ordinary prudence would not have ™*°*' committed.^ They ordinarily receive no salary,' are required to exercise only reasonable care and prudence, and can- not be presumed to devote all their time to the service of the company ;* and under any circumstances, in the absence of negligence, to hold them liable for the consequences of mere errors of judgment would add an undue hardship to the already onerous responsibilities of their position. § 621. The circumstances of a recent Tennessee case are of interest in this connection. The by-laws of a corporation pro- vided that the directors should elect a secretary, whose term of office should be twelve months, or until his successor was elected ; and provided further that the secretary should give a bond with sureties for the faithful performance of his duties. The board elected a secretary, took the prescribed bond, and afterwards re-elected the same person for the two following years, but took no new bond, deciding without legal advice and erroneously, though after a discussion of the matter, that the bond already taken was a continuing security. In the third year the secre- tary became a defaulter, and it was held that the directors having acted in good faith were not liable to make good the loss.' ' Overend v. Gurney, L. K. 4 Ch. celsior Petroleum Co. v. Lacey, 63 701 ; S. C, sub nom. Overend and N. Y. 422 ; Vance v. Phoenix Ins. Gurney Co. v. Gibb, L. R. 5 H. L. Co., 4 Lea (Tenn.), 385. 480. See International, etc. R. R, ' See § 646. Co. V. Brcmond, 53 Tex. 96. Direc- « Percy v. Millardon, 8 Mart. N. S. tors of a savings bank are not liable for (La.) 68. not requiring the president to furnish a ' Vance v. Phoenix Ins. Co., 4 Lea bond, when the charter leaves this to (Tenn.), 385. fetill exception may be their discretion. Williams v. Hal- taken, perhaps, to this decision. For, Hard, 38 N. J. Eq. 373. did not the directors omit the very ' Spering's Appeal, 71 Pa. St. 11 ; precaution which ordinarily prudent Godbold V. Branch Bank of Mobile, men under the circumstances would 11 Ala. 191 ; Citizens' Building Ass'n have taken — a precaution that would V. Coriell, 35 N. J. Eq. 383 ; Hun v. have averted the loss — i. e., to consult Cary, 82 N. Y. 65, § 617 ; Charitable counsel? Corporation v. Sutton, supra; Ex- 574 OHAP. X.] CORPOEATION AND OFFICERS. [§ 623. § 622. If, however, directors do an act even honestly, which is clearly beyond their powers, or ultra vires the cor- ^ • v-, .. poration, they will be liable to the corporation for for ultra any damages resulting.' As Baron Lindley says: ''"■**''°'^- " Directors ai-e responsible for the loss of the company's assets if that loss is attributable to the employment of the assets in a manner and for purposes not warranted by the constitution."^ Thus, a director of a savings bank, who acts with its president in making a loan on security palpably worth less than double the amount of the loan, and so violates a provision in the charter of the bank, will be liable for any loss.* § 623. But it has been held that when the powers of direc- tors are uncertain or difficult to ascertain, and they act honestly under, the advice of counsel, they will not be personally liable, even though their acts be afterwards declared beyond their au- thority and ultra vires.* " In regard to whether the defendants [directors] should be held responsible for any of their acts and investments' as ultra vires, it might be sufficient to notice the fact that the charter of this corporation was a very complicated one, made up by comparing together no less than sixteen acts of incorporation or supplements To have mistaken 1 As where directors without author- see Excelsior Petroleum Co. v. Lacy, ity return deposits to subscribers ; AVil- 63 N. Y. 422. Compare Turquand v. liamg v. Page, 24 Beav. 654; or can- Marshall, L. R. 4 Ch. 376; Stringer's eel subscriptions irregularly and pur- Case, L. R. 4 Ch. 475 ; Ranee's Case, chase shares (in England) in the stock L. R. 6 Ch. 104. It is competent for of the corporation with corporate funds, a corporation to release a director from Hodgkinson v. National Live Stock Ins. its claims against him on account of an Co., 26 Beav. 473 ; Joint Stock Dis- ultra vires act of his done on its be- count Co. V. Brown, L. R. 3 Eq. 139 ; half. Pneumatic Gas Co. v. Berry, S. C, L. R. 8 Eq. 381 ; or, against 113 U. S. 322. the provisions of the statute allot shares ' 2 Lindley on Part., 592. Corn- to infants. In re Crenver, etc. M'g pare Pickering v. Stephenson, L. R Co., Ex'parte Wilson, L. R. 8 Ch. 45. 14 Eq. 322, 342. See Lester v. Howard Bank, 33 Md. » Williams m. McDonald, 42 N. J. 558. Trustees of a savings bank are Eq. 392. liable to the receiver for dividends paid * Spering's Appeal, 71 Pa. St. 11; by them which were not earned. Van Hodges w. New England Screw Co., 1 Dyck V. McQuade, 45 N. Y. Super. R. I. 312 ; S. C, 3 R. L 9. Com- Ct. 62«; 2 Lindley on Part., 794; pare Williams ».' McDonald, 37 N. J. Evans v. Coventry, 8 De G. M. k G. Eq. 409. 835 ; see the decree, clause 4, But 575 § 624.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. the extent, of their powers under such circumstances would not have been matter of surprise even in the most, timid and cautious. We may adopt on this point the language of Green, C. J., in Hodges v. 'New England Screw Co., 1 R. I. 312 : ' In considering the question of the personal responsibility of the directors we shall assume that they violated the charter of the screw company. The question then will be. Was such viola- tion the result of mistake as to their powers, and if so, did they fall into the mistake from want of proper care, such care as a man of ordinary prudence practices in his own affairs? For if the mistake be such as with proper care might have been avoided, they ought to be liable. If, on the other hand, the mistake be such as the directors might well make, notwith- standing the exercise of proper care, and if they acted in good faith and for the benefit of the Screw Company, they ought not to be liable.' We may say in this case, conceding that the directors did violate the charter, it was a question upon which with all due care they might have made an honest mistake ; and, moreover, it appears by the evidence and is so reported, that they acted throughout by the advice of their counsel. It is well settled that trustees will be protected from responsibility under such circumstances."' Still, it may be suggested that as to transactions within the powers of the corporation, but possibly beyond the powers of the directors, directors may act in safety by procuring before- hand the consent of a majority of shareholders in a corporate meeting ; and that as to acts which are ultra vires, it may be unwise to permit directors in a great corporation to shield themselves from responsibility behind even the most "un- purchasable opinions" of counsel. The maxim Ignorantia legis neminem excusat is one of the pillars of corporation law. § 624. As appears from Charitable Corporation v. Sutton," if Liability of *^® directors improperly surrender duties which they directors ought themselves to perform into the hands of one or for the acts n ^ • , Of other more 01 their number, or into the hands of other agentsf''^ agents of the corporation, they may render them- > Spering's Appeal, 71 Pa. St. 11 ; " § 619. opinion of the court per Sharawood, C.J. 576 CHAP. X.] CORPORATION AND OFFICERS. [§ 6'26. selves liable for damages arising to the corporation from such frauds and wrongful acts as the persons, into whose hands they have improperly surrendered their duties, commit in the performance of them. It is even conceivable that directors, by improperly intrusting to any person discretionary powers confided %o them to be exercised only by themselves, might make themselves liable for errors of discretion committed in good faith by that person ; even for such errors as the directors would not have been liable for had they themselves committed them in the discharge of their duties. Moreover, if it is the duty of directors to watch over the conduct of each other, and of other agents and clerks of the corporation, and they grossly neglect this duty, they will be liable for the damages arising from wrongful acts which, had it not been for their neglect, the other directors and agents would have been unable to commit. § 625. On the other hand, if directors have been guilty of no neglect of duty, they are not responsible for the wrongful a;cts or omissions of other directors or officers of the corporation ; nor for the acts of inferior agents appointed by themselves, provided, in the selection of the last, they have used due care. Directors and other officers are responsible for the performance of their own duties, and cannot be held liable for wrongs which others have committed, unless the commission of such wrongs is in some way due to an omission of ,duty on their own part.' § 626. The following admirable statement of the liability of directors for the acts of persons other than themselves is taken from Baron Lindley's work on Partnership.' " The most diflB- cult question which arises with reference to the liability of di- rectors is the extent to which each is liable for the acts of the other. Th-e following appear to be the principles applicable to this subject: — ' Batchelor v. Planters' Nat; Bk., the cashier in abstracting money from 78 Ky. 435, 446 ; Williams v. Halliard, the bank, is liable therefor to the 38 N. J. Eq. 373. In re Denham & bank, though he gets none of the Co., 25 Ch. D. 752. Unless their lia- money himself. Hobart v. Dovell, 38 bility is extended by statute ; see, e. g., N. J. Eq. 553. Cons'n of California 1879, art. xii. § 3. '2 Lindley on Part., 595-596. A receiving teller, who knowingly aids 37 577 §* 626.] THE LAW OF PKIVATE CORPORATIONS. [CHAP. X. "All those directors who are actually implicated in a breach of trust by misapplying the company's money (even although they only sign cheques prepared by others) are jointly and sev- erally liable for the losses arising therefrom.' " 2. Directors who know of and sanction such a breach of trust are implicated in it within the meaning of this rule, although they do not actively take part in it.'' " 3. So are directors who know af the breach of trust, but take no steps to prevent it, beyond writing a letter of disap- proval.' " 4. Where the liability is to account for profits improperly received by them, they are only severally liable for their own receipts, and are not jointly and severally liable for each other's receipts.* But it is submitted that their liability is joint and several if there has been a joint receipt by them all, and then a division amongst themselves of what they have all received ; or if thej' have all been implicated in some joint breach of trust resulting in profit to them all. " 5. It has been decided that a director who is not cognizant of a breach of trust committed by his co-directors and who takes no part in it is not liable for it." This point, however, involves the question whether a director is not bound to make himself acquainted with what his co-directors are doing, and to take such steps as maybe in his power to prevent them from doing wrong. On this question opinions differ, and it can ' Citing, Joint Stoclc Discount Co. * Citing, Parker v. McKenna, L. R. V. Brown, L. R. 8 Eq. 381; Land 10 Ch. 9fi ; General Exchange Bank Credit Co. v. Fermoy, L. R. 5 Ch. v. Horner, L. R. 9 Eq. 480. If one 763. or more directors improperly dispose = Citing, Land Credit Co. v. Per- of corporate funds they are responsi- moy, supra. ble individually ; but to affect them ' Citing, Joint Stock Discount Co. -with joint responsibility, it must ap- V. Brown, supra. The statute of pear that the act complained of was limitations runs against any liability done by the board or a majority there- of directors for the wrongful acts of of. Franklin Ins. Co. v. Jenkins, 3 other directors and officers, from the Wend. 130. time of the commission of the wrong- ^ Citing, Ashhurst v. Mason, L. R. ful acts. Spering's Appeal, 71 Pa. 20 Eq. 225. Accord, Re Montrotier St. 11, 25 ; Williams iK Halliard, 38 Asphalte Co., Perry's Case, 34 L. T. N. J. Eq. 373. N. S. 716. 578 CHAP. X.J CORPORATION AND OFFICERS. [§ 627. scarcely be considered as settled. If, indeed (as often happens), the constitution of the company is such as to justify a director in leaving certain matters to his co-directors, or some of them, he is justified in trusting them with such matters, and is not responsible for breaches of trust committed by them and con- ■ cealed from him. But in other cases his irresponsibility is by no means so clear. " 6. Ifor, it seems, is a director liable for breaches of trust committed by his co-directors before he became a director, but afterwards discovered by him. In this case the new director's liability, if any, can only be for the loss sustained by the com- pany by reason of his omission to make known what he has discovered, and to compel the real delinquents to make good their breach of trust; and it is very questionable whether an incoming director is liable in point of law for such omissions." § 627. It may be stated as a general rule that directors and other corporate officers should do no acts that are corporate likely to render their personal interests antagonistic "^^Yd not to those of the corporation.* And when a corporate place their tr- f t 1 • 1 • 1 ■11 interests in officer finds his personal interests substantially op- opposition posed to those of the corporation, then, not only on the'corpo- account of the rights of the corporation and his du- ""ation. ties to it, but also for the sake of his own security, the plainest course for him is to resign.'' For, under such circumstances, every step he takes may be subjected to the most searching and harassing investigation at the instance of any person interested in the corporate enterprise, and he will find himself seriously hampered in the assertion of even his honest rights, if, such he happen to possess. Thus, for instance, it has been held that ' Hill «. Frazier, 22 Pa. St. 320; conflict with his duty to the share- Goodin v, Cincinnati, etc. Canal Co., holders, to perform his duty towards 18 Ohio St. 169; § 559, ante, ch. 9; them at a sacrifice of his own interest ; Brewster v. Stratman, 4 Mo. App. 41 ; and a transaction in which a director First Nat. Bk. v. Reed, 36 Mich. 263. on behalf of his company has in fact See /n re Imperial Land Co., Ex parte been dealing with himself as an indi- Larking, 4 Ch. D. 566. Compare vidual cannot stand." 2 Lindley on Merrick v. Peru Coal Co., 61 111. 472. Part., 590 ; Aberdeen R'y Co. v. "Indeed it is not going too far to Blakie, 1 Macq. 461. say that every director of a company '^ See Goodin v. Cincinnati, etc. is bound, when his personal interests Canal Co., supra. 579 § 628.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. directors of a railroad company cannot acquii'e an interest in the profits of a contract for the construction of the road, that will give them a standing in a court of equity to interpose an ob- jection to the consummation of a compromise between the railroad company and its contractors.' Iij another instance, where on an execution sale against a corporation, a person who was both its treasurer and a shareholder bought in land held by its trustees, it was held that his title enured to the benefit of the corporation.^ " The affairs of a corporation are generally intrusted to the exclusive management and control of the board of directors ; and there is an inherent obligation, implied in the acceptance of such trust, not only that they will use their best efforts to pro- mote the interest of the shareholders, but that they will in no manner use their positions to advance their own individual in- terest, as distinguished from that of the corporation, or acquire interests that may conflict with the fair and proper discharge of their duty."' § 628. A director or other corporate officer can on behalf of his corporation make with himself no contract that will bind the corporation -j^ nor any contract in which he is personally in- ' Paine v. Lake Erie, etc. E. R, debted to him for money expended in Co., 31 Ind. 283, 353. Compare their purchase, provided the purchase Savings Bank v. Wulfekuhler, 1 9 was not made in violation of his duties Kan. 60. The president of a railroad or instructions. Sullivan v. Triunfo company who is authorized with two Mining Co., 39 Cal. 459; Seeley v. ■ other directors to make a contract for San Jos6 Mill Co., 59 Cal. 22 ; Mer- the construction of the road, cannot rick v. Peru Coal Co., 61 111. 472; secretly (at the time of contracting.) Kitchen v. St. Louis, etc. K'y Co., 69 acquire rights in the contract which he Mo. 224. See Pacific Railroad v. can enforce against the company ; and Ketchum, 101 U. S. 289; also § 683. this, whether there be any fraud in Compare Sandy River R. R. Co. i>. fact or not. Flint and P. M. R'y Co. Stubbs, 77 Me. 594. V. Dewey, 14 Mich. 477. " Cumberland Coal, etc. Co. «. Par- 2 McAUen v. Woodcock, 60 Mo. ish, 42 Md. 598, 605 ; see Sellers v. 174 ; see Brewster v. Stratman, 4 Mo. Phoenix Iron Co., 13 Fed. Rep. 20. App. 41. « Guildu. Parker, 43 N. J. L. 430 ; But claims against a corporation do Port v. Russell, 36 Ind. 60 ; Coleman not necessarily become extinguished v. Second Avenue R. R. Co., 38 N, on being purchased by its agent. The Y. 201; First National Bank v. Gif- corporation may thereupon become in- ford, 47 Iowa, 575; First National 580 CHAP. X.] CORPORATION AND OFFICERS. [§ 629. terested.i Accordingly, a resolution of the board of trustees of a corporation carried by the castinar vote of the president ^ . • <■ • 1 ■ T „ , . They can- ratityitig an unauthorized act of his, in which he was not con- personally interested, is void.^ And a board of direc- Ibem^'*'^ tors who have bartered away, the assets of the corpo- ^^^'^^^• ration for personal gain, cannot, by an act purporting to be an acceptance for the company of an equivalent for such assets, conclude the shareholders or a receiver from showing that no equivalent was actually received.* § 629. Corporate officers may not buy from or sell to their corporation and retain any profits from such trans- actions, unless the profits are known and the trans- ®^^™^ actions acquiesced in by all who could claim any interest in the profits.* For all secret profits derived by them from any dealings in regard to the corporate enterprise they must account to the corporation," even though the transaction may have benefited it.* Bank v. Drake, 29 Kansas, 311 ; Ex parte Hill, 32 L. J. Eq. 154; see Butts V. Wood, 37 N. Y. 317 ; Abbot V. American Hard Rubber Co., 33 Barb. 578 ; Murraj' v. Vanderbilt, 39 Barb. 140; Munson v. Syracuse, etc. R'y Co., 29 Hun, 76; Winchester v. Baltimore, etc. 11. R. Co., 4 Md. 231 ; compare Palmer v. Nassau Bank, 78 111. 380. ^ European, etc. R. Co. v. Poor, 59 Me. 277; Blair Town Lot Co. and a decree of sale entered, practically by its consent, its answer having admitted the allegations of the bill. It then appealed from the decree, and tried to bring before the Federal Supreme Court on appeal facts showing that its directors and its solicitor had acted fraudulently and in hostility to its in- terests in allowing the decree to be taken. The corporate ' Greenfield Savings Bank U.Simons, See Aberdeen Ry. Co. v. Blakie, 2 133 Mass. 415 ; Bent v. Priest, 10 Mo. (H. L.) Eq. 1281. App. 543 ; Stewart v. Lehigh "Valley « Stewart v. Lehigh Valley R. R. R. R. Co., 38 N. J. L. 505; Cook v. Co., 38 N. ,T. L. 506. See also Little Berlin Woollen Mill Co., 43 Wis. 433; Rock and Fort Smith R'y Co. v. Page, Duncomb v. New York, H. & N. R. 35 Ark. 304. A station agent bar- R. Co., 84 N. Y. 190 ; compare Da- gained with his company for an excur- voue V. Fanning, 2 Johns. Ch. 252. sion tr^in, not letting it be known that Although there be no actual fraud or he wanted it for himself. Held, the unfairness, a corporation may repu- company on discovering this could dis- diate a contract entered into by its affirm the contract. Pegram w. Char- board of directors, when one of them lotte, etc.R. R. Co., 84 N. C. 696. is interested on the other side, and the ' ^ Kelley v. Newburyport Horse R. corporation need not show that the in- R., 141 Mass. 496; Twin-Lick Oil fluence of such director determined the Co. v. Marbury, 91 U. S. 587, § 632 ; action of the board. Munson w. Syra- Town of Searcy v. Yarnell, 47 Ark. cuse, etc. R. R. Co., 103 N. Y. 68. 269. « 111 U. S. 505. 583 § 630.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. management seems to have been changed shortly after the entry of the decree. The appeal duly prosecuted was not decided for about three years. The appellate court found no error which it could correct on appeal, but intimated that a remedy could be had in the court below.^ As soon as possible after the ap- peal was decided, suit was brought to set aside the decree. The defendants demurred on the ground of laches ; but it was held, and sustained on appeal, that the time during which the appeal was pending should not be counted against the plaintiff. Giving the opinion of the court, Justice Blatchford said : " As to the frauds alleged in the bill respecting the matters in the conduct of the suit, resulting in the decree, the right to relief is based on the view, that the corporation itself, the present plaintiff, speaking and acting now for its stockholders as a body, was powerless then, because it was misrepresented by unfaithful directors, who did what was done and refused to do otherwise, and through whom alone it could then speak and act Under such circumstances mere knowledge by or notice to the plaintiff, or its directors or officers, or more or less of its stock- holders, is unimportant ; and the plaintiff cannot be concluded by the failure of any number of its stockholders to do, what unfaithful directors ought to have done, unless a case is shown of such acquiescence, assent or ratification as would make it in- equitable to permit what has been done to be set aside, or unless the rights of innocent purchasers have subsequently intervened, to an extent creating an equitable bar to the granting of relief. The bill in this case does not show such a state of things. While stockholders, more or less in number, may be allowed to interpose, if they have the means or the inclination to take upon themselves the burden of such gigantic controversies as are involved in the railroad transactions of the present day, it would go far to legalize condonation of such transactions as are set forth in the bill, if mere knowledge by helpless stockholders of the fraudulent acts of their directors were to prevent the corporation itsfelf from seeking redress, if it act promptly when freed from the control of such directors. Frequently request- ing unfaithful directors to resign and employ other counsel. 1 Reported as Pacific R. R. Co. v. Ketcham, 101 U. S. 289. 584 CHAP. X.] COEPORATION AND OFFICERS. [§ 632. SO far from throwing on the stockholders the peril of losing their rights, represented by the company, if they do not per- sonally assert them in place of the directors, operates of itself, without more, only to aggravate the wrong. At the same time it by no means follows that parties who have become inte- rested in the plaintiff's corporation with knowledge of matters set forth in the bill, are entitled to the same standing as to relief with those who were interested in the corporation when the transactions complained of occurred."' § 631. Accordingly, when corporate officers have been guilty of a breach of trust towards the corporation, the Remedies latter may disaffirm the transaction, provided the of the cor- • 1 , n • , ■ 1 -, . I poration. rights 01 innocent outsiders do not intervene, and may hold the officers liable for damages f or without disaffirm- ing the transaction, may compel the officers to account, with interest, for any profits they have made.' The corporation can- not, however, adopt in part and in part repudiate an improper , transaction of its officers.^ And the right of a corporation to avoid a transaction on account of the fiduciary relations sus- tained towards it by the other party, must be exercised within a reasonable time after the facts connected therewith are known or could by due diligence have been ascertained." § 632. Of course, directors are not excluded from deriving profit from the corporate enterprise which is shared by the (other) shareholders; as, for instance, they directors to may receive their proportion of dividends. Directors poraMon. may also loan money to the corporation if the terms » Pacific R. R. of Missouri v. Pacific Mass. 415 (supra, § 629) ; Gaskell v. R'y. Co., Ill U. S. 505, 520. ' Com- Chambers, 26 Beav. 360; York, etc. pare Graham v. Boston, etc. R. R. R'y Co. v. Hudson, 16 Beav. 485; Co., 118 U. S. 162. Madrid Bank v. Pelly, L. R. 7 Eq. ' Ryan v. Leavenworth, etc. R'y 442; Parker v. McKenna, L. R. 10 Co., 21 Kan. 365. See also cases in Ch. 96 ; Buffalo, N. Y. and Erie R. last note but two. The receiver may R. Co. v. Lampson, 47 Barb. 533. sue. Curtis v. Leavitt, 15 N. Y. 10, * Great Luxembourg R'y Co. v. 44. See High on Receivers, § 316 Magnay, 25 Beav. 586; Second Na- and § 615. tional Bank v. Burt, 93 N. Y. 233. 'Parker v. Nickerson, 112 Mass. = Twin-Lick Oil Co. u. Marbury, 91 195; S. C, 137 Mass. 487; Green- U. S. 587. See Stewart v. Lehigh field Savings Bank v. Simons, 133 Valley R. R. Co., 38 N. J. L. 525. 585 § 633.] THE LAW OF PRIVATE CORPOEATIONS. [CHAP. X. are as favorable to the corporation as the most favorahle terms on which the directors could borrow money for it from out- siders.^ Thus, in Twin-Lick Oil Co. v. Marbury,^ the Federal Supreme Court held that there was no rule forbidding one director among several from loaning money to the corporation, if the money is needed and the transaction is open and otherwise free from blame ; and that he might purchase its property at a fair public sale, made by a trustee under a deed of trust executed to secure the payment of his debt. The property in controversy was oil land of a fluctuating value ; the director committed no actual fraud ; aijd at the time of the sale the shareholders knew all the facts, and refused to join him either in the purchase or in paying assessments on their shares. It was held, that four years afterwards, when by his skill and energy he had made the property profitable, the corporation could not have the sale set aside or an accounting for profits.' § 633. The facts of another important case were as follows : A., who at the time was the president of a railroad company, but not a shareholder, made advances to it in perfect good faith of eighty-one thousand dollars to aid it in constructing its road. At a meeting of the executive committee of the board, consist- ing of himself and two other directors, who were guarantors on a note to him for a portion of his claim, a resolution was passed directing the treasurer to deliver to him eight hundred and ten thousand dollars of its bonds as collateral security. This action the board subsequently sanctioned. The company afterwards became insolvent ; the trustee for the bondholders brought suit to foreclose the mortgage given to secure the bonds ; and on appeal taken from an order entered in the suit, determining the relative rights and priorities of certain of the bondholders, A. was allowed to prove his bonds to the full amount, and share in the distribution of the assets of the company to the extent of ' Campbell's Case, 4 Ch. D. 470; 701,720; Harts u. Brown, 77 111.226. Santa Cruz R. R. Co. w. Spreekles, 65 See Seely v. San Jos6 Mill Co., 59 Cal. 193; Sutter St. R. R. Co. v. Cal. 22; llumphrey v. Patrons Mer- Baum, 66 Cal. 44. cantile Assn., 50 Iowa, 607; Hill v. 2 91 U. S. 587. Nisbet, 100 Ind. 341 ; Lusk's Appeal, ' Accord, Addison v. Lewis, 75 Va. 108 Pa. St. 152. 586 CHAP. X.] CORPORATION AND OFFICERS. [§ 633: its real indebtedness to him.* On a former appeal of the same case, Judge Finch said : " Where the trustee's act consists, not in possessing himself of the property of the beneficiary as owner, but in taking collateral security for a debt hpnestly due him or a liability justly incurred, the rule [that the beneficiary may as of course avoid the contract] can have no application, since the. payment of the debt or the discharge of the liability is an essen- tial prerequisite of the avoidance. And this is true whether the pledge is taken for a present or precedent debt."^ N^evertheless, in the appeal, from which the preceding cita- tion is taken, it is said that as a general rule a director buys corporate bonds below par only at the peril of thfeir avoidance by the courts at the suit of the corporation.^ Yet it has been, held that the treasurer of a corporation may with his own money purchase its notes at a discount and collect their face value from the corporation, provided that at the time of the purchase he was under no duty to the corporation to purchase or pay the notes in its behalf.* But it has also been held that directors cannot, when the corporation is insolvent, buy up 1 Duncomb v. New York, H. and N. R. R. Co., 88 N. Y. 1. 2 Duncomb v. New York, H. and N. R. R. Co.,84N. Y. 190, 199. Seealso Budd V. Walla Walla Printing Co., 2 Wash. Ter. 347 ; Harpending v. Mun- son, 91 N. Y. 650. The lapguage here of the learned judge, perhaps, is somewhat broad. The money loaned may indeed have been advanced in good faith for the benefit of the corpo- ration ; but under some circumstances, to force the corporation to pay its debt before demanding back its security, might be very oppressive. In the case in the text, the court laid stress on the fact that the security taken was not under the circumstances excessive ; and that the corporation was not insol- vent at the time it was taken. Com- pare Hope V. Valley City Salt Co., 25 W. Va. 789. " Duncomb v. New York, H. and N. R. R. Co.,84N.Y. 190. Ifadirector, by agreement with his co-directors^ take, directly from his company, its bonds below par on his private account and sell them at an advance; he may be compelled to account for the profits for the benefit of the corporation, its shareholders, or creditors ; and this although he acted in good faith. Widrig V. Newport Street Ry. Co., 82 Ky. 511. But when suit is brought to foreclose a mortgage made to se- cure bonds issued to directors, they will not be declared void at the in- stance of a subsequent lienor, when the corporation does not defend. Bassett v. Monte Christo M. Co., 15 Nev. 293. « St. Louis, etc. R. R. Co. v. Wal- ler, 36 Kan. 51. 587 § 635.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. claims against it at a discount, and then prove them at their face on the winding up of the corporation.' A§ 634. The following rules regarding loans to a corporation from its officers seem deducible from the preceding and other cases. Directors or other officers may, when they honestly ' deem it for the interest of the corporation to borrow,' advance it money on terras as favorable as any on which they could have procured the money for it from other sources ; and they may take from the corporation security for their loan.' But they cannot — at least when the corporation is insolvent — take advantage of their inside position to secure their existing debts to the injury of other creditors of the corporation ;* and no more in recovering their debts or enforcing their security than in the original transaction of loaning the money, can they dis- regard the interests of the corporation.' Under such circum- stances not only may they not avail themselves of their control over the aftairs of the corporation to oppress it, but they can- not make unconditional and unrestricted use of legal means open to outside creditors.* § 635. Exceedingly difficult and complicated questions arise in regard to transactions in which corporate officers, while per- sonally interested adversely to their corporation, contract on its behalf with outsiders, whose interests in the transaction may be the same as the personal interests of the contracting officers ; ' Lingle v. Nat. Ins. Co., 45 Mo. (Super. Ct. of Iowa), 21 Am. Law 109 ; In re Imperial Land Co., Ex Reg. N. S. 443. parte Larking, 4 Ch. I). 566 ; Patrick ^ See Hallam v. Indianola Hotel V. Boonville Gas Light Co., 17 Mo. Co., supra. In matters in no way re- App. 462. See § 759. Compare In- lating to his official position, however, glehartu. Thousand Islands Hotel Co., a director may sue a corporation just 32 Hun (N. Y.), 377. as a shareholder or any other person 2 See Harts v. Brown, 77 111. 226. having a cause of action against it. » But if the terms of the loan, the Burbank v. West Walker Ditch Co., rate of interest and security taken, are 13 Nev. 481. And it has been held oppressive or exorbitant, they may be that a Director can plead to a recovery disaffirmed by the corporation and of interest on a loan from his bank to set aside on repayment of the amount himself, that the interest was agreed loaned with legal interest. Sutter on in contravention of the National Street K. R. Co. v. Baum, 66 Cal. Banking Act. Bank v. Slemmons, 34 44. Ohio St. 142 ; compare Lester v. * See § 759. Howard Bk., 33 Md. 558. ' Hallam v. Indianola Hotel Co. 688 CHAP. X.] CORPORATION AND OFFICERS. [§ 637. and also in regard to transactions in which the same officers act for two adversely interested corporations. § 636. Every person, even though he act in good faith, is affected with notice of the general rule of law that t ,.^.. j_ I'll. Invalidity an otncer cannot bind his corporation by a contract of trans- in which he is personally interested. Thus, a general fn which authority to a bank president to certify checks drawn cers°^e on it, does not extend to checks drawn by himself, interested. Consequently, the face of the check showing the president's attempt to use his official character for his private interest, every one taking it is put on his inquiry ; and when the certi- fication is false, no one can, as a bona fide holder of the check, recover against the bank on the certification.* Accordingly, the first question will ordinarily be, did the person contracting with the corporation through its officers, know, or have reason to know, that in the same transaction the officers were personally interested in a way that might lead them to regard their own interests rather than those of the cor- poration? If this be answered in the negative, and the other contracting parties acted in good faith, they will be protected, having acted on the reasonable assumption that the corporate officers were not violating their duty.' § 637. In many cases of this nature, however, that have come before the courts, the outside parties have occupied no such favorable and honest position ; but have acted with their eyes only too open, and often have actively combined with the officers to defraud the corporation. Under such circumstances, they will be liable to account to the corporation equally with its guilty officers.' ' Claflin V. Farmers and Citizens' When a board of iliining directors Bk., 25 N. Y. 293. See also West lease a mine to a party acting in the St. Louis Bank v. Shawnee County interests of the minority of share- Bank, 95 U. S. 557 ; McKee v. Grand holders, in order to withdraw it from Kapids, etc. Ry. Co., 41 Mich. 274. the control of a board about to be ^ Genesee Savings Bank v. Michigan elected, and thereby perpetuate the Barge Co., 52 Mich. 438. See § 204. control of the minority, the corpora- ' Ryan u. Leavenworth, etc. R'y tion may set the lease aside by a bill in Co., 21 Kan. 365 ; see also Kersey Oil equity. Mahany Mining Co. v. Ben- Co. V. Oil Creek, etc. R. R. Co., 12 nett, 5 Sawyer, 141. A court of Phila. (Pa.) 374. equity, however, will not set aside 589 § 639.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. Thus, in an English case, the plaintiff, a stock company, made with the defendant, also a stock company, a contract which gave the plaintiff the option of having a telegraph cable manufactured and laid by the defendant; the cable to be paid for in instalments, payable, after the first, as the work was certified to by the plaintiff's engineer. The option was exer- cised, and the first instalment paid to the defendant, the plaintift' also paying a commission to its own engineer. It then discovered that its engineer had a secret sub-contract with the defendant company to lay the cable himself. The court held the plaintiff entitled to have the contract set aside, and the instalment and commission returned to it.' § 638. In the United States it is not uncommon for the directors of a railroad company, whose road is in construe- process of construction, to join with other persons in tion com- formina; a construction company: and then, on behalf panics. '^ 1. J ^ J of their railroad, make contracts with the construc- tion company most favorable to the latter and themselves. Such dishonest transactions the courts will set aside, and by compelling accountings for profits, or awarding damages against the guilty directors, restore, as far as possible, the railroad company to its property and rights.^ Under such circumstances, it is not necessary for the railroad corporation to prove actual fraud, or that the transaction was against its interefet.^ § 639. Wardell v. Railroad Co.'^ is a leading and instructive case in connection with this subject. There the president of the Union Pacific Railroad, by order of the executive com- mittee of the board of directors, entered into a contract to allow these improper contracts at the suit of v. Brownsville, etc. K'y Co., 1 Mc- parties (shareholders and directors) to Crary, 392. See Abbot v. American them. Weed v. Little Falls, etc. E.. Hard Rubber Co., 83 Barb. 678. R. Co., 31 Minn. 154. » Gillman, etc. R. R. Co. v. Kelly, ■ Panama, etc. Telegraph Co. v. 77 111. 426. Compare Union Pac. R. India Rubber, etc. Telegraph Works R. Co. u. Credit Mobilier, 135 Mass. Co., 32L. T. N. S. 517. 367. ' Ryan v. Leavenworth, etc. R'y * 103 U. S. 651. See also Union Co., 21 Kan. 365 ; Gilman, etc. R. R. Pacific R. R. Co. v. Credit Mobilier, Co. V. Kelly, 77 111. 426 ; Wardell v. 135 Mass. 367, 376. Railroad Co., 103 U. S. 651 ; Thomas 590 CHAP. X.] CORPOKATION AND OFFICERS. [§ 640. one Wardell and another to work coal lands belonging to the company, agreeing that the railroad company would purchase coal of them for fifteen years at prices which secured them high profits. Thereupon a coal company was formed, in which six of the railroad directors owned a majority of stock, and, in pur- suance of a previous secret arrangement, the contract was as- signed to it without consideration. The court held the contract a fraud on the railroad company, and that Wardell could sus- tain no claim against that company for its repudiation of the contract. "All arrangements by directors of a railroad com- pany, to secure an undue advantage at its expense, by the for- mation of a new company as auxiliary to the original one, with an understanding that thfey, or some of them, shall take stock in it, and then that valuable contracts shall be given it, in the profits of which they, as stockholders of the new com- pany, are to share, are so many unlawful devices to enrich themselves to the detriment of the stockholders and creditors of the original company, and will be condemned whenever pro- perly brought before the courts for consideration."' § 640. The class of cases just discussed must carefully be dis- . tinguished — and this in practice will often be most Transac- diflEicult — from cases which have arisen concerning ^™gh°fH. contracts between two corporations, the validity of cers act for which is contested on the ground that some of the verseiy in- officers of one corporation are officers of the other. co^pora- These latter contracts may be set aside on the *'™^' ' Wardell v. Railroad Co., 103 U. forced, nor the bonds either, -which S. 651, 658. Opinion of the court per had not come into the hands of inno- Justice Field. In a later case in the cent holders for value. But the court Federal Supreme Court, the directors also held that the shareholders seeking of a railroad had made a contract, in equity must do equity, and that the which two of them were personally in- bondholders were entitled to be reim- terested, for the construction of the bursed the sums which they had ac- road, and had issued the bonds of the tually expended, and to be paid the company to the contractors ; suit was fair value of their services and mate- brought to foreclose the mortgage made rials furnished ; this value, however, to secure the bonds, and the corpora^ not to be estimated by the prices men- tion allowed judgment to be taken tioned in the contract. Thomas v. againstitbydefault. Thereupon certain Brownville, etc. RE. Co., 109 U. S. shareholders intervened, and the court 522. held that the contract could not be en- 591 § 642.] THE LAW OF PKIVATE CORPORATIONS. [CHAP. X. ground of fraud like other contracts,* and to saj that they are especially open to the suspicion that one corporation has been unfavorably favored at the expense of the other, is perhaps not going too far. Moreover, a contract of this character is void- able if the common officers making it have personal interests in the transaction which decidedly lead them to favor one rather than the other of the contracting parties.* But in such case the contract would be set aside, not on the ground that a com- n)on agent represented two principals, but because it is a con- tract in which he was personally interested. § 641. Another preliminary consideration to be borne care- fully in mind is that the acts and declarations of the agent while acting as the agent of one of the corporations can create, at least in favor of that corporation, no estoppel binding on the other corporation, whom he may also represent.' Likewise, that the two companies have some common directors or a com- mon solicitor, does not affect one company with notice of acts done or knowledge possessed by the common directors or solici- tor as directors or solicitor of the other company.* § 642. It may be asserted with nearly as much safety as will attend the assertion of auj exceedingly general negative legal proposition, that there is no rule of law preventing an agent from representing and binding two adverse principals in the same transaction. For instance, the same person acting as broker may bind both buyer and seller by a bought and sold note," and at auctions the auctioneer may be the ageift of both parties.^ There is no presumption that the common agent of two adverse principals will act unfairly towards either.' ' See, especially on this point, Good- * In re Marseilles Extension K'y in y. Cincinnati, etc. Canal Co., 18 Co., 20 W. R. 254 ; DeKay v. Hack- Ohio St. 169, cited at length in § 559. ensack Water Co., 38 N. j. Eq. 158. ' Gallery v. Nat. Exchange Bk., 41 Compare Kersey Oil Co. v. Oil Creek, Mich. 169. Compare San Diego v. etc. R. R. Co., 12 Phila. (Pa.) 374; San Diego, etc. R. R. Co., 44 Cal. 106. see also § 210. » Pennsylvania R. R. Co.'s Appeal, « Butler v. Thomson, 92 U. S. 412. 80 Pa. St. 265. In such cases it may ^ Pughw. Chesseldine, 11 Ohio, 109, be often difficult to determine for 123. whom the agent was acting when he ' Adams Mg. Co. v. Senter, 26 made the declaration, but it is safe to Mich. 73 ; Booth v. Robinson, 55 Md. assume that under such circumstances 419. See Clark v. Trust Co., 100 U. no court would favor an estoppel. S. 149. 592 CHAP. X.] CORPORATION AND OFFICERS. [§643. Accordingly, one agent may validly act for two adversely in- terested corporations in the same transaction, provided there is no improper concealment of the double agency.* On behalf of one company he may sell, and on behalf of the other buy the same property.* And it has been expressly decided in more than one state after full consideration, that a contract between two corporations, made by their respective boards of directors, is not invalidated or rendered voidable at the election of one of the parties thereto, from the mere circumstance that a minority of its board of directors are also directors of the other com- pany.' § 643. In United States Eolling Stock Co. v. Atlantic and Gt. Western R. R. Co., it was said by Judge Boynton, giving the opinion of the Supreme Court of Ohio :* " We have not,' upon the most diligent research, been able to find a case hold- ing a contract made between two corporations by their respec- tive boards of directors invalid, or voidable at the election of one of the parties thereto, from the mere circumstance that a minority of its board of directors are also directors of the other company, nor do we think such a rule ought to be adopted. There is no just reason, where a quorum of directors, sustain- ing no relation of trust or duty to the other corporation, are present participating in the action of the board, why such ac- tion should not be binding upon the company, in the absence of such fraud as would lead a court of equity to undo or set aside the transaction. If the mere fact that a minority of one 'Bradley v. Richardson, 23 Vt. 135 Mass. 367, 377; Wallace u. Long 720; Chicago and N. W. R. R. Co. Island R. R. Co., 12 Hun (N. Y.), V. Northern Line Packet Co., 70 III. 460. Accord, Foster v. Oxford, etc. 217. Ry. Co., 13 C. B. 200, 203. But see, ' Adams Mining Co. v. Senter, 26 semhle, contra, San Diego v. San Mich. 73. But see San Diego v. San Diego, etc. R. R. Co., 44 Cal. 106, Diego, etc. R. R. Co., 44 Cal. 106 ; a case in which, it seems to the writer, Memphis K. and C. R. R. Co. v. the personal interests of the common Parsons Town Co., 26 Kan. 503, 509. agent decidedly leaned towards one of ' United States Rolling Stock Co. his adversely interested principals; V. Atlantic and Gt. Western R. R. also Bill r. Western Un. Tel. Co., 16 Co., 34 Ohio St. 450; Mayor, etc. of Fed. Rep. 14; Ashuelot R. R. Co. Griffin V. Inman, 67 Ga. 370 ; see also v. Elliot, 57 N. H. 397. Booth V. Robinson, 55 Md. 419 ; Union * 34 Ohio St. 460, 466. Pacific R. R. Co. v. Credit Mobilier, 38 593 § 645.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. X. board are members of the other gives the company an option to avoid the contract without respect to its fairness, the same result would follow where such minority consisted of but one person, and notwithstanding the board might consist of twenty or more. In our judgment, where a majority of the board are not adversely interested, and have no adverse employment, the right to avoid the contract or transaction does not exist with- out proof of fraud or unfairness ; and hence the fact that five of the defendant's board of directors were members of the plaintiff's board, whatever may have been its effect on the de- fendant's right to disaffirm or repudiate the contract, if exer- cised within a reasonable time, did not disable the defendant from subsequently affirming the contract if satisfied with its terms, or rejecting it if not, nor did it relieve it from the duty to exercise its election to avoid or rescind within a reasonable time, if not willing to abide by its terms." § 644. It will be noticed that the cases last referred to are hardly authority for the proposition, that it is competent for respective boards of directors to bind adversely interested cor- porations in the same transactions, when a majority of each board are members of both boards. But there is no authority against this if the contract is in other respects free from sus- picion.' Still, under such circumstances, it would be advisable for the directors to procure a ratification of their action from duly summoned meetings of the respective bodies of share- holders, before whom all the circumstances of the transaction should 'be laid bare. § 645. So far the discussion has been of the duties of directors. Directors' "^^^^ have, howevcr, certain rights : and, in the first authority; place, the right or authority, within the scope of their right \ . -,. . toindemni- their discretionary powers, to manage the corporate affairs in accordance with their sound discretion, exempt from any interference, except perhaps the controlling action of a majority of shareholders in a corporate meeting,' 1 Goodin V. Cincinnati, etc. Canal Tel. Co., 16 Fed. Rep. 14; and com- Co., 18 Ohio St. 169, is not opposed pare Wallace v. Long Island K. R. to this ; the contract there was highly Co., 12 Hurt (N. Y.), 460. unfair and fraudulent. See chap, 9, ' See Railway Co. v. Ailing, 99 U. § 559. Still, see Bill v. Western Un. S. 463 ; Elkins w. Camden, etc. R. R. 594 CHAP. X.] COBPOKATION AND OFFICERS. [§ 645. Further, they have aright to be indemnified by the corpora- tion from any personal liability which may attach to them by reason of proper acts on their part ; or which they may have with propriety assumed on its behalf while acting within their authority.' The English courts have gone further. . In JSx parte Chippendale^ it was decided that when directors who had no authority to borrow money on behalf of the company did in fact borrow money and make advances themselves in good faith, and apply it all to the benefit of the company, they were entitled, having themselves repaid the money borrowed, to be reimbursed by the shareholders the whole amount borrowed and advanced. The equities of the directors were very strong in this case ; the money was urgently needed to prevent great loss to the company, iand the shareholders were kept informed of the transactions. This decision, however, was used as a precedent in cases going beyond it,* till the danger of extending its principles was recognized by the courts, and their applicar tion restricted to cases where money had been applied to the discharge of debts for which the company was liable.* It is obvious that any extension of the doctrine of Sx parte Chip- pendale is incompatible with the security of persons interested in the corporate funds ; for the liability of these funds to the directors for moneys expended or liability assumed by them would thereby become measured not by the authority which the directors had received, but only by their discretion. It is Co., 36 N. J. Eq. 241 ; § 684. When trustees they are entitled to be indem- the management of the business is by nified by the company from all losses statute confided to the directors, the and expenses &ona _/S(/€ sustained and corporation cannot by a vote join an- incurred by them in the exercise of the other officer who is not a director with trust imposed on them." 2 Lindley them, or compel them to act with him on Part. 760. in managing its business. Charleston * 4 De G. M. & G. 19. Boot, etc. Co. V. Dunsmore, 60 N. H. ' See In re Norwich Yarn Co., Ex 85. farte Bignold, 22 Beav. 143 ; In re ' See In re Court Grange Mg. Co. Nat. Patent Fuel Co., Baker's Case, Ex parte Sedgwick, 2 Jur. N. S. 494. 1 Dr. & Sm. 54; Troup's Case, 29 " As members they [directors] are en- Beav. 353; Hoare's Case, 30 Beav. titled to contribution in respect of such 225. debts and liabilities of the company as * See In re Natl. Bldg. Soc'y, Ex they may be compellable or have been parte Williamson, L. E. 5 Ch. 309. compelled to pay ; and as agents and § 647.] THE LAW OF PRIVATE CORPORATIONS. [chap. X. Compensa- tion of di- rectors, and other agents. certainly safer to adhere to the " sensible rule that agents are not entitled to any indemnity from their principals in respect of unauthorized expenditures."' § 646. In the absence of some express provision in the con- stitution or by-laws of the corporation, a director is not entitled to any compensation for his official ser- vices.^ He cannot recover on a quantum meruit for his services as director;' and, moreover, to entitle him to compensation, the by-law or resolution providing for his compensation must have been passed before his services as director were rendered.* Because a subsequent vote to pay a director for his official services is without consideration, and he cannot recover on it against the corporation.* § 647. ]!feither can a president recover for his services as such except under the same circumstances and conditions as an ordinary director.* But a director, or a president, who renders services outside of the scope of his regular duties, may, accord- * 2 Lindley on Part. 765; where (pp. 760-768) will be found an inte- resting discussion of these cases. See also In re Worcester Corn Exchange Co., 3 De G. M. & G. 180; Ex parte Cropper, 1 De G. M. & G. 147. * Illinois Linen Co. v. Hough, 91 111. 63 ; American Central R'y Co. v. Miles, 52 111. 174 ; Maux Ferry Gravel Koad Co. V. Branegan, 40 Ind. 361 ; Smith 17. Putnam, 61 N. H. 632. » Citizens' Nat. B'k v. Elliott, 55 Iowa, 104 ; see cases in preceding note. * Lafayette, etc. R'y Co. v. Chee- ney, 87 111. 446 ; S. C, 68 111. 570. Compare Barstow v. City R. R. Co., 42 Cal. 465. ° Loan Ass'n v. Stonemetz, 29 Pa. St. 534 ; see Carri7. Chartiers Coal Co., 25 Pa. St. 337. Directors cannot make themselves allowances for their services. . Maux Ferry Gravel Road Co. V. Branegan, 40 Ind. 361 ; Gard- . ner v. Butler, 30 N. J. Eq. 702, 721 ; Blatohford v. Rose, 54 Barb. 42; 596 Jones V. Morrison, 31 Minn. 140 ; see Butts V. Wood, 37 N. Y. 317. Di- rectors cannot fix their own salaries as president, secretary, etc. Kelsey v. Sargent, 40 Hun (N. Y.), 150; Ben- nett V. St. Louis Car Roofing Co., 19 Mo. App. 349. "Trustees" of benefit associations cannot vote themselves back pay. State V. Benefit Association, 42 O. St. 579. ^ Holland v. Lewiston Falls B'k, 52 Me. 564 ; Kilpatrick v. Penrose Ferry Bridge Co., 49 Pa. St. 118; Sawyer V. Pawner's Bank, 6 Allen, 207 ; Mer- rick V. Peru Coal Co.^ 61 111. 472; Gridley v. Lafayette, etc. R'y Co., 71 III. 200 ; Emporium Real Estate Co. V. Emrie, 54 111. 345; Santa Clara M'g Ass'n V. Meredith, 49 Md. 389 ; Citizens' Nat. B'k v. Elliott, 55 Iowa, 104. Same principles held to apply to a treasurer in Kilpatrick v. Penrose Ferry Bridge Co., sujira; Holder v. Lafayette, etc. R'y Co., 71 III. 106. CHAP. X.] CORPORATION AND OFFICERS. [§' 648. ing to a number of decisions, recover the fair worth of such services in the absence of any resolution providing for his com- pensation.i Agents and servants of the corporation, other than the directors, president, and perhaps treasurer, may recover the value of their regular or extraordinary services on a quantum meruit? § 648. It has recently been held in Ifew York that when a life insurance company has contracted with a person to act as its general agent for a stipulated number of years at a specified yearly salary, and the company is dissolved by the action of the state, and its affairs placed in the hands of a receiver, before the expiration of the term for which the agent was hired, he cannot recover from the funds in the hands of the receiver his stipulated salary for the unexpired term of service, as datnages for not continuing the employment. The contract was ended with the corporate dissolution by the action of the state, a contingency which the parties on contracting were held to have contemplated ; and was not broken by the company itself.^ ' Santa Clara M'g Ass'n v. Mere- dith, 49 Md. 389 ; Cheeney v. La- fayette, etc. R'y Co., 68 111. 570; S. C, 87 111. 446 ; Rockford, etc. R. R. Co. V. Sage, 65 III. 328 ; Jackson v. New York Central R. R. Co., 2 T. & C. (N. Y.) 653 ; Gardner v. Butler, 30 N.J. Eq. 702,.721 ; Shackelford u. New Orleans, etc. R. R. Co., 37 Miss. 202 ; Citizens' Nat. B'k v. Elliott, 55 Iowa, 104 ; Rogers u. Hastings, etc. R'y Co., 22 Minn. 25 ; Missouri River R. R. Co. V. Richards, 8 Kan. 101. See Henry v. Rutland, etc. R. R. Co., 27 Vt. 435 ; Hodges v. Same, 29 Vt. 220. Contra, Levisee v. Shreveport City R. R. Co., 27 La. Ann. 641 ; Pew 17. Gloucester Nat. B'k, 130 Mass. 391. ^ E. g , a. superintendent can. Bee V. San Francisco, etc. R. R. Co., 46 Cal. 248 ; or a secretary, who is not a trustee, or stockholder. Smith v. Long Island R. R. Co., 102 N. Y. 190. Compare Eagle, etc. M'fg Co. V. Brown, 58 Ga. 240. A corporation may agree to pay an agent for his labor in obtaining stock subscriptions. Cincinnati, I. and C. R. R. Co. V. Clarkson, 7 Ind. 595. Or for such services a person may re- cover on an implied promise. Hall v. Vermont and Mass. R. R. Co., 28 Vt. 401 ; Low V. Connecticut, etc. R. R. Co., 45 N. H. 370. A treasurer, secretary, or cashier is prima facie entitled to compensation ; but if he agrees to perform the services gratis, this controls. First Nat. B'k «. Drake, 29 Kans. 311. In the absence of ex- press agreement, a treasurer is not en- titled to compensation for indorsing notes of his corporation, so that they can be discounted. Parker v. Nick- erson, 137 Mass. 487. ' People V. Globe Mutual Ins. Co., 91 N.'Y. 174. 697 § 650.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. X. § 649. Whether, by whom, and on what grounds a corporate officer may be removed from office is not settled by offl"°r7^°^ the authorities.' That his original election was invalid is undoubtedly a good ground.'' But this ground has nothing to do with the good or bad conduct of the officer himself; and invalidates his original title. Undoubtedly, agents who hold office merely at the pleasure of superior officers may be removed by the latter; and without cause.* And the by-laws may, and, to avoid controversy, certainly should provide for removals from office.* § 650. "Whatever implied power to remove officers for cause there may be in a corporation; would seem to exist in that body which appointed or elected the officer in question. Thus very likely any officer appointed by the board of directors or trustees could for cause be removed by them from the office to which they had appointed him. But a board of directors has no implied power, it would seem, to remove one of their own number, even for cause; or exclude him from taking part in their proceedings.* It would seem, however, that for good grounds the majority of shareholders in a duly summoned meeting of the corporation should be competent to remove a director. But in the ordinary case of directors elected annually to serve for a year, there is no power in the corporation to remove them arbitrarily before the expiration of their term of office.' ■ In Angell and Ames on Corp., §§ 425 * See § 808. et seq., is given a summary of the ^ Imperial Hydropathic Hotel Co. causes that have been held grounds v. Hampson, 23 Ch. Biv. 1. Officers for removing officers of municipal cor- of a corporation who, on the expiration porations. How far these cases might of their term of office, refuse to de- be held applicable to stock corporations liver to their successors its books, etc., is a question. may be compelled by mandamus. 2 See §§ 577-581. Fasnacht v. German Literary Ass'n, ^ Hunter v. Sun Mutual Ins. Co., 99 Ind. 183. In Ward v. Davidson, 26 La. Ann. IS. 89 Mo. 445, directors were removed * See Hunter v. Sun Mutual Ins. by the court for misconduct. Co., supra. 598 CHAP. XI.] CORPORATION AND CREDITORS. [§ 651. CHAPTER XI. LEGAL RELATIONS BETWEEN THE CORPORATION AND ITS CREDITORS. How they arise. General view, §§651, 652. Creditors have no voice in the corpo- rate management, § 653. Corporate assets a trust fund for credi- tors, §§ 654, 655. Creditors may follow them, § 656. Transfer of assets to. a new corpora- tion, § 657. Right of creditors to restrain their misapplication, §§ 658, 659. Rights of creditors regarding debts due the corporation. Unpaid stock sub- scriptions, §§ 660, 661. Creditors may enjoin wrongs threaten- ing the corporation, § 662. Creditors of an insolvent corporation not entitled to a receiver as a matter of course, § 663. Creditors cannot prevent dissolution, §664. Nor alteration of charter ; nor consoli- dation. Survival of creditors' lien, §665. Liability of consolidated corporation, § 666; Liability of corporation succeeding the debtor corporation, § 667. Insolvent assignments, § 668. Relative rights of creditors, § 669. Set-off, § 670. Corporate property, when exempt from execution, § 671. Relations between a bank and deposi- tors, § 672. Lien of bank, § 673. Bondholders, § 674. Equitable mortgages, § 675. Railroad mortgages. Rolling stock, § 676. Invalid provisions in corporate securi- ties, § 677. Maj' not invalidate the securities, § 678. Corporate bonds negotiable, § 679. Coupons, § 680. Rights of bondholders, § 681. Remedies of bondholders, § 682. § 651. The legal relations between a creditor and the corpo- ration are oecasioned. either by a contract binding on the latter, or by a tort for which it is responsible. f^"J^ *''®^ Before the claims of a creditor arise, and during the General transaction itself on which his claims are based, the creditor is simply an outsider towards whom the corporation, or the corporate agent* with whom the creditor contracts, owes no duty not due to members of the public at large. Arid creditors will rarely have any standing in court to object to 1 See 8S 752-755. 599 § 653.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XI. acts of the corporation done before their claims arose.' From the moment, however, that a person becomes a creditor, the corporation owes it to him to satisfy his claim from the- corpo- rate funds, and is under a duty towards him which he may enforce, not to waste the corporate funds, or divert them from the purposes for which they were set apart, so as to prevent the satisfaction of his claim. From that moment the corporation, having in charge funds in regard to which the creditor has rights, occupies, because it has such funds in charge,^ a position of trust towards him. Moreover, when subsequently the corpo- ration or its representatives deal with persons who are not yet creditors, they represent the creditors, whose rights have already arisen, to this extent, that the rights of the latter in the corporate funds are ordinarily bound by the acts of the corporation or its representatives.^ § 652. The classes and legal characteristics of the acts which are binding on the corporation, as representative of the interests of all persons in the corporate enterprise, are discussed in Chap- ter VII., the chapter devoted to the treatment of the effect of acts done by or on behalf of a corporation in occasioning legal relations between it and persons with whom it deals. The present chapter is taken up with the discussion of the rights of creditors who by some transaction have acquired a valid claim on the corporate funds. § 653. The corporate constitution specifies, among other things, the objects of incorporation, to which the have no'^^ Corporate funds are to be applied. To the applica- corporat?" *^^" °^ *^® Corporate funds to these objects in accord- manage- ance with the constitution a creditor cannot obiect. As long as the affairs of the corporation are being car- ried on in good faith and in accordance with the constitution, a creditor cannot interfere in the corporate management.* ' When a corporation, solvent at ' See § 525; also Railway Co. v. the time, with no actual intent to de- Ailing, 99 U. 8. 463. fraud its creditors, conveys its lands * This is the general rule. But for an inadequate consideration, its nowadays bondholders are sometimes subsequent creditors cannot question expressly accorded the right to vote., the transaction. Graham v. Kailroad The eflFect of such a stipulation remains Co., 102 U. S. 148. open for adjudication. « See §§ 41-47. 600 CHAP. XI.] CORPORATION AND CREDITORS. [§ 655. § 654. It is not to be inferred, however, that the only rights of a general creditor are to sue for his debt, and, on recovery of a judgment, levy a fruitless execution on Corporate the departed funds of an insolvent corporation. He " trust- has many important rights, all more or less based oii or creditors' related to the fundamental doctrine that the purposes ^ for which corporate funds are set apart include the payment of the corporate indebtedness ; and that for this, among other pur- poses, these funds are held in trust. § 655. There seems to be no longer the slightest question as to the firm establishment of this doctrine. It was first formu- lated by Justice Story in "Wood v. Dummerj where the learned justice said :* " It appears to me very clear, upon general prin- ciples, as well as the legislative intention, that the capital stock of banks is to be deemed a pledge or trust fund for the payment of debts contracted by the bank. The public as well as the legislature have always supposed this to be a fund appropriated for such purpose. The individual stockholders are not liable for the debts of the bank in their private capacities. The charter relieves them from personal responsibility, and substi- tutes the capital stock in its stead. Credit is usually given to this fund by the public as the only means of repayment. Dur- ing the existence of the corporation it is > the sole property of the corporation, and can be applied .only according to the charter ; that is, as a fund for the payment of its debts, upon the security of which it may discount and circulate notes. Why otherwise is any capital required by our charters ? If the stock may the next day after it is paid in be withdrawn by the stockholders without payment of the debts of the corporation, why is its amount so strenuously provided for, and its payment by the stockholders so diligently required ? To me this point appears so plain upon principles of law as well as common sense, that I cannot be brought into any doubt that the charters of our banks make the capital stock a trust fund for the payment of all the debts of the corporation." Again, in Sanger v. Upton, giving the opinion of the Federal Supreme Court, Justice Swayne said:^ "The capital stock of ' 3 Mason, 308, 311. ' 91 U. S. 56, 60. 601 § 656.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XI, an incorporated company is a fund set apart for the payment of its debts. It is a substitute for the personal liability which subsists in private co-partnerships. When debts are incurred, a contract arises with the creditors that it shall not be with- drawn or applied, otherwise than upon their demands, until such demands are satisfied. The creditors have a lien upon it in equity. If diverted they can follow it as far as it can be traced, and subject it to the payment of their claims, except as against holders who have taken it bona fide for a valuable con- sideration, and without notice. It is publicly pledged to those who deal with the corporation for their security. Unpaid stock is as much a part of this pledge, and as much a part of the assets of the company, as the cash which has been paid in upon it. Creditors have the same right to look to it as to anything else, and the same right to insist upon its paj'^ment as upon the payment of any other debt due the companj'."' § 656. If the corporate funds are trust funds for the discharge of the corporate indebtedness, it follows on weil- Creditors y i • • ^ f ... may follow grounded principles or equity jurisprudence, that the * ®'"' beneficiaries of the trust, shareholders or creditors, can claim such funds in the hands of any one who has not i^n good faith given value for them without notice of a violation of the trust." And, moreover, every one receiving corporate ' Accord, Bartlett u. Drew, 67 N. Y. made by any association, while it con- 587 ; Hastings v. Drew, 76 N. Y. 9 ; tinues its banking operations, to an County of Morgan «. Allen, 103 U. S. amount greater than its net profits then 498; Lee «. Imbrie, 13 Oreg. 510; on hand, deducting therefrom its losses Lane's Appeal, 105 Pa. St. 49, and and bad debta." U. S. Rev. Stat., cases in succeeding notes. § 5204. The doctrine is sometimes embodied * The property of a corporation " is in a statute. " No association, or any so far as regarded in the nature of member thereof, shall during the time trust property that it can be recovered it shall continue its banking operations by the company from any person who withdraw or permit to be withdrawn, has obtained it from the directors with either in the form of dividends or notice that they are acting beyond otherwise, any portion of its capital, their powers." 2 Lindley on Part., If losses have at any time been sus- 593. See Bryson v. Warwich, etc. tained by any such association, equal Canal Co., 4 De G. M. & G. 711 ; to or exceeding its undivided profits Ernest v. Groysdill, 2 De G. F. & J. then on hand, no dividend shall be 175; Hardy v. Metropolitan Land, made; and no dividend shall ever be etc. Co., L. R. 7 Ch. 427. 602 CHAP. XI.] CORPORATION AND CREDITORS. [§ 657. funds knowing them to be such, is affected with notice of the purposes for which they are held in trust. That corporate funds may be tracked by creditors into the hands of any person to whom they have been transferred without consideration is a proposition supported unanimously by the authorities.* § 657. Accordingly, a corporation cannot place its assets beyond the i-each of its creditors, merely by going through a process of re-incorporation, taking a new asT°a^to °^ name, transferring without consideration the assets newcorpo- of the old corporation to the new one, and issuing shares in the capital stock of the new corporation to holders of shares in the capital stock of the old.^ And if the shareholders of one corporation organize anothep, and transfer to it all the property of the former without paying the former's debts, the obligations of the old company may be enforced against the new one to the extent of the assets transferred to it.^ It is held, however, that before a creditor has a standing in court to inquire into a transfer of assets made by his debtor corporation he must have obtained judgment against it.* ' Wood V. Dummer, 3 Mason, 308 ; Wright V. Petrie, 1 Sm. & M. Ch. (Miss.) 5i82 ; Marr v. Bank of West Tennessee, 4 Coldw. (Tenn.) 471 ; Tinkliam v. Borst, 31 Barb. 407; Goodwin v. McGehee, 15 Ala. 232; Jones V. Arkansas Mechanical Co., 38 Ark. 17; Union Nat. Bank v. Doug- lass, 1 McCrary, 86. See Curran v. State, 15 How. 304, 307; Railroad Co. V. Howard, 7 Wall. 398, 409. Montgomery, etc. K. R. Co. v. Branch, 69 Ala. 139. » San Francisco, etc. R. R. Co. v. Bee, 48 Cal. 398. ' Hibernia Ins. Co. v. St. Louis, etc. Transportation Co., 13 Fed. Rep. 516; Booth v. Bunce, 33 N. Y. 139 ; Barclay v. Quicksilver M'fg Co., 9 Abb. Pr. N. S. (N. Y.) 283 ; Same V. Same, 6 Lans. (N. Y.) 25 ; Kelly V. Mariposa Land, etc. Co., 4 Hun (N. Y.), 632; Brum v. Merchant's Mut. Ins. Co., 16 Fed. Rep. 140. Unsecured creditors of a corporation have a lien on its property transferred to a succeeding corporation superior to the lien of bondholders under a mortgage executed by the succeeding corporation ; the succeeding corpora- tion having given only its own stock in payment for such property. Mont- gomery, etc. R. R. Co. V. Branch, 59 Ala. 139. But*a judgment against the prior corporation, recovered on a claim for personal injuries occurring after the transferral of its property to a succeed- ing corporation, cannot be enforced against that property in possession of the" succeeding corporation. Gray v. Na- tional Steamship Co., 115 U. S. 116. * Tawas, etc. R. R. Co. v. Circuit Judge, 44 Mich. 479. See also Smith V. Railroad Co., S9 U. S. 398. 603 § 659.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XI. § 658. On the principle that the funds of a corporation are Right of ^^^^ '^^ *'""^* ^°^ ^*^ creditors, is also based the only creditors to right of the latter to interfere with the management thei™mis. of the Corporate affairs. If the corporate funds are application, ^gj^g dissipated or applied to purposes beyond the scope of the corporate objects in such a way as to imperil the solvency of the corporation and the lien of the creditors on its funds, a creditor can restrain-the misapplication.' This would seem to follow d, fortiori from the rule that a creditor can follow corporate funds into the hands of any one receiving them with notice of their misapplication ; and the remedy of the creditor is to apply for an injunction and the appointment of a receiver.'' § 659. In Kearns v. Leaf, and Aldebert v. Kearns,* two English cases decided together, a policy-holder in a joint-stock insurance company, the shareholders of which were not subject to personal liability, and whose funds, by provisions in the compatiy's deed and in the plaintiff's policy, were liable for the sum insured, was granted an injunction restraining the com- pany from transferring its assets to another company, without first providing for the payment of the plaintiff's policy. Vice-Chaneellor Page- Wood said: "I apprehend that under these stipulations the policy-holders have no right to meddle with anything, wise or unwise, which the company may do in accordance with the deed. For example, if the company invest in a hazardous or even ruinous security, the policy-holders are not entitled to interfere. It would be extremely mischievous , to allow such interference. Still, the conduct of the company might reach a point of absolute waste of the assets in coutra- ' The English cases do not recog- could appoint a receiver or require nize as fully as the American the doc- security for the due preservation and trine that corporate funds are held in appropriation of the property. See trust for creditors. In England there Eisk v. Union Pacific R. R. Co., 10 has never been the same necessity for Blatchf. 518 ; Innes v. Lansing, 7 the doctrine, as English companies are Paige (N. Y.), 583; Whitconib v. more apt to be of unlimited personal Fowle, 7 Abb. N. C. (N. Y.) 295 ; liability. Accordingly, the last propo- Irons v. Manufacturers' Nat. B'k, 6 sition in the text may not be law in Biss. 301 ; Lotrop v. Stedman, 13 England. See Mills w. Northern R'y Blatchf. 134. Compare Bank of St. Co., L. R. 5 Ch. 621. Mary's v. St. John, 25 Ala. 566. s Conro V. Gray, 4 How. Pr. (N. ' 1 Hem. & Mil. 681. Y.) 166. There the court said that it 604 CHAP. XI.] CORPORATION AND CREDITORS. [§ 660. vention of the provisions of the deed, at which the right of the policy-holders to intervene might be considered to arise. . . . The principle on which the plaintiff's case is founded here, is, that the fund which was held out to him as his security, and to which he has himself contributed, shall not be misapplied contrary to the provisions of the deed. He says that he comes here to prevent a waste of the assets. His position is some- what analogous to that of a person having a contingent debt against a testator's estate, who may come into this court to prevent the estate being paid away to legatees, or wasted, or thrown away by the executors. The argument of the company, as I understand it, goes this length, that the policy-holder is simply a contingent future creditor minus the personal remedy. If that were the whole of the contract, it would be very different from what persons who insured in the company must have supposed. They could not have imagined that it was to be in the power of the directors or the company to destroy all their interests under their policies, leaving them without redress until their policies should have matured by death. ... In my opinion the plaintiff did acquire under that contract such a species of interest in the fund as would entitle him to interfere to save the property from being wasted contrary to the pro- visions of the deed."* § 660. Not only has a creditor the right to restrain an improper dissipation of funds of the corporation Rights of actually in its possession, but he has the further Jegardinff right, if these do not suffice for the payment of the ^ebts dae , ° ' , . 1 1 T , / 1 the corpo- debt due him, to compel the debtors oi the corpora- ration, tion to pay their debts.^ This right ©f the creditors etock'sub- also is usually rendered effective through the appoint- scriptions. •' 1 Hem. &Mil. 707-708. See also tracts to keep on hand the funds re- Evans V. Coventry, 5 De G. M. & G. quired by law for the security of its 911 ; Inre State Fire Ins. Co., 1 Hem. patrons; and also to continue its busi- & Mil. 457. ness so as to keep in a condition to An insurance company has no right perform its engagements. People v. to turn its policy-holders overto another Empire Mut. Life Ins. Co., 92 N. Y. company against their consent, and 105. policy-holders are under no obligation " Before an alleged creditor of a to protest, in order to preserve their railroad company can file a creditor's rights. An insurance company con- bill to obtain from one of its debtors 605 § 662.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XI. ment of a receiver, who will be competent to collect all debts owing the corporation, for the benefit of persons interested, shareholders or creditors. Especially is it competent for the receiver or assignee in insolvency to collect — and incumbent on him to do so — all unpaid stock subscriptions.* § 661. As stated in Sanger v. Upton,'' unpaid stock subscrip- tions, just as much as subscriptions actually paid in, constitute part of the capital of the corporation, of the trust fund devoted to the discharge of its indebtedness. Ordinarily, as long as tlie corporation is a going concern under the management of its regular officers, a call duly made by the board of directors is a condition precedent to the liability of a shareholder to pay any part of his unpaid subscription.? If the directors fail to make a call when the unpaid subscriptions are needed to pay the debts of the corporation, a court of equity, on the suit of a creditor, ^*^ill compel them to do so.* \ Ordinarily, however, to apply for the appointment of a receiver is the course pursued. § 662. In cases of urgent necessity where the corporation fails to protect itself from threatened wrongs, it is Creditors i. \. e j-x i ^i. -^ may enjoin Competent tor a creditor, when the wrong if accom- threatening plished would injure his vested rights, to enjoin the ration'^"' ^''<^"g-° And, Under such circumstances, it- would seem that the principle that a shareholder cannot maintain a bill in equity against a wrongdoer to prevent an injury to the corporation unless he shows that the corporation the satisfaction of his claim, he must 601 ; Glenn v. Williams, 60 Md. 93 ; establish his debt by a judgment in an Scoville v. Thayer, 105 U. S. 143, action at law. Smith u. Railroad Co., 155 ; Salmon v. Hamborough Co., 1 99 U. S. 398. A judgment creditor (Eng.) Chan. Cas. 204 ; see Ogilvie can garnishee a shareholder (on a <7. Knox Ins. Co., 2 Black, 539 ; S. C, judgment against the corporation) for 22 How. 380 ; Allen v. Montgomery unpaid calls due the corporation. K. R. Co., 11 Ala. 437 ; Adler w. Mil- Meints v. East St. Louis, etc. Mill waukee Patent Brick M'fg Co., 13 Co., 89 111. 48. AVis. 57 ; Dalton, etc. K. R. Co. v. ' See § 542. McDaniel, 56 Ga. 191 ; 2 Lindley on * § 655- Part. 628 ; compare Reg. v. Victoria » See §§ 703, 517, 543. Park Co., 1 Q. B. 288. ♦ Germantown Passenger Ry. Co. v. » Newby v. Oregon Central R. R. Fitler, 60 Pa. St. 124; Ward v. Gris- Co., Deady, 609. woldville M'fg Co., 16 Conn. 593, 606 CHAP. XI.] CORPORATION AND CREDITORS. [§ 663. has refused to take measures to protect itself, does not apply to a bill filed in good faith by a creditor.* § 663. The insolvency of a corporation so long as it continues to carry on its business in an honest manner, does not under all circumstances give the creditors an absolute an insoi- right to the appointment of a receiver of the corpo- ratioD°nor rate assets.* Any such absolute right fnieht often entitled to *' . o o a receiver prove very oppressive, and, like other peculiarly equi- as a matter table remedies, the appointment of a receiver .is usually a matter within the discretion of the court.' Thus, according to a Massachusetts decision, the allegations that a corporation is insolvent, that all its property is mortgaged to trustees for the benefit of one class of creditors ; that it owes large amounts to other creditors, one of which has attached its property ; that it is about to execute a lease for nine hundred and ninety-nine years to said attaching creditor, will not sus- tain a bill in equity brought by creditors of the corporation to enjoin it from doing business and for the appointment of re- ceivers.* But a judgment creditor is entitled to a receiver on showing that there is danger that a corporation, admittedly in- solvent, will misappropriate its assets to his injury.* It follows, moreover, since it is only to protect their claims that creditors are ever entitled to interfere in the corporate, affairs, that they can object to no action, authorized or unau- ' Lothrop V. Stedman, 42 Conn. ' Pond v. Framingham, etc. R. E. 583; S. C, 13 Blatchf. 141. Co., 130 Mass. 194. Compare Mer- ' See Catlin v. Eagle Bank, 6 Conn, chants', etc. Bank v. Trustees, 63 Ga. 233 ; Pondville Co. v. Clarke, 25 549. Still at the suit of a judgment Conn. 97 ; Bishop v. Brainerd, 28 creditor a court of equity has power Conn. 289, 301 ; Hoyt v. Shelden, .3 to take possession of the property (a Bosw. (N. Y.) 267; Curtis v. Leavitt, bridge) of a corporation, and appoint 15 N. Y. 10, 198. a receiver to collect the tolls and pay ' But not always ; see Railroad Co. them into court, for the purpose of V. Soutter, 2 Wall. 510. . A receiver paying the judgment. Covington cannot be appointed ex parte in a pro- Drawbridge Co. v. Shepherd, 21 How. ceeding (a bill in equity) brought by a 112. A creditor may enforce his creditor to wind up an insolvent cor- claims, though he be also a shareholder, poration, pending the decision on a Brinham v. Wellersburg Coal Co., 47 demurrer putting in issue the creditor's Pa. St. 43. right to file the bill. Cook v. Detroit, ' TurnbuU v. Prentiss Lumber Co., etc. R. R. Co., 45 Mich. 463. 55 Mich. 387. 607 § 664.] THE LAW OF PKIVATE CORPORATIONS. [CHAP. XI. thorized, on the part of the corporate management, which does not injure their interests. Thus, a court of equity will not, on the petition of a general creditor, restrain a corporation from converting its assets into money by a sale to a shareholder, when no shareholder objects, and the sale is honestly made for an adequate price, with intent to apply the proceeds pro rata to the payment of the corporate indebtedness.' § 664. Accordingly, a creditor cannot prevent the dissolution of_a corporation.' For the obligation of contracts cannot pre- entered into by the corporation survives the dissolu- luSon'-^°°' tion; and creditors may still enforce their claims against any corporate property which has not passed into the hands of bona fide purchasers.' " A corporation by the very terms and nature of its political existence, is subject to dissolution, by a surrender of its corporate franchises and by a forfeiture of them for wilful misuser and nonuser. Every creditor must be presumed to understand the nature and inci- dents of such a body politic, and to contract with reference to them. And it would be a doctrine new in the law that the existence of a private contract of the corporation should force upon it a perpetuity of existence contrary to public policy and the nature and objects of its charter."* ' Barr v. Bartram M'f g Co., 41 a corporation, defendant in the suit, Conn. 506. Compare Swepson v. which might be held liable to respond Bank, 9 Lea (Tenn.) 713. pecuniarily to the plaintiff, and which ^ Mumma v. Potomac Co., 8 Pet. had made one attempt to procure its 281 ; Smith u. Chesapeake, etc. Canal dissolution, from dissolving, or having Co., 14 Pet. 45 ; Curran v. State, 15 a receiver appointed, or distributing How. 310; Mobile K. R. Co. w. State, its assets among its shareholders or 29 Ala. 586. Neither will a court for- from making any disposition of its pro- feit the corporate franchises at the perty. Fisk v. Union Pacific K. R. suit of creditors, although acts consti- Co., 10 Blatchf. 518. tuting a ground of forfeiture have been * Mumma v. Potomac Co., 8 Pet. done. Gaylord v. Ft. Wayne, etc. 281, 287, opinion of the court per R. R. Co., 6 Biss. 286. See Cole v. Story, J. Knickerbocker Life Ins. Co., 23 Hun, A corporation, composed of two 255. • other corporations, had been dissolved a Mumma v. Potomac Co., 8 Pet. after the recovery of a judgment against 281, 286 ; Howe v. Robinson, 20 Fla. it. By the dissolution, the two orig- 852. But it has been held that the inal companies resumed their corporate plaintiff in a suit in equity may enjoin existence. It was held that such dis- 608 CHAP. XI.] CORPORATION AND CREDITORS. [§ 665. § 665. !N'either can creditors prevent the alteration or repeal ' of the charter of a corporation,* as under such cii^ cumstances the capital of the corporation rerakins tion of charged with their equitable liens.' And finally^ no^^onsoii- creditors cannot prevent a consolidation of their ^atJo"- , • ■ 1 -I-. Survival of debtor coj-poratiou with another. But a corporation creditors' cannot compel its creditors to give up their lien on its funds, and accept in lieu thereof the personal liability of the consolidated corporation.* The equitable lien of the creditors of a consolidMing corporation survives, and they may obtain satisfaction from its property after the same has passed to the consolidated corporation.* And where a suit is pending against a corporation at the time of its consolidation, the plaintiff may still treat it as having a separate existence for the purpose of maintaining his action against it.* solution did not affect the rights of the judgment creditor, nor the validity of his judgment ; and that upon notice to the two companies he was entitled to an execution against them. Ketcham V. Madison, etc. R. R. Co., 20 Ind. 260. » Read v. Frankfort Bank, 23 Me. 318. See Pennsylvania College Cases, 13 Wall. 190, 218-220; Lothrop v. Stedman, 13 Blatchf. 134, 143. As to the repeal of provisions inserted in a charter specially for the benefit of creditors, see Hawthorne v. Calef, 2 Wall. 10, and §§ 500, 501. ' See cases in preceding note. ' /» re Manchester, etc. Life Ass. Ass'n, L. R. 9Eq. 643; /rare Family Endowment Society, L. R. 5 Ch. 118 ; Griffith's Case, L. R. 6 Ch. 374 ; Jure India, etc. Life Ass. Co., L. R. 7 Ch. 651. Compare Terhune v. Potts, 47 N. J. L. 218. See §§ 425-427. Still it has been held that after a railroad company has consolidated with another as authorized by their charters, and confirmed by legislation 39 conferring all rights, powers, and privi- leges belonging to either on the new corporation, liabilities of either of the old companies can be enforced only against the new corporation. Indian- ola R. R. Co. V. Fryer, 56 Tex. 609. Compare Houston, etc. R. R. Co. v. Shirley, 54 Tex. 125 ; People v. Em- pire Mut. Life Ins. Co., 92 N. Y. 105; § 659. * Powell V. North Missouri R. R. Co., 42 Mo. 63. Thus, of course, a mortgage lien may be enforced against property covered by it, after the con- solidation. Eaton, etc. R. R. Co. v. Hunt, 20 Ind. 457. See Racine, etc. R. R. Co. V. Farmers' Loan and Trust Co., 49 111. 331. Likewise, a mari- time lien on a vessel remains after the consolidation of the corporation own- ing the vessel. The Key City, 14 Wall. 653. ^ Shackleford v. Mississippi Central R. R. Co., 52 Miss. 159 ; Baltimore and Susquehanna R. R. Co. v. Mus- selman, 2 Grant's Cas. (Pa.) 348; East Tennessee, etc. R. R. Co. v. 609 §667.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. XI. § 666. The consolidated company is in most cases held to assume a personal liability for the obligations of the consoi^^"^ prior corporations whose property it -has acquired, dated cor- and of which it may be regarded as the result.' ■ Ac- poration. -,., ., i. i. •, corduigly, an action at law may be brought against the consolidated company on the obligation of one oL the prior companies.^' When, however, at the time of the consolidation, a suit against one of the former companies is pending, the con- solidated company must be substituted in the action or in some way properly brought into court, before a judgment against it can be taken.* § 667. When there has been no consolidation of a debtor cor- poration with another, the creditors of the former corporal ° will have no right to enforce their claims personally c^eding\he against the latter merely because it has acquired the debtor cor- assets of the former,* unless the succeeding corpora- tion is merely a continuance of the old one or a re- vival of it under a new charter." Moreover, that the name, Evans, 6 Heisk. (Tenn.) 607. See Bruffett V. Gt. Western R. R. Co., 25 111. 363, 357. It would seem, nevertheless, that if — as is usually the case — the consolida- tion effects a dissolution of the former corporations (see § 421), some change or substitution of parties -would be necessary : for on dissolution suits against a corporation eo nomine abate. See § 435, and see Indianola R. R. Co. V. Fryer, supra. ' Indianapolis, etc. R. R. Co. v. Jones, 29 Ind. 465 ; Columbus, etc. R'y Co. V. Powell, 40 Ind. 37 ; Thomp- son V. Abbott, 61 Mo. 176; Miller;;. Lancaster, 5 Coldw. (Tenn.) 514, 520. See Houston, et*. R. R. Co. «. Shir- ley, 54 Tex. 125 ; Warren v. Mobile, etc. R. R. Co., 49 Ala. 582 ; § 425. But, see Shaw v. Norfolk County R. R. Co., 16 Gay, 407 ; compare Chase V. Vanderbilt, 5 J. & S. (N. Y.) 334. This is frequently provided for by 610 the statute authorizing the consolida- tion. See Western Union R. R. Co. V. Smith, 75 111. 496. ^ Columbus, etc. R'y Co. ». Skid- more, 69 111. 566. ' Selma, etc. R. R. Co. v. Harbin, 40 Ga; 706. Compare Ketcham v. Madison, etc. R. R. Co., 20 Ind. 260. * Bellows V. Hallowell, etc. B'k, 2 Mason, 31 ; Wyman v. Same, 14 Mass. 68 ; Bruffett u. Gt. Western R. R. Co., 25 111. 353. See § 415. But creditors may under some circum- stances follow the property of their debtor corporation. See § 657. ^ Mayor, etc. of Colchester v. Sea- ber, 3 Burr. 1866 ; see Broughton v. Pensacola, 93 U. S. 266 ; and § 657. Thus, when a state bank is reorgan- ized into a national bank, under pro- visions of the National Banking Act, the national bank is liable for the ob- ligations of the state bank. Coffey v. National Bank, 46 Mo. 140. Compare CHAP. XI.] CORPORATION AND CREDITORS. [§ 668. and the major part of the shareholders and officers, of the old corporation were the same as those of the new, does not estab- lish conclusively that the latter is a mere continuance of the former.* " To ascertain whether a charter creates a new corpo- ration, or merely continues the existence of an old one, we must look to its terms, and give them a construction consistent with the legislative intent and the intent of the corporators."^ § 668. Ta allow q,n insolvent corporation to make an assign- ment of its property, giving preferences to a portion of its creditors over the others, is unjust, as well as assign- utterly repugnant to the doctrine that corporate ™*"'^- property is a trust fund, on the credit of which persons contract with the corporation. If such property constitutes such a fund, it is clearly held in trust for the benefit of one creditor just as much as another,* and to prefer one creditor to another is evidently beyond the authority of the trustee. This view is far from being unsupported by direct authority.* Thus a deed of general assignment to trustees to procure a loan, and then to pay certain debts of the corporation (a bank), and then others Tpro rata, the trustees receiving large salaries for their services, has been held void as against a non-consenting creditor.' Still there is no doubt that an insolvent corporation may make a Stateu. National Bank, 33 Md. 75. A Ch. (Miss.) 207, 258 e« se?. ,- Bodley corporation is not liable for the debts v. Goodrich, 7 How. 276 ; Swepson of a firm, though the members of the v. Bank, 9 Lea (Tenn.), 713. See firm constitute the shareholders, and Hightower v. Mustian, 8 Ga. 506 ; the firm assets have been transferred Marr v. Bank of West Tennessee, 4 to the corporation. McLellan v. De- Coldw. (Tenn.) 471; Richards u. New troit File Works, 56 Mich. 579. See Hampshire Ins. Co., 43 N. H. 263. Georgia Co. v. Caatleberry, 43 Ga. Certain corporations, as, e. g., na- 187. tional banks, are expressly forbidden ' See cases in last note but one. by their constitutions to make prefer- ^ Story, J., in Bellows v. Hallowell ences after or in contemplation of in- B'k, 2 Mason, 31, 44. See also Mil- solvency. U. S. Rev. Stat., § 5242. ler V. English, 21 N. J. Law, 317; When an insolvent national bank is People V. Marshall, 1 Gilman (111.), making illegal preferential payments, 672 ; Goulding v. Clark, 34 N. H. 148. a court will appoint a receiver at the ' Dabney v. Bank of South Caro- suit of a depositor. Irons v. Manu- " lina, 3 S. G. 124. facturers' Nat. B'k, 6 Biss. 301. * Robins o. Embry, 1 Sm. & M. " Bodley v. Goodrich, 7 How. 276. 611 § 669.] THE LAW OF PRIVATE COKPOEATIONS. [CHAP. XI. valid assignment for the benefit of its creditors ;* and a number of cases have held that an insolvent corporation may make suck an assignment with preferences.* § 669. A court of equity, however, will regard the relative rights of different creditors, and will restrain one right*"o^f creditor from absorbing, after the corporation has creditors, jjgcome insolvent, its available assets to the unjust exclusion of other creditors." Thus, the property of a national ' Ardesco Oil Co. v. North Am. Oil, etc. Co., 66 Pa. St. 375; State V. Bank of Maryland, 6 Gill & J. (Md.) 205 ; Union B'k v. EUicott, ib. 363 ; Shockley v. Fisher, 75 Mo. 498 ; Lionberger ?'. Broadway S'v'gs B'k, 10 Mo. App. 499 ; Lamb v. Cecil, 25 W. Va. 288. The board of directors of an insolvent corporation may make an assignment (without preferences) of its property for the benefit of credi- tors. Descombes v. Wood, 91 Mo. 196 ; Hutchinson v. Green, 91 Mo. 367. ' Ringo V. Biscoe, 13 Ark. 563; Savings Bank v. Bates, 8 Conn. 505 ; Whitwell V. Warner, 20 Vt. 425; Arthur b. Commercial, etc. Bank, 17 Miss. 394 ; Wilkinson v. Bauerle, 41 N. J. Eq. 635 ; Vail v. Jameson, 41 N. J. Eq. 648. See Catlin v. Eagle Bank, 6 Conn. 233. Compare Hop- kins I'. Gallatin Turnpike Co., 4 Humph. (Tenn.) 403 ; Pope v. Bran- don, 2 Stew. (Ala.) 401 ; Coats v. Donnell, 94 N. Y. 160.\ In the absence of lien created by contract, or rights created by legal proceedings, the officers of a corpora- tion may exercise a reasonable and proper discretion as to the order in which debts of the corporation shall be paid. Newport, etc. Bridge Co. v. Douglass, 12 Bush (Ky.), 73. But after a judgment creditor's bill has been filed the officers cannot go on converting corporate assets into money 612 and paying creditors, giving prefer- ences. TurnbuU v. Prentiss Lumber Co., 55 Mich. 387. Compare Pren- tiss V. Nichols, 100 U. S. 227. Proof that at the time of the de- livery of a mortgage by a corporationj the corporation wag insolvent, as a matter of fact, is not conclusive evi- dence that the transfer (mortgage) was made "in contemplation of the in- solvency of such company" within the meaning of a statute (1 N. Y. E. S. 603, § 4) declaring such transfers un- lawful ; to come within the prohibi- tion of the statute, the act must have been induced by the existing or con- templated insolvency of the company. (The creditor in this ease was not an officer.) Paulding v. Chrome Steel Co., 94 N. Y. 334. See also Butcher V. Importers and Traders' Bank, 59 N. Y. 5. Compare Robinson v. Bank of Attica, 21 N. Y. 406 ; and Haxtun V. Bishop, 3 Wend. 13. An offer to allow judgment to be entered against it by a corporation is a transfer of its property within the meaning of this statute. Kingsley v. First Na- tional Bank, 31 Hun (N. Y.), 329. » See Pfohl v. Simpson, 74 N. Y. 137; Whittlesey v. Delaney, 73 N. Y. 571 ; Turnbull v. Prentiss Lumber Co., supra. § 813. In a foreclosure suit a court of equity will prevent, if possible, the sale of the central portion of a railroad which CHAP. XI.] CORPORATION AND CREDITORS. [§ 670, bank attached at the suit of a creditor, after the bank has become insolvent, cannot be subjected to sale for the payment of a demand, as against the claim for tlie property by a receiver of the corporation subsequently appointed.^ And a suit against a national bank to collect a debt is abated by a decree of a Federal District Court dissolving the corporation and forfeiting its franchises, rendered upon an information against the bank filed by the comptroller of the currency.* § 670. A person who is a debtor to the corporation on one account and its creditor on another, may ordinarily set off against what he owes the corporation the debt which the corporation owes him. Thus, a banker who was a director in an insurance company, can set off against, its demand for money deposited with him, bearing interest and payable on call, the amount due on its policies issued to and held by him. And, the company having been adjudged bankrupt, his right to such a set-oft' is equally available against its assignee.' But a shareholder cannot set off a debt owing him from the corpo- ration, if the latter is insolvent, against his liability for unpaid subscriptions.* And in all cases, in order to entitle a debtor of the corporation to set off a claim against it, the claim must have been acquired before the assets of the corporation have come under the control of a court of equity.* would leave the two ends Valueless, to that date. Whiter. Knox, 111 U. Chicago, Danville, etc. R'y Co; v. S. 784. Loewenthal, 93 111. 533. ' Scammon v. Kimball, 92 U. S. 1 National Bank v. Colby, 21 Wall. 3G2. 609. * See§ 729. 2 National Bank u. Colby, supra. ' Smith ». Mosby, 9 Heisk. (Tenn.) Compare Bank of Bethel v. Pahquio- 501 ; Lanier v. Gayoso Savings Inst., ib. que Bank, 14 Wall. 383. Under the 506. See§§ 810, 811. Whenacorpo- National Banking Act, a creditor of a ration places its funds in the hands of national bank who establishes his ite general manager as trustee for safe- debt by suit and judgment after refusal keeping and to use in the affairs of the of the comptroller of the currency to corporation, such trustee cannot, in allow it, is entitled to share in divi- the event of the corporation's insol- dends on his debt (and on the interest vency, set off a debt owing him from then due) so established as of the day the corporation against the claim of its of the failure of the bank ; and not assignee for creditors for such moneys, upon the basis of the judgment, if the First National Bank v. Barnum Wire judirment includes interest subsequent Works, 58 Mich. 124. 613 § 672.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XI. Corporate property, when ex- empt from execution. § 671. "When a corporation is created in order to subserve some public purpose, its creditors may not be per- mitted, for reasons of public policy, to enforce their rights in a manner that would render the corporation incapable of fulfilling its public duty. Thus, a cor- porate franchise to take tolls on a canal cannot be seized and sold under an execution, unless express authority to that effect exists in some statute o£ the state granting the charter.' I^either can lands or works essential to the enjoyment of a fran- chise be separated from it, and sold under such process.' But lands belonging to a railroad company, which are not used for corporate purposes, nor necessary to the full enjoyipent and ex- ercise of the corporate franchises, may be sold on execution against the corporation.^ The relations between a corporation and certain special classes of its creditors may now be more particularly referred to. • § 672. When an ordinary deposit is received by a bank and placed to the credit of the depositor, the relation between a neither of principal and agent, nor of bailor and depositors, l^ailee is created, but that of debtor and creditor.* Consequently the bank has the right to apply the money to the payment of any legal demand it may have at the time against the depositor ; and, on the other hand, will be liable to the depositor for any loss of the money, although occurring without any fault on the part of the bank or its servants." When, however, a person deposits drafts'in a bank ' Gue V. Tide Water Canal Co., 24 How. 257. See also State v. Rives, 5 Ired. L. (N. C.) 297. 2 Gue'u. Tide Water Canal Co., supra. East Alabama R'y Co. v. Doe, 114 U. S. 340 ; Youngraan v. Elmira, etc. R. R. Co., 65 Pa. St. 278. See also in regard to personal property be- longing to a railroad, Philips v. Wins- low, 18 B. Mon. (Ky.) 431, where the same principle was applied. Compare § 334. » Plymouth R. R. Co. v. Colwell, 39 Pa. St. 337. See Shamokin Val- 614 ley R. R. Co. v. Livermore, 47 Pa. St. 465. * Phoenix Bank v. Risley, 111 U. S. 125; Davis v. Smith, 29 Minn. 201 ; Hardy v. Chesapeake Bank, 51 Md. 562; Ward v. Johnson, 5 111. App. 30, and cases in following notes. Depositors in savings banks stand in the same relation to the assets of the bank as shareholders in banks of dis- count. Cogswell V. Rockingham Ten Cents Sv'gs B'k, 59 N. H. 43 ; Hall V. Paris, ib. 71. ,' Commercial Bank u. Hughes, 17 CHAP. XI.] CORPORATION ANP CREDITORS. [§ 672. known at the time to its managers to be insolvent, receiving the deposit is a fraud on the depositor, and he may reclaim the drafts or their proceeds, so long as they have not come into the hands of bona fide holders for value ; thus rescinding what would otherwise have been the ordinary contract between a depositor and the bank, i. e., that the bank should become the owner of the drafts and debtor for their equivalent.^ There is no special trust relation between a bank and its depositors. But the bank is bound to know their signatures, and is liable to them for all moneys paid out on forged checks;^ while the depositor is under no duty to the bank to examine his pass- book and vouchers for the purpose of detecting forgeries.' In defending the interests of a depositor against a third person claiming the deposit, the bank will not be liable for neglect of its duty, if it takes reasonable legal measures in defence, and notifies the depositor of the suit. Under such circumstances it is not incumbent on the bank to make a strenuous defence or try to put the case off.* Wend. 94 ; Marsh v. Oneida Central Bank, 34 Barb. 298 ; iEtna Nat. B'k V. Fourth Nat. B'k, 46. N. Y. 82; Boyden v. B'k of Cape Fear, 65 N. C. 13 ; /n re B'k of Madison, 5 Biss. 515 ; Knecht v. United States Sv'gs Ins'n, 2 Mo. App. 563. But a bank when sued by a deposi- tor for his deposit cannot show that the deposit really belonged to third per- , sons indebted to the bank, and set off its claim against them. First Nat. B'k V. Mason, 95 Pa. St. 113. Compare Swartwout v. Mechanics' Bank, 5 Denio, 555. Nor can a bank hold the balance of a customer's deposit, to ap- ply it on his indebtedness to the bank not yet matured. Jordan v. Nat. Shoe'and Leather B'k, 74 N. Y. 467. ' Cragie v. Hadley, 99 N. Y. 131. ' Leavittv. Stanton, Lalor(N. Y.), 413 ; Morgan v. Bank of the State of New York, 11 N. Y. 404; Weisserr. Denison, 10 N. Y. 68; Commercial and Farmers' Nat. B'k ». First Nat. B'k, 30 Md. 11. That the forger is the confidential clerk of the depositor is no defence, if the latter has himself done nothing to lead the bank to sup- pose the check authentic. Frank v. Chemical Nat. B'k, 84 N. Y. 209; Hardy v. Chesapeake Bank, 51 Md. 562. Compare U. S. Bank v. Bank of Georgia, 10 Wheat. 333. A bank is liable for money paid on altered checks. Crawford v. West Side B'k, lOO N. Y. 60. ' Welsh V. German American Bank, 73 N. Y. 424 ; see Frank v. Chemical Nat. Bank, 84 N. Y. 209. As to the liability of savings banks for moneys paid out on forged checks or orders, see §§ 199, 245. The statute of limitations does not I'un against the claim of a depositor until demand and refusal. Branch v. Dawson, 33 Minn. 399. See Viets v. Union National Bank, 101 N. Y. 563. * Detroit Savings Bank v. Burrows, 34 Mich. 153. 615 § 673.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. -XI. § 673. The facts of a carefully considered case decided not long ago in the Federal Supreme Gourt were as bank?^ foUows:^ A bank account was opened in the name of a depositor known to the bank to be the general agent of an insurance company, and whose chief business, as the bank also knew, was to conduct the insurance agency. The words " gen'l ag't" were attached to the depositor's name in the account. The bank further knew that the account was opened to facilitate the business of the agency, and was used by the depositor as a means of accumulating premiums collected by him for the company, and making payments to it by cheeks. It was held that the bank was chargeable with notice of the equitable rights of the insurance company, although the de- positor had deposited other moneys in the same account, and had drawn checks against it for his private use ; and that the company might enforce in equity its beneficial ownership against the bank, which on its side set up a lien on the fund for a debt due from the depositor individually to it. Justice Matthe^ivs said, giving the opinion of the court : " The contract between a bank and a depositor is that the former will pay according to the checks of the latter, and when drawn in proper form, the bank is bound to presume that the trustee (if such it knows its depositor to be) is in the course of lawfully performing his duty, ' and to honor them accordingly. But when against a bank ac- count, designated as one kept by the depositor in a fiduciary character, the bank seeks to assert its lieu as a banker &r a per- sonal obligation of the depositor, known to have been contracted for' his private benefit, it must be held as having notice that the fund represented by the account is not the individual pro- perty of the depositor, if it is shown to consist, in whole or in part, of funds held by him in a trust relation."' .... " Although the relation between a bank and its depositor is that merely of debtor and creditor, and the balance due on the account is only a debt, yet the question is always open, to whom in equity does it beneficially belong? If the money deposited belongs to a third person, and was held by the depositor in a ' NatioEal Bank v. Insurance Co., ^ Id., 64. 104 U. S. 64. 616 Bondhold- ers. CHAP. XI.] CORPORATION AND CREDITORS. [§ 675. fiduciary capacity, its character is not changed by being placed to his credit iu his bank account." . .- . , " Ordinarily the banker's lien attaches in favor of the bank upon the securities and moneys of the customer deposited in the usual course of business, for advances which are supposed to be made upon their credit. It attaches to such securities and funds not only against the depositor, but against the unknown equities of all others in interest, unless modified or waived by some agreement, express or implied, or by con- duct inconsistent with its assertion. But it cannot be permitted to prevail against the equity of the beneficial owner, of which the bank has notice, either actual or constructive."^ § 674. Of special classes of corporate creditors, bondholders constitute the most important. Their rights for the most part depend on the terms of the trust deed or mortgage usually made by the corporation to secure the payment of the bonds.^ With notice of the terms of this instrument bondholders are of course aifected ; and by express stipulation often it is made a part of the bonds themselves. Should, however, provisions iu the mortgage or trust deed be inconsistent with those contained in the bonds, the terms of the latter control, since the bonds constitute the principal debt or the best evidence of the corporate obligation, for the pay- ment of which debt or obligation the trust deed or mortgage is but a security.* § 675. In order that bonds should constitute a lien on the property of a corporation, it is not necessary that a formal ^ National Bank v. Insurance Co., tial to the common welfare of the cor- 104 U. S. 66. ' poration and its creditors, he shall be ' lb., 71. See also Bank of Me- held to have assented to them. Union tropolis V. New England Bank, 1 Canal Co. v. GilfiUin, 93 Pa. St. 95 ; How. 234. S. C, aflPd, 109 U. S. 401. Compare ' A law depriving mortgage creditors also Baltimore v. Baltimore Railroad, of their rights against the corporation 10 Wall. 543. But a legislature can- would impair the obligation of a con- not confirm a fraudulent sale of the tract. Montgomery, etc. R. R. Co. v. mortgaged property of a corporation. Branch, 59 Ala. 139. But the legisla- White Mountains R. R. Co. v. White ture may constitutionally pass a law Mountains R. R. Co., 60 N. H. 50. providing that unless a creditor of an * Railway Co. v. Sprague, 103 U. embarrassed corporation expresses his S. 756. dissent from measures deemed essen- 617 § 676.] THE LAW OE PRIVATE CORPORATIONS. [OHAP. XI. mortgage should be given (though, of course, under the various Equitable recording acts, a mortgage or trust deed duly executed mort- and recorded is essential to the securitv of bondhold- ers) ; for it has been held that bonds issued by a cor- poration pledging its real and personal property for the pay- ment of the debt and interest, and containing other correspond- ing stipulations, will be treated by a court of equity as a mortgage, and enforced according to the intention of the con- tracting parties.' § 676. As against a railroad company and its privies, a rail- Raiiroad ^oad mortgage, although given before the road, is mort- completed, attaches to the road as fast as built, and Rolling to all property covered by the terms of the mortgage ^*°" ■ as such property comes into the ownership of the railroad company.' And thus a mortgage by a railroad com- pany, which in terms covers " all the following, present, and future to be acquired property," mentioning engines, cars, and machinery, carries not only engines and cars that existed when the mortgage was made, but also' such as subsequently take their place or are added by the time of the foreclosure.' More- 1 White Water Valley Canal Co. v. in a mortgage after-acquired property. Vallette, 21 How. 414. See also City of Quincy v. Chicago, B. and Q; Miller v. Rutland, etc. R. K. Co., 36 R. R. Co., 94 111. 537. Vt. 452 ; Inre Strand Music Hall Co., s Shaw v. Bill, 95 U. S. 10 ; Ham- 3 De G. J. & S. 147, 158 ; Ketchum lin v. Jerrard, 72 Me. 62. u. Pacific R. R. Co., 4 Dill. 78, 86. It is held that mortgages of future Compare Dillon v. Barnard, 1 Holmes, acquired property are to be liberally 386 ; Brunswick and Q. R. R. Co. u. construed. Little Rock, etc. R'y Co. Hughes, 52 Ga. 557. v. Page, 35 Ark. 304. See State v. " Galveston Railroad v. Cowdrey, Northern Central Ry. Co., 18 Md. 11 Wall. 459 ; Phila., Wil. andBalto. 193. But the enumeration of certain R. R. Co. V. Woelpper, 64 Pa. St. classes of "property" may exclude 366. See Pierce u. Emery, 32 N. H. other "property" not mentioned. 484; compare Dinsmore v. Racine, Thus a railroad company mortgaged etc. R. R. Co., 12 Wis. 649. See its then and after to be acquired " pro- § 817. But see Henshaw v. Bank of perty, that is to say," and then de- Bellows Falls, 10 Gray (Mass.), 568 ; scribed various species of property Howeu. Freeman, 14 Gray (Mass.), mortgaged. It was held that certain 566 : Mississippi Valley Co. v. Chicago, municipal bonds issued to aid in build- etc. R. R. Co., 58 Miss. 896. Seems ing the road, and not embraced in the special authority is not necessary to enumeration of articles mortgaged, enable a railroad company to include did not pass by the use of the general 618 CHAP. XI.] CORPORATION AND CREDITORS. [§ 678. over, a railroad company owning the whole of a long railroad and all the rolling stock upon it, may assign particular portions of the rolling stock to particular divisions of the road, and inortgage such portions with such divisions respectively. Whether the company has mortgaged its rolling stock in this manner, is a question of intention.' § 677. Terms in securities issued by a railroad or other cor- poration repugnant to the legislative provisions author- j^ ,.. izing the security are void. Thus, a railroad corpora- provisions tion issued its bonds, and mortgaged its property to rate°secu- secure the payment of them, and of the semi-annual "''^^' instalments of interest thereon, as the same should successively fall due. The statute authorizing the mortgage declared that the bonds should not mature at ati earlier peribd than thirty years. In consequence, a provision in the bonds that, upon a failure to pay any coupon, when presented at the place of pay^ ment, and a continued default for six months, the whole sum mentioned in the bond should become due and payable,. was held void.' § 678. But, although the securities may contain forbidden or unauthorized provisions, courts will refrain from holding void word "property.'.' Smith v. McCul- cinnati, etc. Air-Line R. R. Co., 4 lough, 104U. S. 25. See also Brainerd Biss. 35. V. Peck, 34 Vt. 496 ; Alabama v. In Illinois, rolling stock is held to be Montague, 117 U. S. 602. Compare a part of the realty, so as to pass by a Wilson V. Boyce, 92 U. S. 320 ; El- conveyance or mortgage of the road, dridge v. Smith, 34 Vt. 384. Michigan Cent. R. R. Co. v. Chicago It has also been held that a railroad and M. Lake Shore R. R. Co., 1 111. corporation cannot include in a mort- App. 399 ; Palmer v. Forbes, 23 111. gage of future to be acquired property, 801 ; Hunt v. Bullock, ib. 320 ; Titus land which, at the time of the mort- v. Mabee, 25 111. 257 ; Titus v. Gin- gage, it had no authority to acquire, heimer, 27 111. 462. This is not the Meyer «. Johnston, 53 Ala. 237, 831. doctrine of other states. Williamson 1 Minnesota Co. v. St. Paul Co., 2 v. N. J, Southern R. R. Co., 29 N. Wall. 609; S. C, 6 Wall. 742. A J. Eq. 311, reversing S. C, 28 N. J. mortgage by a railroad company "of Eq. 277; Hoyle v. Plattsburgh, etc. " all present and future to be acquired R. R. Co., 54 N. Y. 314; Coe t. property of the company, including Columbus, etc. R. R. Co., 10 Ohio the right of way and land occupied, St. 237 ; see Boston, Concord, etc. R. and all rails and other materials used R. Co. v. Gilmore, 37 N. H. 410. thereon or procured therefor," in- ' Howell v. Western R. R. Co., 94 eludes rolling stock. PuUan v. Cin- U. S. 463. 619 § 680.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XI. the securities themselves.* Thus, a corporation cannot refuse Ma not in ^ P^^ ^*^ bondg On the ground that they contain an validate the unauthorized provision to the effect that they may be converted into stock at the option of the holder.' § 679. Bonds of a corporation issued payable to order or to bearer are negotiable.' And the negotiable quality bonds'ne- of such a bond is not impaired by a provision con- gotiabie. tained in the bond, that it may be " registered and made payable by transfer only on the books of the company."* Accordingly, the rights of a purchaser in good faith are not impaired by equities affecting the title of his vendor.* § 680. Overdue and unpaid interest coupons do not of .them- selves make the bond to which they are attached dis- honored paper.* When severed from the bond, cou- CoupoDS. » See Howell v. Western R. K. Co., supra. That some invalid bonds have been issued, does not affect the validity, of the mortgage as a security for the other bonds. Graham v. Boston, etc. R. R. Co., 118 U. S. 162. Corpora- tions formed under the New York Manufacturing Companies Act of 1848, may mortgage their property to secure the payment of a debt, but not for the purpose of raising money to carry on their business. A mortgage exe- cuted by such corporation to secure bonds used to pay debts, and also to raise money to carry on the business is valid, at least in so far as it secures bonds used to pay 'the debts of the corporation. Carpenter v. Black Hawk Gold Mg. Co., 65 N. Y. 43. s Wood V. Wheelen, 93 111. 153. Compare Sturges v. Stetson, 1 Biss. 246. " White V. Vermont, etc. R. R. Co., 21 How. 575; Carr v. Lefevre, 27 Pa. St. 413 ; Mason v. Frick, 106 Pa. St. 162; Haven v. Grand Junc- tion R. R. Co., 109 Mass. 88 ; Morris Canal, etc. Co. v. Fisher, 9 N. J. Eq. 667 ; Brainard v. New York and Har- 620 lem R. R. Co., 25 N. Y. 496 ; see § 326. Compare Railroad Co. v. Howard, 7 Wall. 392. * Savannah, etc. R. R. Co. v. Lan- caster, 62 Ala. 555. But bonds con- taining a provision whereby the com- pany reserves the right to pay them off at any time by adding twenty per cent, to the amount of the principal are not negotiable. Chouteau v. Allen, 70 Mo. 290, 339. ' Murray v. Lardner, 2 Wall. 110. The doctrine of applied notice of a lis pendens does not apply to negotiable bonds. See § 327, also Ex parte Williams, 18 S. C. 299. As to effect of notice to a trustee for bondholders, see §814. A corporation is not liable on its bonds, which arestolen before the cer- tificate of the trustee or the company's seal is affixed, to an innocent holder ; th« certificate and seal having been forged after the theft. Maas v. Mis- souri K. andT. Ry. Co., 83 N. Y. 223. ^ Railway Co. v. Sprague, 103 U. S. 756 ; Cromwell v. County of Sac, 96 U. S. 51. See National Bank v. CHAP. XI.] COKPORATION AND CREDITORS. [§ 682. pons are negotiable and pass by delivery.' They then cease to be incidents of the bonds and become independent claims. Consequently, if the bonds are cancelled or paid before ma- turity, the severed coupons do not thereby lose their negotiable character, nor their ability to support separate actions, and the amount of their face draws interest from the time when it is payable. Statutes of limitation run against coupons, when severed, from their maturity.^ § 681. The holders of coupons guaranteed by a corporation having general powers to make the guaranty, are not bound to see to the regularity of the exercise of that bond- , power.' And the fact that coupons are made pay- ^°''^^''^- able at a particular place, does not make a presentation there for payment necessary, before commencing suit on them.* A corporation issuing a coupon bond is in the position of the maker of a promissory note, rather than in that of the drawer of a bill of exchange ; and the holder is under no obligation to present the bond or the coupons for payment within a reasonable time.' § 682. In a case recently before the Supreme Court of the United States, a railroad mortgage provided that if Remedies "default should be made in the payment of any half- of bond- year's interest on any of said bonds, and the warrant Kirby, 108 Mass. 497. But see First Ohio v. Frank, ib. 697. See Gilbert Nat. Bank u. County Commissioners, 14 v. Washington City, etc. E. R. Co., Minn. 77; Morton w. New Orleans, etc. 33 Grat. (Va.) 586; Whitaker v. Ry. Co., 79 Ala. 590 ; see also § 326. Hartford, etc. R. R. Co., 8 R. I. 47 ; 1 The title to interest coupons passes Philadelphia and R. R. R. Co. v. by delivery. A transfer of possession Smith, 105 Pa. St. 195. Compare is presump'tively a transfer of title. The City v. Lamson, 9 Wall. 478, in Especially is this so when the transfer which case it was held a suit on a cou- is made to one who is not the debtor pon is barred by a statute of limita- and is under no obligation to receive tions only when suit on the bond is or pay them. But cutting off coupons barred. See also § 326. when due and transferring them to ' Connecticut Mut. Life Ins. Co. v. other holders gives to such holders no Cleveland, etc. R. R. Co., 41 Barb, priority of right over the holders of the 9. See §§ 205, 328. bonds from which the coupons have been * Walnut v. Wade, 103 U. S. 683; cut, nor over the subsequently maturing Shawu. Bill, 95 U. S. 10. See Alex- coupons. Ketchum v. Duncan, 96 U. ander v. Atlantic, etc. R. R^ Co., 67 S. 657. N. C. 198. « Clark V. Iowa City, 20 Wall. 583 ; = WiUiamsport Gas Co. v. Pinker- Walnut V. Wade, 103 U. S. 683 ; ton, 96 Pa. St. 62. 621 § 682.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. XI. or coupon for such interest shall have been presented and its payment demanded, and such default shall have continued six months after such demand, without the consent of the holder of such coupon or bond, then and thereupon the principal of all of the said bonds hereby secured shall be and become immedi- ately due and payable, anything in such bonds to the contrary notwithstanding ; and the said [trustee] may so declare the same and notify [the railroad company], and upon the written request of the holders of a majority of the said bonds then out- standing, shall proceed to collect both principal and interest of all such bonds outstanding by foreclosure. . . ." It was held that the written request of a majority of bondholders was a prerequisite to a foreclosure by the trustee. But the court said that any bondholder could have sued in his own name, and could have proceeded to foreclose.' ' Chicago and Vincennes K. K. Co. V. Fosdick, 106 U. S, 47. Compare Howell V. Western R. K. Co., 94 U. S. 463 j First National Ins. Co. v. Salisbury, 130 Mass. 303. A bondholder under a trust mortgage may sue the railroad on bonds held by him, although the mortgage pro- vides that on the request of the hol- ders of a certain proportion of bonds, more than the plaintiff held, the trus- tees should sell the property covered by the mortgage. Phila. and Balto. Cent. E. R. Co. v. Johnson, 54 Pa. St. 127. See also Montgomery County Agricultural Society v. Francis, 103 Pa. St. 378. A bidder at a judicial sale at public auction on foreclosure of a railroad mortgage, whose bid has not been accepted, the sale being ad- journed for sufiBcient cause and finally discontinued, cannot insist on leave to pay his bid and have the sale to him confirmed ; although he was the highest bidder and bid enough to cover the mortga^ debt. Blossom v. Railroad Co;, 3 Wall. 196. A holder of rail- road bonds secured by a mortgage un- der foreclosure has a standing in court 622 to contest the amount of compensation allowed the trustee under the mort- gage. Williams v. Morgan, 111 IT. S. 684. A board of directors passed a resolution permitting the holders of certain notes of the corporation, se- cured by a mortgage held by a trustee for the note holders, to convert their notes into stock of the corporation at par, provided, all the holders of the notes converted them within ten days : some of the note holders filed their notes for conversion and received cer- tificates of stock. It was held, on subsequent foreclosure of the mort- gage, that such of the note holders as had surrendered their notes were en- titled to have the foreclosure carried on for them (as well as the rest), not all the note holders having surren- dered their notes, and consequently no conversion into stock of any notes having taken place. Pugh v. Fair- mount Mining Co., 112 U. S. 238. Taking a pledge of corporate property does not prevent a creditor from suing the corporation or its shareholders, without selling the pledge. Sonoma Valley Bank v. Hill, 69 Cal. 107. CHAP. XII. J SHAREHOLDERS AND OFFICERS. [§ 683. CHAPTER XII. LEGAL RELATIONS BETWEEN SHAREHOLDERS AND OFFICERS OF A CORPORATION. Effect of- inyesting the officers with authority to manage the corporate enterprise, §§ 683, 684. Right of shareholders that officers shall do no unauthorized acts, § 685. Remedy, § 686. Fraudulent or ultra vires acts, § 687. Shareholders incompetent to bring ac- tion against officers until there has been a failure of the corporation to act, § 688. Competency of shareholders to sue when the corporate management is in the hands of the guilty officers, § 689. Corporation a necessary party ; action should be brought on behalf of all the shareholders, §§ 690, 691. Directors trustees for all the share- holders, § 692. Corporation cannot condone breach of trust, § 693. Responsibility of officers for error ; for acts of other officers, § 694. Acts authorized by shareholders' meet>- ings, § 695. Unconditional right of shareholders to sue for direct injuries, §§ 696, 697. Limits to the trust relation between shareholders and directors, § 698. Directors' right to indemnification, § 699. § 683. When a number of persons have combined their property in a joint undertaking, agreeing that the enterprise shall be managed in a certain way, no one vesting the of them can at will withdraw from the agreement, wit^au- or interfere, except as in the agreement provided for, 'hority to with the management agreed on. Persons who corporate become incorporated agree, that within the fair scope ^° '^^^ of the purposes of incorporation, the controlling discretion as to the corporate enterprise shall rest with the body corporate acting regularly, and through the will of a majority; and that the ordinary corporate business shall be managed by directors and other officers elected directly or indirectly by the body corporate.' Where, however, as is usual, by the constitution of a corpo- ration the management of the corporate affairs is vested in a ' Dudley v. Eentucky High School, 9 Bush, 576. See § 553. 623 §. 685.] THE LAW OF PRIVATE CORPORATIONS, [CHAP. XII. board of directors, it would seem to be the right of every share- holder—a right secured to him by the fundamental contract embodied in the corporate constitution — that the ordinary business of the corporation shall be managed and controlled by the board of directors, so long as they act within the scope of their authority and honest discretion, free from the interference of even a majority of shareholders. Under such circumstances the fundamental plan, which every shareholder agreed to, was not that a majority of shareholders, but that the board of directors should, for ordinary purposes, manage and control the affairs of the corporation. § 684. Thus, for instance, it has been held that a contract between two connecting railroads for the division of earnings according to the distance whicl^ each company should carry the passengers or freight for which the money is paid, is within the discretionary powers of the directors, and its execution cannot be enjoined by a shareholder in one of the companies who holds a majority of its stock, unless he shows a fraudulent purpose on the part of the directors by which he will be injured.* Similarly, the Supreme Court of the United States has decided that where the trustees or directors of a railroad company have appealed from a decree, and have directed their counsel to prosecute the appeal, the Supreme Court will not dismiss it on the motion of strangers to the decree, who, since the decree was rendered, have become the owners of the majority of the stock of the corporation. To the directors is, by law, committed the management of the concerns of the corporation ; they are its representatives in court, and represent shareholders and ci'editors. If, in prosecuting an appeal to final judgment, they violate a corporate obligation or their own duty, shareholders must seek a remedy in some court of original jurisdiction.* § 685. It is, however, no part of the contract of any share- Right of holder that directors shall do acts unauthorized by share- the Corporate constitution ; and it is the right of holders . ® that officers every shareholder that they shall do no such acts, nor unauthor-° indeed any act beyond their own authority, although ized acts, within the corporate powers, unless the same is • Elkins V. Camijen and Atlantic R, ' Railway Co. v. Ailing, 99 U. S. R. Co., 36 N. J. Eq. 241. 468. 624 CHAP. XII.] SHAREHOLDERS AND OFFICERS. [§ 686. authorized or acquiesced in by the body corporate. Directors about to do an unauthorized act may be restrained no doubt. But how ? § 686. Unquestionably action to restrain them should be taken by and in the name of the corporation. For the corporation is the direct superior or principal of ^™^ ^' the board of directors. Moreover, if the unauthorized act of the directors is not improper and fraudulent in itself, and within the scope -of the corporate- powers, it does not follow that a minority of shareholders have an absolute right that the act should not be done ; for it may be that the majority, who have power' to do the act in question, approve of it. Under such circumstances, for a minority of shareholders to allege a refusal on the part of the corporation to restrain the act — an essential allegation in a shareholder's bill to enjoin directors — would im- ply the corporate approval thereof, and demolish the plaintiff's case. Accordingly, a minority of shareholders cannot ordina- rily prevent directors from doing any act which, as done by the directors, the majority could competently ratify.' The proposed act should be manifestly improper, and the complaint should also show the impracticability of procuring action from the body corporate in time to prevent injury.^ ' Where to the validity of certain corporate management, to manage the acts, original action on the part of the corporate affairs. Here the matter is body corporate is required by statute spoken of rather with reference to the to be taken in a certain manner, as, rights of shareholders against directors e. g., in regard to an increase of the personally. See McNaughton v. Os- capital stock, it is possible that to va- good, 41 Hun (N. Y.), 108. lidate an unauthorized increase made A bill was filed by shareholders by the directors, the majority of share- against directors to compel the latter holders would have to go through the to assign to the corporation a lease prescribed formalities, and that a sim- which they had taken in their own pie ratification of the increase as made name, the corporation being made a by the directors would not be suffi- ' party defendant. It was held that all cient. the shareholders should also have been ' In this connection, Foss v. Har- made parties, as the corporation had bottle, 2 Hare, 461, is the leading the right to take an assignment or de- authority. See § 553 et seq., wherp cline it. Bengley v. Wheeler, 45 the matter is discussed as coming un- Mich. 493. der the right of the corporation or 40 625 § 688.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XII. § 687. In many eases, however, the acts of directors which are sought to be restrained are improper, fraudulent, or ultra Or ultra vives acts, which the majority cannot ratify, vires acts. ^^^ which every shareholder has the right to restrain. That such acta should not he done is as much the right of a single shareholder as of a majority of shareholders. Neverthe- less, the proper plaintiff in a suit to restrain directors from doing unauthorized acts, or in a suit against them for damages suffered bj' the corporation, or to compel them to account for illegal .profits which they have made, is still the corporation;' and a complaint in any such suit, where the corporation is not the complainant, is demurrable, unless it set forth sufficient reasons why the action is not brought by the corporation.^ § 688. Accordingly, in a suit brought by shareholders to re- strain directors or other officers from committing un- authorized acts, the complaint should show — and circumstantially — either that the corporation had been requested to and had refused or failed to take action, or that the corporation is impotent to act for the reason that the guilty officers constitute or con- trol the corporate management and affiiirs.* If these facts appear in the complaint, and the complaint fur- ther show that the corporation, and the plaintiff's interests therein, would be injured by the commission of the act sought to be prevented, it will be sustained by a court of equity.* Sharehold- ers incom- petent to bring action against officers until there has been a failure of the corpo- ration to act. ' Brown v. Vandyke, 8 N. J. Eq. 795; Booth u. Robinson, 55 Md. 419; Hedges v. Paquett, 3 Oreg. 77; State V. Bank of Louisiana, 6 La. 745; Macdougall v. Gardiner, 45 L. J. Chan. 27. * Doud V. Wisconsin, etc. R. Co., 65 Wis. 108. See Black v. Huggins, 2 Tenn. Ch. 780. Shareholders cannot maintain a bill for the removal of the treasurer of a corporation unless they have previ- ously applied to the board of directors 626 for relief. Tuscaloosa M'f 'g Co. v. Cox, 68 Ala. 71. ' See §§139-142, 553-560. Absence of such allegations, however, can- not be taken advantage of in the first instance in the appellate court. Bulk- ley V. Big Muddy Iron Co., 77 Mo. 105. * Wright V. Oroville M'g Co., 40 Cal. 20 ; Sears v. Hotchkiss, 25 Conn. 171; Pearson v. Tower, 55 N. H. 215; Bliss u. Anderson, 31 Ala. 612. See Elkins v. Camden and Atlantic CHAP. XII.] SHAREHOLDBKS AND OFFICERS. [§ 689. ' The same principles apply to actions brought by shareholders against directors, after the commission of the unlawful acts, for damages or to compel the directors to account for profits which they have unlawfully made. The complaint will be sustained if the plaintiff show an injury. to himself through injuries to the corporation, and either thafthe corporation has been re- quested to sue and has refused or failed ;' or that it is not in a situation to sue, or is under the control of the guilty officers.'' And a shareholder in his complaint in such an action should state particularly the efforts which he has made to prevail on the corporation to sue, so that the court may judge intelligently whether his efforts have been real or simulated.' In fine, it must be made to appear to the court that it is necessary for the protection of the plaintiff's interests in the corporation that he should be allowed to bring the action. § 689. The following are a few instances of cases which either hold, or proceed on the assumption, that when it is „ apparent that the guilty officers constitute the cor- tency of porate management so as to render a request to the ers to sue corporation to proceed against them futile, such ^o^por^ate R. R. Co., 36 N. J. Eq. 467 ; Can- non II. Trask, L. R. 20 Eq. 669; Watts's Appeal, 78 Pa. St. 370 ; Sel- lers V. Phcenix Iron Co., 13 Fed. Rep. 20. Where, by a statute on failure to publish annual reports the sharehold- ers are made jointly and severally lia- ble for the debts of the corporation, one or more shareholders may have a mandamus to compel the officers to publish the reports. Smith v. Steele, 8 Neb. 115. So a shareholder may have a mandamus to compel the officers to hold the annual election for trustees. People V. Cummings, 72 N. Y. 433. ' Greaves v. Gouge, 69 N. Y. 154 ; Smith V. Poor, 40 Me. 415; Booth V. Robinson, 65 Md. 419 ; Brewer V. Boston Theatre, 104 Mass. 378; Evans V. Brandon, 53 Tex. 56 ; Cogs- well V. Bull, 39 Cal. 320 ; Hazard v. Durant, 11 R. I. 195. Compare Heath v. Erie R'y Co., 8 Blatchf. 347. * Brewer p. Boston Theatre, 104 Mass. 378; Rogers v. Lafayette Agri- cultural Works, 52 Ind. 296 ; Carter V. Ford Glass Co., 85 Ind. 180 ; Pond 0. Vermont Valley R. R. Co., 12 Blatchf. 280 ; Heath u. Erie R'y Co., 8 Blatchf. 347 ; Ryan v. Leavenworth, etc. R'y Co., 21 Kan. 365 ; Peabody i;. Flint, 6 Allen, 52; Mussina ».* Goldthwaite, 34 Tex. 125; Jones u. Johnson, 10 Bush (Ky.), 649 ; Hilles V Parrish, 14 N. J. Eq. 380 ; Booth V. Robinson, 55 Md. 419 ; Neall v. Hill, 16 Cal. 145 ; Deaderick o. Wil- son, 8 Bax. (Tenn.) 108. See Watts's Appeal, 78 Pa. St. 370; Brown v. Vandyke, 8 N. J. Eq. 795. » Dannmeyer v. Coleman, 11 Fed. •Rep. 97. See § 140. 627 ♦ § 689.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XII. manage- request need not be made by shareholders before ment is in ^ . . • i i the hands commencing suit against them.^ guilty An action will lie in favor of a shareholder against officers. ^Yie president of a corporation, without previous demand on the directors for relief, when the following facts appear from the complaint *''that the corporation has made profits ; that the president does not allow them to appear on the books of the corporation ; that he is largely indebted to the corporation, and has received, but not accounted for, its emoluments ; that the majority of the directors are his tools, and have surrendered to him the control of the corporate affairs.^ Where a member of the board of directors, who is also sec- retary of the board and treasurer of the corporation, presents a bill for extra compensation as secretary and treasurer, he is disqualified from acting as a director on the auditing of the bill; and if the interested director is needed to make a quorum, and by the aid of his own vote the bill is approved of, any shareholder may sue for himself and other shareholders to prevent its payment and to set aside the proceedings.* Directors of a national bank are liable to shareholders for losses sustained by it through their gross negligence and in- attention to duty. If the receiver of the bank when insolvent, himself one of the guilty directors, refuses to sue, a shareholder may, on behalf of himself and all other shareholders, sue the directors for damages, making the receiver and the bank parties. The complaint need not allege a direction to sue from the comp- troller of the currency, or a refusal on his part to direct the re- ceiver to sue ; and the action may be brought in a state court.* In such an action the statute of limitations affecting equitable actions generally applies." ' Other cases are cited in the last * BrinckerhofF v. Bostwick, 88 N. note but one, many of which are stated Y. 52 ; reversing S. C, 23 Hun. 237. more at length elsewhere. See, espe- See also Merchants and Planters' Line cially, Brewer v. Boston Theatre, v. Waganer, 71 Ala. 581 ; Kelsey v. § 560. Sargent, 40 Hun (N. Y.), 160. * Rogers v. /Lafayette Agricultural = Brinckerhoff v. Bostwick, 99 N. Works, 52 Ind. 296. Y. 186. ' Butts V. Wood, 37 N. Y. 317. 628 CHAP. XII.] SHAREHOLDERS AND OFFICERS. [§ 690. § 690. In all cases where shareholders bring suit against di- rectors and other officers, either to restrain them „ . T 1 • T 1 Corpora- from improper and unauthonzed acts, or to compel tionaneceB- them to account for illegal profits which they have Ictfon*"^ ^ ' made, or when the suit is simply to recover damages ^r°"''^t'ou for injuries accruing to the corporate property through behalf of their wrongful or negligent acts, it is essential that Bhare- the corporation be made a party defendant.' Unless '"''*™^- all the shareholders join as plaintiffs, the action should be brought on behalf of' all ; or, at least, of all who are willing to join in defraying its expenses." And a court of equity is the appropriate tribunal.^ As in such cases the injury wrought by the misfeasance of ,the officers is common to all shareholders, so in the interests of all should the suit be brought. And thus it has been held that a single shareholder cannot maintain a separate action at law against directors for damages sustained by reason of their negligence, which had rendered his shares worthless. His action should be brought in a form to protect the interests of the corporation as trustee for all its shareholdei's and creditors.* > Greaves v. Gouge, 69 N. Y. 154; is in the hands of a receiver, he as Cunningham v. Pell, 5 Paige (N. Y.), well as it is a necessary party defend- 607; Charleston Ins., etc. Co. i.. Se- ant. Brinckerhofif" v. Bostwick, 88 bring, 5 Rich.-Eq. (S. C.) 342 ; Sears N. Y. 52. V. Hotchkiss, 25 Conn. 171 ; Black v. " Greaves v. Gouge, 69 N. Y. 154 ; Huggins, 2 Tennc Ch. 780 ; Robinson Brewer v. Boston Theatre, 104 Mass. V. Smith, 3 Paige. (N. Y.), 222; 378; Robinson u. Smith, 3 Paige (N. Davenport ». Dows, 18 Wall. 626. Y.), 222; Davenport u. Dows, 18 Where shareholders pass a resolu- Wall. 626. See Rogers .). Lafayette tion to cease to do business, and place Agricultural Works, 52 Ind. 296. all the assets of the corporation in the » Hodges v. New England Screw hands of one of its officers, to be con- Co., 1 R. I. 312 ; S. C, 3 R. I. 9 ; verted into money for distribution see Smith v. Hurd, 12 Mete. 371 ; among the shareholders after paying Allen v. Curtis, 26 Conn. 456. the corporate debts, the corporation is * Craig v. Gregg, 83 Pa. St. 19; still a necessary party to a bill filed by Gardiner v. Pollard, 10 Bos. (N. Y.) a shareholder against the officer for an 674. See also Evans v. Brandon, 53 account and settlement of the share- Tex. 56. Compare Gaffnfey v. Colvill, holder's interest. Young v. Moses, 6 Hill, 567; Oliphant u. Woodburn, 53 Ga. 328. So when the corporation etc. Co., 63 Iowa, 332. 629 § 692.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XII. § 691. A distinction has been taken^ which has not met with continuing approval ; namely, that while a shareholder may sue directors for damages arising to him through a breach of trust on their part, he may not bring a suit in which a judgment would in any way control the corporate action. The distinction seems badly taken, for if the corporation refuses or fails to act, it will often be that only through controlling the corporate action by the aid of a court of equity can a shareholder ade- quately protect his interests. § 692. Although it is to the body corporate that directors are immediately accountable, and actions can be sus- truBtees^for tained against them bj' a shareholder fpr abuse of holders.^' their trust only under the conditions mentioned, none the less do directors and other corporate officers hold their powers in trust for all the shareholders, minority as well as majority ;" and the primary reason why a single share- holder cannot always bring suit against the guilty officers im- mediately is not the inconvenience which a multiplicity of suits might cause the latter, but rather the right of the corporation to control the actions of its appointees and bring them to account. Accordingly, from the restrictions on the right of shareholders to bring suits against corporate officers for a breach of duty, it is not to be implied that directors and other officers do not owe to every shareholder the substantial duties which they owe immediately to the corporation. These restrictions are only in respect of the manner of enforcing their duties ; and the shareholders are the real beneficiaries. ' Hodges V. New England ' Screw C. N. R. 507, the bill was dismissed Co., 1 R. I. 312. because shareholders, holding views ' Harris v. North Devon R'y Co., opposed to the plaintiff, were not made 20Beav. 384; Richards ii. New Hamp- parties to the suit, although the de- shire Ins. Co., 43 N. H. 263. fendant directors held the views of Directors can make no disposition of such shareholders. Bruce, V. C, say- the corporate funds which will not ing (p. 514), " Directors are officially enure to the equal [proportionate] obliged to have an equal mind towards benefit of shareholders. Hale v. Re- the shareholders, and cannot properly publican River Bridge Co., 8 Kan. be considered as representing an oppo- 466. sition." In Richardson v. Larpent, 2 Y. & 630 CHAP. XII.] SHAREHOLDERS AND OFFICERS. [§ 694. § 693. Tljus, it may be said that the officers of a corporation owe to the shareholders all the duties which thev owe „ , , , ■' Corpora- te the body corporate ; and the rules governing the won cannot liability of officers to the body corporate also govern breach of their substantial liability to the shareholders. More- *''"^'" over, it is beyond the powers of the corporation to condone gratuitously, so as to conclude non-consenting shareholders, a breach of trust on the part of directors, whereby the assets of the corporation have been wasted or the corporate interests injured.' Accordingly, for every breach of trust on the part of the officers of a corporation, whether the same consist in fraudu- lent or unauthorized acts or in gross negligence,^ the guilty officers are liable to the individual shareholders in damaees, or to account for unlawful profits made by them.^ And to enforce this liability, actions may be brought by the latter under the conditions heretofore discussed.* § 694. As corporate officers acting in good faith within their authority are not liable to the corporation for a mere mistake in judgment," so, for such mistakes, they will wiity of not be liable to individual shareholders.^ Iif either errors; will they be liable to shareholders for the frauds of oTother other officers under circumstances which do not officers, render them liable to the corporation.' But, whenever directors ^ Hazard v. Durant, 11 R. I. 195. the corporation. Kitchen v. St. Louis, ' Brinckerhoft'w. Bostwick, 88 N. Y. etc. R'y Co., 69 Mo. 224 ; see "Watts's 52. Appeal, 78 Pa. ^t. 370. ' Ryan v. Leavenworth, etc. R'y * See § 620. Co., 21 Kans. 365 ; Farmers', etc. ^ Smith v. Prattville M'f g Co., 29 Banks). Downey, 63 Cal. 466 ; Koehler Ala. 503 ; Watts's Appeal, 78 Pa. St. V. Black River Falls Iron Co., 2 Black 370 ; Booth v. Robinson, 55 Md. 419. 715. ' Dunn v. Kyle, 14 Bush (Ky.), Directors will be liable to share- 134. See §§ 624-626. A director is holders if they fraudulently misman- not liable to a shareholder for misre- age the corporate affairs in the inter- presentations in the articles of associa- ests of a rival corporation. Booth v. tion made before the election of the Robinson, 55 Md. 419. board, of which he was a member; * Shareholders may, however, lose and a person cannot maintain an action their right to object by acquiescence against directors for the violation of a or a long delay ; and they are charge- statute and the consequent deprecia- able with knowledge of the records of tion of the stock, when the acts com- 631 § 696.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. XII. incur liability to the corporation for the frauds of other officers which the neg^ligence of the directors renders possible, the directors will be liable to the shareholders if the corporation fails to bring suit against them.' § 695. Directors have been held not to be liable to share- j^ ^ ^ holders for improper or illegal acts which are author- thorized ized by a shareholders' meeting.^ And a bill in equity hoidere^ filed by shareholders against directors alleging illegal meetings. ^^^^ ^^ ^^^q part of the latter, is demurrable when one of the complainants is a director who participated in the alleged acts.' § 696. When an injury to a shareholder is not the result of Uncondi ^ misapplication of the corporate funds by reason of tionai right which all shareholders suffer alike ; but is an injury holders to done by corporate officers to the shareholder directly, direct inju- t^® shareholder may sue at once on his own behalf; ries. for jje is the only person injured, and in respect of such injuries he is not held to have confided the protection of his interests to the body corporate.* Accordingly, when a person is induced through the fraudulent misrepresentations of plained of were committed before he received. Williams v. FuUerton, 20 became a shareholder. Mabey v. Vt. 346. When there are two classes Adams, 8 Bos. (N. Y.) 346. of shareholders, one whose dividends ' Ackerman v. Halsey, 37 N. J. are to be deferred for a number of Eq. 356 ; aff'd 38 N. J. Eq. 501. years, and directors pay to the other ' International, etc. R. E. Co. v. class dividends out of the capital of the Bremond, 53 Tex. 96. • See also company, the directors may be person- Overend v. Gurney, L. R. 4 Ch. 701 ; ally liable to make up the sum, in the S. C, sub num. Overend & Gurney interests of the deferred shareholders. Co. V. Gibb, L. R. 5 H. L. 480. Salisbury v. Metropolitan R'y Co., 22 Compare Dederiek v. Wilson, 8 Bax. L. T. N. S. 839. (Tenn.), 108. Some directors attempted to purchase ' Baird v. Midvale Steel Works, 12 on behalf of their bank its own stock. Phila. (Pa.) 255. This they had no power to do, and the * The treasurer of a corporation who bank repudiated the transaction. It holds money to pay a dividend which was held that the vendor could not sue has been declared, and refuses to pay the directors, who had made no mis- the dividend on certain shares, claim- representations and whose want ■ of ing to be the owner of them himself, is power was a matter of law, as open to liable personally for the amount of the the knowledge, of the plaintiff as to dividend, to the real owner in an ac- themselves. Abelas v. Cochran, 22 tion of assumpsit for money had and Kan. 405. 632 CHAP. XII,] SHAREHOLDERS AND OFFICERS. [§ 698. directors to purchase shares, he may sue them immediately for the damages arising from the wrog done him.' Likewise, when directors' make a fraudulent overissue of stock, any one purchasing such shares on the faith of their having been law- fully issued may recover from the directors the damages sus- tained by him.^ § 697. If confidential agents of a company conspire to depress the selling price of the shares by a system of false accounts and concealments, in order that they may purchase shares at less than the real value, and they do purchase the shares of a holder at less than the shares are worth, the holder may have the sale set aside with an accounting for dividends received by them, or may hold the agents for the difference between the value of the shares and what they paid.' Where, however, the defendant with other directors of a corporation, made an assess- ment on its stock, upon which but a small proportion was paid, and threatened to make further assessments for the purposes of the corporation, a course of action which induced the plaintiff to sell his shares to the defendant, it was held that there was no such fraud in the matter as would warrant setting the sale aside.* § 698. The trust relation between shareholders and directors extends only to matters relating to the management •' % . T 1 IT Limits to of the corporate busmess. Accordingly, rules appli- the trust cable to transactions between a trustee and his cestui tweenThare- que trust do not extend to a purchase of shares made ^°'g^^^/^,\*'"^ by a director from a shareholder, and in the absence of actual fraudulent misrepresentations, such a sale will be upheld, provided the director does not intentionally and fraudu- lently divert or prevent the vendor from making inquiries into the condition of the corporate affairs.* ' Cole y. Cassidy, 138 Mass. 437; But an assignee of shares cannot sue Davidson ». Tulloch, 3 Macq. 783; the transfer agent for improperly. re- Paddock V. Fletcher, 42 Vt. 389 ; Ca- fusing to register him ; but must sue zeaux B. Mali, 25Barb. 578 ; Morgan v. the corporation. Denny v. Manhattan Skiddy, 62 N. Y. 319; Bale v. Cle- Co., 2 Denio (N. Y.), 115. land, 4.F0SS. & Fin. 117. Compare ' Walsham v. Stainton, 1 De G. J. Mabey 0. Adams, 3 Bos. (N. Y.) 346. & S. 678. ° Brufif w. Mali, 36 N. Y. 200; « Grant ». AttriU, 11 Fed. Rep. 469. Shotwell 0. Mali, 38 Barb. 445. ' Carpenter v. Danforth, 52 Barb. 633 § 699.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. XII. This rule, regarding the purchase of shares by an officei', was applied under the following circumstances. The defendant, who was the president and a director of a railroad company, knowing by reason of his official position that the true value of its stock was largely in excess of the selling price, purchased the shares of a non-official shareholder for less than their real value. The court held that the defendant was under no' duty to disclose to the shareholder matters affecting the value of the shares, which were not matters of general opinion and could not have been found out by the shareholder. The fact known to the defendant and not to the plaintiff, was that the former was about to consummate a sale of the road which was likely to enhance, and when effected did greatly enhance, the value of the stock.* § tt99. If directors expend money, and incur personal liability for purposes not within their authority, yet the share- riffht^toin- bolders, knowing the circumstances, acquiesce, and demniflca- receive the benefit of their acts, the directors will, as against the shareholders, be entitled to indemnity from the corporate funds.^ And if shareholders neglect to attend corporate meetings where they know such matters are to be discussed, they will not be permitted to take advantage of their ignorance.^ But where by reason of certain defaults the officers of a corporation have been compelled to pay its debts, they cannot obtain contributions from the shareholders, whom the same statute rendered liable after the property of the officers had been exhausted.^ 581 ; Deaderick v. Wilson, 8 Bax. take advantage of their knowledge of (Tenn.) 108 ; Commissioners of Tip- facts not known to the latter, but pecanoe County v. Reynolds, 44 Ind. which the directors are acquainted 509. with by reason of their official posi- ^ Commissioners of Tippecanoe Co. tion, seems of questionable' propriety. V. Reynolds, 44 Ind. 509, Downey, ' Ex parte Chippendale, 4 De G. C. J., dissenting. The transaction M. &G. 19; §645. which in this case was allowed to stand ' See Turquand v. Marshall, L. R. seems to the writer to have been ami- 4 Ch. 376 ; In re British, etc. Assur. nently unfair, and indeed a rule — for Soc, Lane's Case, 1 De G. J. & S. which this decision is certainly au- 504. thority — that directors in tlieir deal- ♦ Stone v. Fenno, 6 Allen, 579. ings with shareholders are entitled to 634 CHAP, XIII.] SHAREHOLDERS AND CREDITORS. CHAPTER XIII. LEGAL RELATIONS BETWEEN SHAREHOLDERS AND CREDITORS OF A CORPORATION. Rights of creditors in absence of statu- tory liability, § 700. Liability incurred by subscribing. Conditions, § 701. Liability in respect of shares issued for property, § 702. Creditors* remedies, § 703. Joinder, of parties in creditors' bills, §§ 704-706. Appointment of receiver. Assignee in bankruptcy, § 707. Rights of creditors against shareholders improperly withdrawing corporate funds, § 708. Shareholders, in what respects trustees for creditors, §§ 709-711. Classes of statutes imposing personal liability, § 712. Return of unsatisfied execution against the corporation, § 713. Nature of statutory liability, §§ 714- 716. Shareholders not left, but made liable, §717. To what shareholders statutory lia- bility attaches, §§ 718-720. Creditors the proper parties to sue, §721. Necessary averments in pleading, §§ 722, 723. Performance by creditor of conditions precedent, § 724. Joinder of parties, § 725. Distinction, § 726. Liability of shareholders in national banks, § 727. Extinguishment of liability, § 728. Set-off. Unpaid subscriptions, § 729. Set-off. Dividends improperly re- ceived, § 730. Set-off. Statutory liability, §§ 731, 732. When shareholder, who is also a creditor, cannot sue another share- holder at law, § 733. Liability for debts of a particular class. "Debts," § 734. Waiver or repeal of statutory liability. Substantial compliance with statute, §735. Statute of limitations, § 736. Effect of judgment against corpora- tion, § 737. Shareholders cannot deny corporate existence, § 738. Nor can the creditor ordinarily, § 739. Who are shareholders as to creditors, §740. Transferee of shares as collateral secu- rity, § 741. Real owner of shares liable, § 742. Rationale, § 743. Fraud, when no defence, § 744. Releases, no defence, § 745. Compromises : forfeitures, § 746. Effect of transfers of shares. Trans- fers to the corporation, § 747. Irregular transfers, § 748. Transfers in fraud of creditors, § 749. Relations between shureholders and creditors on winding up. Divi- dends, § 750. On dissolution, § 751, 635 § 701.] THE- LAW OF PRIVATE CORPORATIONS. [CHAP.'XIII. § 700. When, according to the constitution of a corporation, Riehts of liability for corporate indebtedness is not extended creditors in beyond the corporate funds properly so called, that statutory is, not beyond the capital named in the charter or liability. articles of association, paid up or agreed to be paid up, and to be used in the corporate business, it is almost an identical proposition to say that the shareholders, provided they honestly pay what they have subscribed, are not personally lia- ble to creditors of the corporation.' When such is the consti- tution of a corporation, creditors have but two general and comprehensive rights as against shareholders : the one right, that each shareholder, unless cash in amount or property in value equal to the par value of his shares has been paid to the corporation on account of them, shall contribute to the corpo- rate funds the amount unpaid on his shares when necessary to meet the corporate indebtedness;^ the other right, that share- holders shall not, to the injury of creditors, divert the funds of the corporation from their proper function of discharging the corporate indebtedness. Whatever rights against shareholders in a corporation with a constitution of t^is nature creditors may have, are incidental to these twO main rights. § 701. By subscribing for shares in the capital stock of a Liability Corporation, subscribers, even without an express incurred by promise to pay, are held impliedly to agree to pay ing. Con- to the corporation the par value of the shares sub- ditions. scribed for by them respectively.* However, as it is ^ See Seymour v. Sturges, 26 N. corporation is liable for unpaid instal- Y. 134. A statute prescribing that ments of stock without an express no shareholder shall be liable to cred- promise to pay them, and a contract iters of the corporation for more than made by him with the corporation or the amount subscribed by him is de- its agents, limiting his liability there- claratory of the common law. Walker for, is void as to creditors of the com- V. Lewis, 49 Tex. 123. pany and its assignee in bankruptcy ' This right pf creditors, or liability who represents them. Upton v. Tri- of shareholders, is sometimes expressed bilcock, 91 U. S. 45; Tuckerman !>. by statute. (See N. Y. Rev. Stat. Brown, 33 N. Y. 297 ; Jewell v. Rock chap. 18, tit.^ii. § 1, par. 5); Mor- River Paper Co., 101 111. 57; Union gan V. New York and Albany R. R. Mut. Life Ins. Co. u. Frearstone M'f'g Co., 10 Paige (N. Y.), 290. Co., 97 111. 537 ; Keystone Bridge Co. ' See § 513. V. Barstow, 8 Mo. App. 494 ; Wight The original holder of stock in. a Co. v. Steinkemeyer, 6 Mo. App. 574 ; 636 CHAP. XIII.] SHAEBeOIiDERS AND CEEDITORS. [§ 701. the law that when a certain amount of stock is mentioned in the charter or articles of incorporation, a contract to subscribe cannot be enforced by the corporation before the total amount is subscribed, so creditors cannot compel a subscriber to pay up his subscription w^hen the same implied condition is unfulfilled and the subscriber has done nothing to estop himself from set- ting up such defence.' But a subscriber does estop himself by paying a call and acting as a shareholder.^ The capital stock, whether actually paid up or subject to call, constitutes the prirnary fund to be applied in furthering the objects of incor- poration. It is the fund which subscribers are bound to con- tribute, and which creditors may rely on for the payment of their claims.* It need not be altogether cash, hut may consist Goodwin V. McGehee, 15 Ala. 232. The charter of a trust company pro- vided : "If at any time the capital stock paid into said corporation shall be impaired by losses or otherwise, the directors shall forthwith repair the same by assessment." The company being insolvent and in the hands of a receiver, it was held that a personal liability was not imposed on the share- holders, and that they could not be assessed to pay creditors, and that the purpose of said provision was to pre- vent the continuance of business with impaired capital. Dewey v. St. Al- bans Trust Co. , 57 Vt. 332. The shareholders of a corporation who were under no personal liability to its creditors, at a time when the corporation was insolvent, made an agreement to pay the treasurer "the sums set opposite our names, respec- tively, for the purpose of liquidating the debt against said association." All but one paid the amount, and the business was continued three years. It was held that an action of assump- sit, in the name of the treasurer, could be maintained on behalf of those who were creditors at the time of the above agreement, the corporation hav- ing ceased to do business, and trans- ferred its assets to its creditors. Has- kell V. Oak, 75 Me. 519. A corpora- tion was organized, the members agree- ing that its liabilities should not exceed an amount much less than its nominal capital stock ; they then distributed its capital stock among themselves, paying for it only a small fraction of its face. Held, a shareholder who was a party to the original agreement could not recover against other shareholders for debts owing him by the corporation beyond the limited amount ; but seems an outside creditor could. Halderman V. Ainslie, 82 Ky. 395. ' Temple v. Lemon, 112 111. 51. See § 518. But the subscriber may estop himself by delay from insisting (as against creditors) on the condition. Lee V. Imbrie, 13 Oreg. 510. 2 Cornell and Michler's Appeal, 114 Pa. St. 153. » See §§ 654, 655. When sued by a creditor a sub- scriber cannot plead an agreement not contained on the face of the subscrip- 637 § 702.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. XIII. partly in buildings, plant, and properties. Accordingly, a shareholder may pay for his shares in property or even in ser- vices, provided such property or services be fairly worth the par value of the capital stock received as fully paid up in return.' §702. To issue shares as fully paid up for property known T . ^-y. . to the corporation and the shareholder receiving respect of them to be materially below their par value, is a sued for fraud on creditors, for whose benefit the shareholder property. ^^ whom the sharcs are issued may be compelled to make up the difierence.^ This rule is not aft'ected by the facts that the corporation was insolvent when the shares were issued, and that they were issued in payment of a debt owed by it' If,"however, shares are issued as fully paid up, when in fact the corporation has never received the par value of them, creditors cannot compel a person who buys them in good faith as full tion, that the subscription was to be paid only under certain conditions. Hickman v. Wilson, 104 111. 54. See §521. ■ Coit V. Gold Amalgamating Co., 119 U. S. 343. See§ 545. But a subscriber cannot as against creditors set up a collateral agreement that his subscription was to be paid in land which the corporation had no authority to acquire. Noble v. Cal- lender, 20 Ohio St. 199. Compare In re Glen Iron Works, Wilbur v. Stockholders, 13 Phila. (Pa.) 479 ; S. C, 18 Bankr. Keg. 178. "The pub- lic has a right to assume, where the stock of a company has all been issued , as full-paid stock, that it has been paid for in full in money, or in pro- perty at a fair value." Gofi' v. Hawk- eye Pump, etc.' Co., 62 Iowa, 691, 694, opinion of court per Adams, J. Where a corporation issued all its Stock for a patent which turned out worthless, the stockholders were held 638 liable to creditors. Chisholm Bros. 0. Forney, 65 Iowa, 333. * Jackson v. Traer, 64 Iowa, 469 ; Freeman !>. Stine, 15 Phila. (Benn.) 37 ; Crawford v. Rohrer, 59 Md. 599 ; Osgood V. King, 42 Iowa, 478 ; see also Wctherbee v. Baker, 35 N. J. Eq. 501. But see the remarkable decision, In re South Mountain Con- solidated M'g Co., 14 Fed. Rep: 347. Where stock is issued in good faith for property supposed to equal in value the amount of stock issued for it, the subscriber will not be liable to credi- tors because subsequent events show that the property was worth less. Coit V. Gold Amalgamating Co., 14 Fed. Rep. 12; S. C. aff''d 119 U. S. 343 ; Brant w. Ehlen, 59 Md. 1. See Coffin V. Ransdell, 110 Ind. 4i7, and § 723. ' Jackson v. Traer, 64 Iowa, 469. In this case $350,000 of stock were issued in payment of a debt of $70, 000. Contra, Clark v. Bever, 31 Fed. Rep. 670. CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 703. paid, to pay the difference between their par value and the value of whatever property was given for them originally.^ Though very likely the creditors could hold the original sub- scriber who took the shares as fully paid up, knowing them not to be so, liable for such difference,'' or for the difference between what he gave and what he received for them.* § 703. Creditors in order to enforce their main right to have the nominal 'value of the capital stock actually paid in, have the subsidiary right to compel the directors ^emed^™' to make calls ;* or creditors may themselves bring a ' Brant v. Ehlen, 59 Md. 1 ; Phelan V. Hazard, 5 Dill. 45 ; Steacy v. Little Ko'ck, etc. R. E. Co., ib. 348; Fore- man V. Bigelow, 4 Cliff. 508 ; Erskine V. Loewenstein, 82 Mo. 301 ; Johnson V. LuUman, 15 Mo. App. 55; S. C, 88 Mo. 567; Keystone Bridge Co. V. McCluney, 8 Mo'. App. 496 ; see Waterhouse u. Jamieson, L. R. 2 H. L. Sc, 29. Conipare Peck v. Coalfield Coal Co., 11 111. App. 88; Railroad Co. V. Howard, 7 Wall. 392. See §545. 2 See Boyton v. Hatch, 47 N. Y. 225 ; Tallmadge v. Fishkill Iron Co., 4 Barb. 382; Pell's Case, L. R. 5 Ch. 11. ' Eyerman v. Krieckhaus, 7 Mo. App. 455. Christensen v. Eno, 106 N. Y. 97, appears to hold that a cor- poration may present shares of its stock to shareholders, and that on its subsequent insolvency creditors cannot compel shareholders who have received shares as a gratuity to pay up the par value thereof. Compare Clark v. Bever, 31 Fed. Rep. 670. * See § 661. In the ordinary case of a solvent corporation there is no liability on shareholders to pay in the capital until an assessment is levied by the proper corporate authorities ; but when the corporation becomes insolvent, espe- cially if it ceases to be a going concern, this condition precedent ceases to exist, and payment is compellable at the suit of creditors, although no assessment has been made. Hatch v. Dana, 101 U. S. 205 ; Wilbur, Assignee, v. Stock- holders, In re Glen Iron Works, 18 Bankr. Reg. 178; S. C, 13 Phila. 479 ; Holmes v. Sherwood, 3 Mc- Crary, 405; Crawford v. Rohrer, 59 Md. 699. Compare Seymour v. Stur- ges, 26 N. Y. 134. Unpaid stock "in cases of insolvency is due as an entirety ; it is due to the aggregate of the creditors ; only so much is due as is requisite to discharge the indebtedness of the corporation after all other assets have been thereto applied ; as a necessary consequent there must be an account of debts, assets, and unpaid capital taken ; when such account has been taken, and the amount required from each stockholder has been ascertained, an assessment ordering the payment of such propor- tionate amount by each may be made by a court of competent jurisdiction in a proceeding in which the corporation and the stockholders should be made defendants. " I consider it as the clear result of the authorities that, except in cases where the corporate authorities have themselves made calls which are au- 689 § 704.] THE LAW OF PKIVATE COKPORATIONS. [CHAP. XIII. bill in equity against the delinquent shareholders.* But a creditor cannot sustain a bill against shareholders for satisfac- tion of his claim from their unpaid subscriptions until he has exhausted his legal remedies against the 'corporation and its property.' Though it would seem that this last rule is in- applicable to creditors of a dissolved corporation who can obtain no judgment at law against it.^ § 704. A creditor suing for satisfaction of his debt may properly, and, according to the majority of decisions, must sue on behalf of himself and all other creditors who are willing to join. For the unpaid subscrip- tions constitute a fund for the benefit of all the creditors.* In such an action it is proper to join all the share- Joinder of parties in I reditors' bills. thorized by the subscription contracts, there is absolutely no liability of any kind whatever, on the part of the stockholder to pay any part of his unpaid capital, except under and by force of an assessment made as above stated." Bunn's Appeal (or Lane's Appeal), 105 Pa. St. 49, 67, per Green, J., giving opinion of the Su- preme Court of Pennsylvania. This case disapproves In re Glen Iron Works, 13 Weekly Notes, 387; S. C, 13 Phila. 479. Consequently, on the insolvency of a corporation, unpaid and uncalled amounts due upon the capital stock cannot be attached by a judgment creditor of the corporation by means of an attachment execution. Bunn's Appeal, supra. ' Gaff'u. Flesher, 33 Ohio St. 107; Harmon v. Page, 62 Gal. 448 ; Lane's Appeal, 105 Pa. St. 49; Allen v. Montgomery R. R. Co., 11 Ala. 437, 449 ; Hightower i. Thornton, 8 Ga. 486, 504 ; see Jones v. Jarman, 34 Ark. 323 ; Haslett v. Wotherspoon, 1 Strobh. Eq. (S. C.) 209. A share- holder cannot plead against creditors, that interest on instalments already paid in, has not been paid him by the 640 corporation as promised. Wood v. Pearce, 2 Disney (Ohio), 411. See also cases in succeeding notes. But an action at law does not lie by a creditor against a shareholder for unpaid sub- scriptions. Patterson v. Lynde, 106 U. S. 519. See Bunn's Appeal, supra. A stockholder cannot be gar- nisheed on his unpaid subscription by a creditor of the corporation, when no call has been made. McKelvey v. Crockett, 18 Nev. 238. As to the assignment by the corporation of un- paid subscriptions, see §§ 543, 707. " Torry v. Anderson, 95 U. S. 628, 636 ; Sturges v. Vanderbilt, 73 N. Y. 384; Blake v. Hinkle, 10 Yerger (Tenn.), 218. See Hatch v. Dana, 101 U. S. 205 ; Marsh v. Burroughs, 1 Woods, 463 ; Remington v. Samana Bay Co., 140 Mass. 494. As to the effect in such a suit of a judgment against a corporation, see § 737. ' Terry v. Anderson, supra; com- pare Sturges V. Vanderbilt, supra; Remington v. Samana Bay Co., 140 Mass. 494. * See Dabney v. Bank of South Carolina, 3 S. C. 124; Sawyer v. Hoag, 17 Wall. 610; Hickling v. CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 705. holders as defendants ; and if the latter are too numerous to be joined, or if some of them are unknown to the plaintiff, or in- solvent, or beyond the jurisdiction of the court, the creditors' bill should contain allegations to this effect.^ The corporation should also be made a party defendant.* § 705. The corporation being insolvent, no doubt any credi- tor not made a party to the bill has a right to come in and insist on a ratable distribution of the corporate assets, vi^hich include unpaid subscriptions.* And a creditor's bill that is properly framed will be in a form to enable any creditor to join.* It would, however, work hardship if a creditor who sues in a court of equity to reach assets of the corporati6n which he cannot subject to his claim in an action at law, were in all cases obliged- to make all the shareholders parties, or even to bring his suit on behalf of all the creditors. To insist on this would practically force a creditor seeking such equitable relief to bring a bill for the winding up of the corporation; which is certainly not incumbent on him.' Thus, in Marsh v. Burroughs,* a bill was brought by certain judgment creditors of a bank against a portion of the share- holders, to compel them to satisfy the plaintiffs' judgments from the unpaid subscriptions due on the defendants' shares. The bill alleged that the stock of the bank was divided into twenty thousand shares, held by a great number of shareholders in different states, some of whom were insolvent. Although Wilson, 104 111. 54 ; Lane's Appeal, 733 ; Holmes v. Sherwood, 3 Me- 105 Pa. St. 49; Brundage v. Monu- Crary, 405; Patterson v. Lynde, 112 mental Gold, etc. M'g Co., 12 Oreg. 111. 196. 322; Patterson r. Lynde, 112111. 196. ' See Pfohl v. Simpson, 74 N. Y. This rule holds good though the cor- 137 ; Marr ■;. Bank of West Tennes- poration be a foreign corporation. lb. see, 4 Coldw. (Tenn.) 471; Adler v. ' Adler v. Milwaukee Patent Brick Milwaukee Patent Brick M'f'g Co., M'f'g Co., 13Wis. 57; Vick u. Lane, 13 Wis. 57; Osgood v. Laytin, 3 56 Miss. 681; Wetherbee v. Baker, Keyes (N. Y.), 521. 35 N. J. Eq. 501 ; Holmes v. Sher- * Such was the form in Hatch v. wood, 3 McCrary, 405 ; Bronson v. Dana, 101 U. S. 205, and Ogilvie v. Insurance Co., 85 N. C. 411. See Knox Ins. Co., 22 How. 380. Hadley v. Russell, 40 N. H. 109 ; * See Crawford v. Kohrer, 59 Md. Eriekson v. Nesmith, 46 N. H. 371. 599. 2 Wetherbee w. Baker, 35 N. J. Eq. = 1 Woods, 463. 501; Perkins v. Sanders, 56 Misa. 41 641 § 707.] THE LAW OF PRIVATE COKPOEATIONS. [CHAP. XIII. the objection was made that the proper parties were not before the court, Justice Bradley sustained the bill, saying in the course of his opinion : " A judgment creditor who ha,s ex- hausted his legal remedy, may pursue in a court of equity any equitable interest, trust, or demand of his debtor, in whoseso- ever hands it may be. And if the party thus reached has a remedy over against other parties for contribution or indemnity, it will be no defence to the primary suit against him that they are not parties. If a creditor were to be stayed until all such parties could be made to contribute their proportionate share of the liability, he might never get his money.'" § 706. So in Hatch v. Dana,'' a creditor's bill brought against a portion of the shareholders, not to wind up the company, but simply to obtain the payment of the plaintiff's debt out of unpaid subscriptions, was sustained by the Supreme Court of the United States. " We hold that the complainant was under no obligation to make all the shareholders of the bank defen- dants in his bill. It was not his duty to marshal the assets of the bank, or to adjust the equities between the corporators. In all that he had no interest. The appellants may have had such an interest, and, if so, it was quite in their power to secure its protection. They might have moved for a receiver, or they might have filed a cross-bill, obtained a discovery of the other stockholders, brought them in, and enforced contribu- tion from all who had not paid their stock subscriptions. Their equitable right of contribution is not yet lost."^ § 707. Instead of himself suing, a creditor may apply for the appointment of a receiver^ whose function it will be to collect unpaid subscriptions.* And after the appointment of a receiver, ' Marsh v. Burroughs, 1 Woods, 258. Compare Griffith v. Mangam, 463, 468. See, also, Bartlettu. Drew, 73 N. Y. 611. 67 N. Y. 587. * See § 542. 2 101 U. S. 206. A receiver should not call on share- ' Hatch V. Dana, 101 U. S. 205, holders for the balance of their unpaid 214 ; opinion of the court per Strong, subscriptions in order to pay creditors, J. ; accord, Ogilvie v. Knox Ins. Co., until the whole amount of the corpo. 22 How. 380 ; Cornell & Michler's rate indebtedness is determined and Appeal, 114 Pa. St. 158; Pierce v. the liability of each shareholder fixed. Milwaukee Construction Co., 88 Wis. Chandler u. Keith, 42 Iowa, 99 ; Mann 642 CHAP. XIII. J SHARBHOLDEKS AND CREDITORS. [§ 708. a creditor cannot bring suit in his own name for unpaid sub- scriptions ; nor prosecute a suit further if he has al- ready begun one.* Unpaid subscriptions, moreover, ment'of being part of the assets of the corporation, pass by a AssfJnee in decree in bankruptcy to its assignee ; after which he ''^p'^- and not the creditors should sue for them. And the mere fact that the assignee has delayed for two years in bringing suit does not enable creditors to sue.^ § 708. Creditors may also restrain shareholders from with- drawing the corporate funds to the injury of the Rights of former, and can recover such funds from shareholders <=''«'?^'°/^ ' against who have improperly received them." For instance, share- the shareholders of an insolvent bank are not entitled properly to receive or divide among themselves any of its J^g corpo- assets until its debts and liabilities are fully dis- rate funds. charged.* And an action may be maintained by the receiver of an insolvent corporation against its shareholders to recover sums received by them as dividends when the corporation was insolvent." But where dividends have been properly paid from profits, the company being solvent at the time, its subsequently V. Pentz, 3 N. Y. 415. But see Day- ton u. Borst, 31 N. Y. 435. > Kankine v. Elliot, 16 N. Y. 377. In a creditor's action against an in- solvent corporation for the appointment of a receiver, a court has no jurisdic- tion to grant an interlocutory order making an assessment on the unpaid stock, as against shareholders not par- ties to the bill, the bill containing no allegation that they are too numerous to be made parties. Lamar Ins. Co. V. Hildreth, 55 Iowa, 248. ' Lane v. Nickerson, 99 111. 284. But a bill brought by creditors, alleg- ing collusion between the corporation, its assignee, and its debtors, may b'e sustained. Stocks v. Van Leonard, 8 Ga. 511. ' Bartlett v. Drew, 57 N. Y. 587. See § 656. ' Wood V. Dummer, 3 Mason, 308 ; Hollister v. HoUister Bank, 2 Keyes (N. Y.), 245. ' Osgood V. Laytin, 3 Keyes (N. Y.), 521 Y^ Lexington Life, etc. Ins. Co. V. Page, 17 B. Mon. (Ky.) 412. Especially if the dividends were paid out of capital. Williams v. Boice, 38 N. J. Eq. 364. Although a statute makes the directors personally liable for all dividends paid out of capital, lb. ; §§ 566, 567. Similarly a pre- ferred shareholder is postponed to creditors. St. John v. Erie Railway Co., 22 Wall. 136. In such an action the receiver may make the creditors parties to restrain them from bringing separate suits against the shareholders. Osgood ». Laytin, supra. 643 § 710.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIII. accruing , insolvency will not enable creditors to recover such dividends from the shareholders who have received them.* § 709. Since the unpaid subscriptions just as much as those which are actually paid in, are held to constitute hofdersin the capital of the corporation,'' shareholders to the ^^ecttms- extent of their unpaid subscriptions have in their tees for possession funds to which creditors of the corporation statute of may be entitled ; and shareholders may therefore, to limitations. ^^^ extent of their unpaid subscriptions, be regarded as trustees for creditors.^ Accordingly, the statute of limita- tions does not run against the right of creditors to enforce the payment of unpaid subscriptions until the corporation has ceased to be a going concern,^ or until a valid call has been made by the directors or by a court of competent jurisdiction, or at least some authorized demand has been made on the subscriber.* § 710. Further, the body corporate derives its powers to act as such from the constitution of the corporation ; a proposition which involves the further proposition that it must exercise its powers in accordance with the terms of such constitution. These powers, accordingly, cannot be exercised in disregard of interests which just as much as the interests of shareholders are protected by rights which are the manifestations of legal rules contained in the constitution. And, therefore, in so far as shareholders, constituting the hodj corporate, have power, to control the funds in which creditors have legally protected in- terests, shareholders must be regarded as occupying towards them a position of trust ;. for the latter have ordinarily no voice in the corporate management. As Justice Miller said, giving the opinion of the Federal Supreme Court, in Sawyer t;. Hoag." " But, after all, this artificial body is but the representative of its stockholders, and exists mai-nly for their benefit, and is governed » Eeid V. Batonton M'f 'g Co., 40 See Harmon v. Page, 62 Cal. 4i8 ; Ga. 98. See McLean v. Eastman, 21 First Nat. B'k. v. Green, 64 Iowa, Hun, 312. 445. 2 See §661. ' = ScoviUe v. Thayer, 105 U. S. 3 See §§41-47. 143, 155; Western R. R. Co. v. ' AUibone e. Hager, 46 Pa. St. 48, Avery, 64 I^. C. 491. See Glenn r. 54 ; Payne v. BuUard, 23 Miss. 88 ; Saxton, 68 Cal. 353. Curry v. Woodward, 53 Ala. 371, 376. ^ 17 Wall., 610, 623. 644 CHAP. XIII.J SHAREHOLDERS AND CREDITORS. [§ 712. and controlled by them through the officers whom they elect ; and the interest and power of legal control of each shareholder is in exact proportion to the amount of his stock. It is, therefore, but just that when the interest of the public, or of strangers dealing with the corporation, is to be affected by any transaction between the stockholders who own the corporation, and the corporation itself, such transaction should be sub- jected to a rigid scrutiny, and if found to be affected with any- thing unfair toward such third person, calculated to injure him, or designed intentionally and inequitably to screen the stockholder from loss at the expense of the general creditor, it should be disregarded or annulled so far as it may inequitably affect him."» § 711. Thus, the Federal Supreme Court has held that a foreclosure sale, made after a railroad company, the mortgagor, had become insolvent, and expedited by an arrangement be- tween the mortgagees and the shareholders, by which the former received a part of the debt due them and the latter the remainder of the proceeds, is fraudulent as against the general creditors of the company; and this, although the road was mortgaged far above its value, and did not on the sale in open market bring nearly enough to satisfy even the mortgage debts. ^ § 712. Statutes imposing individual liability' fall under two heads: those which make the shareholders jointly and seve- 1 Thus, an insolvent bank cannot ' Railroad Co. v. Howard, 7 Wall, convey its property to pay a debt due 392. But compare Pennsylvania its sole shareholder. Swepson v. Transportation Co.'s Appeal, 101 Pa. Bank, 9 Lea (Tenn.), 713. But it St. 576, where it was held that the has been held that a shareholder may bondholders and shareholders of a avail himself of his superior advantages ' railroad company may unite for the to obtain security for debts due him, to purchase of the property of the com- the exclusion of other creditors of the pany at a contemplated foreclosure corporation. The court said that share- sale, to prevent a sacrifice of the pro- holders and strangers who are credi- perty ; and if the agreement and sale tors stood on very unequal terms ; but are fair, they do not operate as a fraud it seemed to be an inequality allowed on a creditor, who had notice of the by the law and understood by per- sale and an opportunity of bidding, sons contracting with the corporation. ^ Statutes imposing a further lia- Whitwell 0. Warner, 20 Vt. 425, 444. bility on shareholders towards credi- See Keichwald v. Commercial Hotel tors, do not impliedly deprive credi- Co., 106 111. 439, 452. tors of their right to enforce payment 645 § 713.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. XIII. rally liable for all the debts of the corporation, and those which Classes of ^^^ ^ further limited liability to the liability arising, statutes according to the general rules of corporation law, pe^sonaf froin subscribing for stock. The extent of this limited liability. liability may be made dependent on the number of shares held, or on the proportion which that number beai's to the whole number of shares in the capital stock. Statutes imposing a limited liability may be subdivided into those in accordance with the tenor and import of which a single creditor may sue a single shareholder at. law ; and those which are construed to ren- der the shareholders liable to contribute a proportionate amount to a common fund for the ratable benefit of all creditors. To enforce the liability of shareholders under the latter, all the creditors must join in a suit in equity, or one creditor must sue in equity on behalf of all other creditors ; and in so far as is practicable, all the shareholders must be joined as defendants. § 713. It is ordinarily provided by all these statutes — those which impose a limited, as well as those which im- unsatisfled pose an Unlimited liability — that a creditor shall ob- against'the ^^^^ judgment against the corporation, and that exe- corpora- eution shall be levied thereunder, and returned wholly or partially unsatisfied before he can proceed against a shareholder individually.* of subscriptions for stock. See Bunn's filed against a corporation for a debt Appeal, 105 Pa. St. 49 ; Warner v. under seal, the shareholders were Callender, 20 O. St. 190. properly made ' parties, in order to ' But these conditions precedent are avoid a multiplicity of suits. Manu- not always imposed. Thus, when it facturing Co. v. Bradley, 105 U. S. was provided by a certain charter that 175. See also Culver w. Third Nat. the "members of the company shall be' B'k, 64 111. 528; Bird v. Calvert, 22 jointly and severally liable for all debts S. C. 292. and contracts made by the company On the other hand, such conditions until the whole amount of the capital may be implied from the tenor of the stock fixed and limited by the corpora- statute. Thus, where shareholders in tion" is paid in, it was held that the a bank were made liable jointly and liability of shareholders was uncondi- severally to creditors for the deposits, tional, original, and immediate, not it was held that their liability was dependent on the insufficiency of the secondary, and could not be enforced corporate assets, and not collateral to until the assets of the bank had been that of the corporation, upon the event exhausted. Mean's Appeal, 85 Pa. of its insolvency ; and that upon a bill St. 75. See also Harper v. Union 646 CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 715. § 714. The general nature of the personal statutory liability of shareholders for corporate indebtedness has been „ , 1 J • 11 -I Nature of much Qiscussea ;' some courts having held such lia- statutory bility to be that of partners ; while in Michigan it is ^ ' ' ^' said to be that of guarantors. The truth is, the liability of shareholders under statutes imposing individual liability for corporate indebtedness is the liability of shareholders under' such statutes, and to speak of it as the liability of guarantors, or the liability of partners, is to call it what it is not." § 715. That it is not the liability of guarantors seems too evident to require argument. Suretyship is a legal institution composed of peculiar rules based on the general notion that a surety is a man conferring a benefit and receiving none in M'f g Co., 100 111. 225. Compare Hatch V. Burroughs, 1 Woods, 439 ; Grindle v. Stone, 78 Me. 176. See also § 724. ' The statutory liability of share- holders, whether limited or unlimited, which last is unusual, ordinarily arises ex contractu, and is not a penalty. See Norris v. Wrenschall, 34 Md. 492; Flash v. Conn, 109 U. S. 371. Such liability cannot be repealed so as to affect the vested rights of creditors. Hawthorne v. Calef, 2 Wall. 10; Provident S'v'gs Ins. v. Jackson Place Skating Rink, 52 Mo. 552. Not even by a state constitutional amendment. St. Louis K'y Supplies Co. v. Harbine, 2 Mo. App. 134. See §§ 500, 501 ; also § 785. It survives the death of a shareholder, and attaches to his per- sonal representatives. Richmond v. Irons, 121 U. S. 27; Grew v. Breed, 10 Met. (Mass.) 569. Where this liability sounds in con- tract it will be enforced outside the limits of the state chartering the cor- poration; at least, if the necessary parties can be brought within the jurisdiction of the foreign court. Hodgson II. Cheever, 8 Mo. App. 318. Compare Lowry v. Inman, 46 N. Y. 119. See § 394. Thus liability attaching to share- holders until the total capital stock is paid in, and a certificate to that effect filed will be enforced outside the state. Cuykendall v. Miles, 10 Fed. Rep. 342. On the other hand, any liability of shareholders or bflicers contingent on the failure of the latter to publish or file reports is penal, and will not be enforced outside the state. Wood v. Wicks, 7 Lea (Tenn.), 40. Such penal liability will be strictly con- strued in favor of the shareholders. Cady V. Smith, 12 Neb. 628, 630. Compare Smith v. Steele, 8 Neb. 115. And it has been held not to survive the death of the person affected with it. Diversey v. Smith, 103 111. 378. ' The nature of this liability in any particular case depends, of course, on the intent of the statute creating it. Under some statutes it will resemble the liability of guarantors, and ■ under others that of partners. But neither the rules of suretyship nor the rules of partnership law will ever be wholly and exclusively applicable. 647 § 716.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIII. return, whose contract, therefore,'is to be construed strictly in his own favor.* It is evident that the situation of a shareholder is very different,* and the decision in the Michigan case,^ that the shareholder was a guarantor who was discharged because time was given the corporation, is against the weight of authority, and apparently a mistaken decision.* ; § 716. The temptation to speak of the statutory liability of a shareholder as the liability of a partner is more insidious, because of the resemblance between the two. kinds of liability. ."But it is evident that the status of a shareholder in a corporation to members of which personal liability attaches, differs much from that of a partner.* Shareholders are not, like partners, each other's agents ; unlike partners, they may transfer their shares at will ; then ordinarily, even in respect of his statutory liability, a shareholder cannot be sued until the creditor has exhausted his legal remedies against the corporation ; and finally, under some statutes, a shareholder may be sued alone, though in the end he is entitled to contribution from his fellow shareholders. Undoubtedly there remains the main resemblance ' See Ward v. Stahl, 81 N. Y. 406. * See Emerson v. Slater, 22 How. 28. ' Hanson v. Donkerly, 37 Mich. 184. One dissepting opinion was read. Compare National Loan Ass'n v. Lichtenwalner, 100 Pa. St. 100; Mil- roy V. Spur Mountain Iron Mining Co. , 43 Mich. 231. * Directly contra to Hanson v. Don- kerly are Harger v. McCuUough, 2 Denio (N. Y.), 119 ; Moss v. Averell, 10 N. Y. 449; Aultman's Appeal, 98 Pa. St. 505 ; Young v. Kosenbaum, 39 Cal. 646 ; Sonoma Valley Bank v. Hill, 59 Cal. 107; Hatch v. Bur- roughs, 1 Woods, 439. The view taken in Hanson v. Donkerly seems overruled in Grand Rapids Savings B'k V. Warren, 52 Mich. 557 To be sure, where, under the statute, suit must be commenced against a shareholder within one year after the 648 debt of the corporation became due, the liability of the shareholder cannot be extended by any extension or renewal of the indebtedness of the corporation, as by taking its note. Parrott v. Colby, 6 Hun, 55 ; S. C, aff'd, 71 N. Y. 597 ; Jagger Iron Co. v. Walker, 76 N. Y. 521. Compare Dryden v. Kellogg, 2 Mo. App. 87. But this is very dif- ferent from an extension to the corpo- ration discharging the shareholder before the expiration of the period limited by the statute for the com- mencement of suit against him. ' Corporators are not partners, even though rendered liable by statute for certain debts of the corporation. Ba- ker V. Backus, 32 111. 79. Compare United States v. Knox, 102 U. S. 422,* to see how unlike the liability of part- ners is the statutory liability of share- holders, § 727. CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 717. between the liability of partners and the statutory liability ol shareholders, that a shareholder as well as a partner is liable individually for the debts of the corporation or firna, a resem- blance which is especially prominent in the unlimited liability* of a shareholder who like a partner may be obliged to pay all the debts of the concern. And the danger lies here, lest with eyes fixed on this main resemblance courts overlook minute difterences, and in consequence fail to do accurate justice. The perception of a resemblance is often nothing but a failure to see differences. Corporations are largely regulated by statute, and difier in so many respects from partnerships that errors must be introduced by an indiscriminate reasoning from the analogy of the latter institutions.^ " In order to contrast the nature of the liability of share- holders with that of partners, companies must be divided into those which are incorporated and those which are not, and each class must be again subdivided, for, owing to the diversity of the statutes relating to companies, little is common to them all. The general principles which require to be borne in mind, are, first, that unincorporated companies are not at common law distinguishable from partnerships ; and, secondly, that' incorpo- rated companies are distinguishable from them, and that the shareholders in such companies are not liable for the corporate debts and engagements save so far as they are rendered so by act of Parliament. If shares in an incorporated company are registered in the names of two persons and one of them dies, the survivor is the only person liable to be made a contributory in respect of them."' § 717. This doctrine that shareholders in corporations are not liable for the corporate debts, save so far as they are rendered so by the statute imposing the individual . holders not liability, does not accord with the view taken in ^^J'liabie. Corning v. McCullough,* where it was said that by these statutes shareholders are not made but left liable for the ' Unusual in this country. partners in Thompson v. Meisser, 108 " See §§ 67-69. Shareholders made III. 359. "individuallyresponsibleforan amount ' 1 Lindley on Partnership, 375, equal to the amount of stock held by citing Hill's Case, L. R. 20 Eq. 595. them respectively" were said to be * 1 N. Y. 47. 649 § 718.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIII. corporate indebtedness. The difference is important. If the shareholder is left liable, in every case of doubt there is a pre- sumption in favor of his liability; while if he is made liable, his liability is to be deduced from a fair construction of the statute. The view of Baron Lindley seems the correct one, and accords with the prevailing doctrine in America. " Indi- vidual liability is repugnant to the law of corporations, and qualifies in this case an exemption which would otherwise exist. Stockholders in such cases are liable according to the plain meaning of the terms employed by the legislature, and not otherwise."' Moreover, it would seem that if shareholders are left liable, and the statute " leaving" them so prescribe at the same time a way of enforcing their liability, the course prescribed by the statute may be disregarded, and the shareholder may be pro- ceeded against in some other manner. And this is not law.^ § 718. A question sometimes very diflacult to answer in regard to this statutory liability is: What share- share-* holders are subject to it? Those who were such stetatory when the corporation incurred the indebtedness, or liability those who are such when suit is brought against attaches. , , ..,.,, i o them, or the corporation is dissolved or wound up f Many cases have held that the shareholder who was such at the time when the corporation contracted the debt is the one liable.' In the absence of any indication in the statute, the question seems to be whether the analogy of partnership or corporation 1 Carroll v. Green, 92 U. S. 509, Paige, 598 ; Young v. New York, etc. 512, opinion of the court per Swayne, Steamship Co., 15 Abb. Pr. (N. Y.) J. See also Terry ji. Little, 101 U. 69; Tracy v. Yeates, 18 Barb. 152; S. 216; Chase?). Lord, 77 N. Y. 1. Williams v. Hanna, 40 Ind. 535; 2 Statutory liability can be enforced Wehrman u. Reakirt, 1 Cincinnati only in the mode prescribed by the Supr. Ct. 230 ; Larrabee v. Baldwin, statute. Hoard v. Wilcox, 47 Pa. St. 35 Cal. 155 ; Windham Provident Ins. 51 ; Youghiogheny Shaft Co. i). Evans, Co. v. Sprague, 43 Vt. 502; Chesley 72 Pa. St. 331 ; Dauchy v. Brown, 24 v. Pierce, 32 N. H. 388 ; Brown v. Vt. 197; Peck v. Coalfield Coal Co., Hitchcock, 36 Ohio St. 667 ; see Mo- 3 111. App. 619. Provided, of course, kelumne Hill Canal Co. v. Woodbury, the statute express the remedy. See 14 Cal. 265 ; Davidson v. Rankin, 34 same cases. Cal. 503. Compare McCuIlougb v. a Moss y. Oakley, 2 Hill (N. Y.). Moss, 5 Denio (N. Y.j, 567. 265; Judson v. Rossie Galena Co., 9 650 CHAP. XIII.] SHAREHOLDBES AND CREDITORS. [§ 719. law is to be followed. The transferability of shares is a uni- versal element of corporation law ; just as much is it the universal doctrine of partnership law that the interest of a partner is not transferable. According to partnership law, it is the partner who was such at the time when the debt was contracted who is liable ; in accordance with the doctrine of the transferability of shares by which a transfer constitutes a com- plete novation— a doctrine of which every creditor of the cor- poration had notice — it would seem equally clear that the transferee or shareholder who holds the shares when suit is brought to enforce the individual liability, or who holds them at the winding up of the corporation, is the person liable.* And, moreover, the chief argunaeut in favor of holding liable the shareholdei's who are such when the debt is contracted, i. e., that persons contracting with the corporation rely on the credit of the then shareholders, loses its force in view of the prevailing American rule, according to which a transfer made to an irre- sponsible person when the corporation is in failing circumstances is void as to creditors ; a rule which applies as fully in regard to the statutory liability of shareholders as in regard to their liability for unpaid subscriptions.^ § 719. Let us test the analogy of partnership law in this re- spect. " As the firm is not liable for what is done by its mem- bers before the partnership between them commences, so upon the very same principle a person who is admitted as a partner into an existing firm does not by his entry become liable to the creditors of the firm for anything done before he became a partner. Each partner is, it is true, the agent of the firm, but . . . . the firm is not distinguishable from the persons from time to time composing it ; and when a new member is admitted he becomes one of the firm for the future, but not as from the past, and his present connection with the firm is no evidence that he ever expressly or impliedly authorized what may have been done prior to his admission. It may, perhaps, ' See § 720. ' Mason v. Alexander, 44 O. St. 318, ^ See dissenting opinion in Brown saying that they were not prepared to V. Hitchcock, 36 Ohio St. 667. See assume the responsibility of overrul- § 749. As to Brown v. Hitchcock, ing it. supra, the same court followed it in 651 § 719.] THE LAW OF PRIVATE CORPOKATIONS. [CHAP. XIII. be said that his entry amounts to a ratification by him of what his now partners may have done before he joined them. But it must be borne in mind that no person can be rendered liable for the act of another on the ground that he has ratified, con- firmed, or adopted it, unless at the time the act was done, it was done on his behalf"* These concise remarks of Baron Lindley are certainly true as to partnerships; but their inapplicability to corporations shows the lameness of the analogy between corporations and partnerships. As the learned Baron says : " A person who is admitted as a partner into an existing firm, does not by his entry become liable to the creditors of the firm for anything done before he became a partner." But by purchasing par- tially paid-up shares, the buyer, to the extent of the unpaid subscriptions due on them, renders himself liable for the debts of the corporation, whether contracted before or after he be- came a shareholder.'' Further on in the same extract. Baron Lindley says in substance, that the entry of a new partner into a firm cannot by any implied ratification make him liable for the previously contracted indebtedness of the firm, because, in contracting such indebtedness, the firm did not act in his be- half. But, on the other hand, acts of a corporation are always done on behalf of persons occupying in respect of that corpo- rate enterprise the status of shareholder, either at the time the acts were done, or subsequently. This is implied by the prin- ciple of "perpetual succession," fundamental in corporation law." Accordingly, the general rule that transferees of shares succeed to the rights and liabilities of their transferrers, is established beyond controversy.* 1 1 Lindley on Part., 389. "When a person takes shares in a " Webster v. Upton, 91 D. S. 65 ; company, he, as between himself and Moses V. Ocoll Bank, 1 Lea (Tenn.), other shareholders, takes these shares 398. with all the rights and liabilities at- ' See§§ 15, 17. taching to them, so that his co-share- * Hartford and N. H. R. R. Co. w. holders have a perfect right to insist Boorman, 12 Conn. 530; Mann v. upon his contribulSng with them to- Currie, 2 Barb. 294 ; Webster v. Up- wards the liquidation of debts con- ton, 91 U. S. 65 ; Moses v. Ocoll tracted before he joined the company. Bank, 1 Lea (Tenn.), 898. See § And even as to creditors, the liability 587. of shareholders to them does not de- 652 CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§720. § 720. Thus, as there is reason to hold that the purchaser of shares assumes all the liability connected with them, the reasons for holding that the seller continues liable seem to fail ; as pre- " sumably the legislative intention was not to make two sets of shareholders liable for the same indebtedness on the same shares. The creditors in contracting may have relied on the individual responsibility of the then shareholders, but none the less were they afl'ected with notice of the transferability of shares. In view of the preceding discussion, and the impropriety of introducing anomalies into corporation law, it would seem correct, in the absence of provision or indication in the statute pend altogether upon the principles of partnership, but upon statutory enact- ments." 1 Lindley on Part., 394, citing Taylor v. Ifill, 1 N. E. 566, V. C. W. ; Cape's Executors' Case, 2 De De G. M. & G. 562 ; Mahew's Case, 5 De G. M. & G. 837. "It may be stated generally that in all companies regulated by the Companies Act of 1862, an incoming shareholder is, so long as he remains a shareholder, lia- ble to creditors in respect of debts in- curred by the company before he be- came a shareholder." t Lindley on Part., 395. Compare Blundell v. Winsor, 8 Sim. 601, 613. Under certain statutes, however, e. g. (N. Y. M'f'g Cos. Act of 1848), shareholders are held not liable to creditors for the debts of the company contracted before they became share- holders. Tracy v. Yeates, 18 Barb. 162; Phillips v. Therasson, 11 Hun, 141; AVeber v. Fickey, 47 Md. 196; contra, Curtis v. Harlow, 12 Mete. 3. Compare Longley v. Little, 26 Me. 162. Nevertheless, a transferee may be liable to indemnify his transferrer in respect of a debt for which, to cred- itors, the transferee is not, under the statute, held liable; and on that ac- count, if the transferee is solvent and within the jurisdiction of the court, a creditor suing the transferrer should make the transferee a party. Wheeler V. Faurot, 37 Ohio St. 26. See Brown V. Hitchcock, 36 Ohio St. 667. In Massachusetts, under a statute, whereby shareholders are made jointly and severally liable for all debts and contracts made by the corporation un- til the whole amount of the capital stock is paid in, a shareholder is liable for debts contracted while he remains such, although his membership cease before the debts become payable. But he is not liable for debts contracted be- fore he became a shareholder if his membership expires before the debts are payable or suit is brought against him. Holyoke Bank v. Burnham, 11 Cush. 183. See Johnson v. Somer- ville Dyeing, etc. Co., 15 Gray, 216. Compare Curtis v. Harlow, 12 Mete. 3. The liabilities to which a transferee of shares succeeds are those incidental to the relationship of shareholder ; they do not include the liability to return dividends improperly received by the transferrer. Hurlbut v. Taylor, 62 "Wis. 607. 653 § 722.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIII. to the contrary ,» to hold that all liability in respect of shares ceases upon the absolute" and regular transfer of them to a person capable of succeeding to the liabilities of the former holder ; provided the transfer be not made to an irresponsible person in defraud of creditors.* § 721. In respect of enforcing the statutory liability of share-' holders to creditors, it may be said generally that the suit must be brought by the creditors and not by the corporation or its receiver.* This liability, whether limited or not, is a security provided by law for the benefit of the creditors, over which the corporation has no control ; and, consequently, an attempted assignment by the corporation of the statutory liability of shareholders is inopera- tive, although made for the equal benefit of all the creditors.' § 722. As to the necessary allegations in the complaint, it is impossible to state any more definite rule than simply that the Creditors the proper parties to sue. ' See Hebdy's, etc. Case, L. K. 2 Eq. 167. ^ See Veiller v. Brown, 18 Hun, .'571 ; § 747. 2 See §§ 747-749. The following decisions support the result reached in the text : McLaren v. Franciscus, 43 Mo. 452 ; Shrainka i. Allen, 76 Mo. 384 ; Bond v. Appleton, 8 Mass. 472; Curtis V. Harlow, 12 Mete. 3; Child V. Coffin, 1 7 Mass. 64 ; Middleton Bank V. Magill, 5 Conn. 28 (a case of un- limited liability) ; Cleveland v. Burn- ham, 55 Wis. 598 ; Nixon v. Green, ■ 11 Exch. 550. See Marcy v. Clark, 1 7 Mass. 330, 335 ; Cape's Executors' Case, 2 De G. M. & G. 562 ; Grise- wood & Smith's Case, 4 De G. & J. 544 ; Griswold v. Seligman, 72 Mo. 110, 119. See Rootu. Sinnock, 120 111. 350. The authorities are so conflicting, and the statutes so diverse, that the only safe rule for a practitioner is to seek for decisions under the statute affecting his client, or statutes pre- 654 cisely similar in terms. It would be well for the legislature always to de- signate the class of shareholders in- tended to be made liable. See, e. g., N. Y. Rev. Stat., 7th ed., p. 1721, §10. * Farnsworth v. Dewey, 91 N. Y. 308 ; Lane v. Morris, 8 Ga. 468, 476 ; Bristol, u. Sanford, 12 Blatchf. 341; Jacobson v. Allen, 20 Blatchf. 525 j S. C, 12 Fed. Rep. 454; Wincock u. Turpin, 96 111. 135 ; Liberty Female College Ass'n v. Watkins, 70 Mo. 13. Compare the two cases of Harris c. First Parish, 23 Pick. 112, and Baker V. Atlas Bank, 9 Mete. 182. A judgment creditor of the corpora- tion may, in the same action, join a claim to compel the payment of stock subscriptions and a claim to enforce the individual statutory liability. War- ner V. Callender, 20 Ohio St. 190. ^ Wright V. McCormack, 17 Ohio St. 86; Umsted v. Buskirk, ib. 113 ; Dutcheru. Maine Nat. B'k, 12 Blatchf. 435. CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 723. complaint must contain the allegations essential to make out a case under the particular statute relied on. Thus, where the charter declares that " in all cases of losses ^^^^ente exceeding the means of the corporation, each stock- i" piead- holder shall he held liable to the amount of unpaid Stock held by him," the complaint must aver that the losses or liabilities of the company exceed its assets.* But it may not always be necessary for the creditor to aver that the corpo- ration is insolvent, or that the creditor has obtained a judg- ment against it, unless the statute makes the liability of the shareholder contingent on such insolvency, or requires the creditor to exhaust his remedies against the corporation before suing a shareholder.^ , § 723. In New York, under the Manufacturing Companies Act of 1848, the stockholders are made " severally individually liable to the creditors of the company, . . . to an amount equal to the amount of stock held by them respectively, for all debts and contracts made by such company until the whole amount of capital stock fixed, and limited by such company ^ shall have been paid in, and a certificate thereof filed and recorded as prescribed. . . ."' Under this act, as amended ■ Blair v. Gray, 104 U. S. 769. on this point, Veeder v. Mudgett, 95 2 Manufacturing Co. v. Bradley, N. Y. 295. 105 U. S. 175; Perkins v. Church, 31 A stockholder is not relieved from Barb. 84 ; Hodges v. Silver Hill M'g this liability by having paid in full for Co., 9 Oregon, 200 ; Morrow v. Su- his own shares. Wheeler v. Millar, perior Court, 64 Cal. 383. See Cul- 90 N. Y. 353 ; ace. Tibbals v. Libby, ver V. Third Nat. Bank, 64 111. 528 ; 87 111. 142. Compare Schricker v. Spence v. Shepard, 57 Ala. 598. Ridings, 65 Mo. 208, and Lewis w. St. Taking a pledge of corporate prop- Charles County, 5 Mo. App. 225. erty has been held not to prevent the Under the New York Manufacturing creditor from suing the shareholders Companies Act of 1848 to end the lia- without selling the pledge. Sonoma bility of shareholders, the capital stock Valley Bank v. Hill, 59 Cal. 107. must have been paid in, as well as a » If the certificate is filed in the certificate to that effect filed. The county clerk's ofiice as required, the statement in the certificate is not con- failure of the clerk to record it will not elusive of the fact of payment, in render the shareholders liable. Sutheir- favor of shareholders, land V. Olcott, 29 Hun, 1 61. Reversed Although where the corporation has on other grounds, 95 N. Y. 93 ; ace. no power to increase its capital stock, 655 § 723.] THE LAW OP PRIVATE CORPORATIONS. [CHAP. XIII. by Chapter 333 of the Laws of 1853, by which shares may be paid for in property, in order to charge the holder of stock issued for property individually with the debts of the corpora- tion, it is not enough to prove that the property was purchased at an over-valuation through a mere mistake or error of judg- ment on the part of the company's trustees. The purchase must be shown to have been.made in bad faith, with intent to evade the statute. But in such case in order to establish legal fraud it is only necessary to prove, (1) that the stock exceeded in amount the value of the property in exchange for which it was issued, and (2) that the trustees issued it deliberately, and with knowledge of the real value of the property overvalued the same.i It may properly be left with the jury to say whether "the property was placed and taken at a higher valuation with a fraudulent purpose, with the intent to evade the statute."* stock issued in excess of the limit is void, and the holders of it are not liable to creditors thereon, yet where the power to increase the stock exists, and there is a way in which the increase may lawfully be made, the creditors are entitled to rely on the assumption that the increase has been lawfully effected, and the holders of the stock will be estopped from setting up its illegal or irregular issue (see § 541), when they have voted for the increase, accepted the stock, and received divi- dends thereon. The new shares of the stock so in- creased become subject to the liability of this section until fully paid up and a certificate filed ; but the fact of their remaining unpaid does not revive the liability of the holders of the original shares, which are paid up, and a cer- tificate filed as required. The provision that the certificate shall be made within thirty days is but directory. Veeder v. Mudgett, 95 N. Y. 295. 656 Interest will be allowed on the credi- tor's claim from the time when he be- gins his action against the stockholder, even though such allowance of interest increase the claim to a sum exceeding the amount of stock held by the de- fendant. Burr V. Wilcox, 22 N. Y. 551 ; Handy v. Draper, 89 N. Y. 334 ; Shellingtpn v. Rowland, 53 N. Y. 371. Contra, Cole v. Butler, 43 Me. 401, 405 ; Sackett's Harbor Bank V. Blake, S Rich. Eq. (S. C), 225, 233. And where the entire principal and interest of the debt do not exceed the amount of the stockholder's lia- bility as limited by the statute, interest will be allowed as against the stock- holder from the maturity of the debt. Wheeler v. Millar, 90 N. Y. 353. 1 Douglass V. Ireland, 73 N. Y. 100. See also Schenck v. Andrews, 57 N. Y. 133 ; Boynton v. Andrews, 63 N. Y. 93 ; Boynton v. Hatch, 47 N. Y. 225. ' Lake Superior Iron Co. v. Drexel, 90 N. Y. 87. CHAP. XIII.] SHAKBHOLDEES AND CREDITOKS. [§ 725. § 724. Where the statute prescribes conditions precedent which are to be performed loj a creditor to entitle him to sue a shareholder, the latter may plead im- anceby proper or non-performance of them.* Thus, under conditioDs the K"ew York Manufacturing Companies Act of P''«o63«°t- 1848, before referred to, it is a condition precedent to the main- taining of an action by creditors against stockholders that the former should have obtained a judgment against the corpora- tion, and that an execution should have been issued thereunder and returned wholly or partially unsatisfied.^ A proceeding in rem, affecting only the corporate property attached, is not a compliance with this condition.' If, however, the conditions precedent to a liability of a stockholder under this statute are rendered impossible by the paramount law of the United States, set in operation by the stockholder himself, performance of them by creditors is excused.* § 725. It is a difficult matter to state rules of general applica- bility regarding the joinder of parties in actions to enforce the statutory liability of shareholders. For paiu^""^ there is great diversity in the language of the dif- ferent statutes ; and the decisions are hard to reconcile. When shareholders are made severally individually liable to ' See Fourth National Bank v. property. Lane v. Harris, 16 Ga. Franklin, 120 U. S. 747. Due dili- 217, 224. See also Lane v. Morris, 8 gence seems to be required of the Ga. 468 ; Paine v. Stewart, S3 Conn, creditor to discover property of the 516, 531; Toucey ». Bowen, 1 Biss. corporation before a scire facias will 81 ; Grew v. Breed, 10 Mete. 569, be issued against a shareholder. Hit- 579. See §713. Chens v. Kilkenny, etc. K. E. Co., 15 ' Handy v. Draper, 89 N. Y. 334, C. B. 459. Still, where the statute reversing S. C, 28 Hun, 256. See provides that execution against the Kincaid v. Dwinelle, 69 N. Y. 548 ; corporation must first have been re-. Dean j;. Mace, 19 Hun, 391. turned unsatisfied, no greater diligence " Rocky Mountains National Bank is required than is implied in obtaining v. Bliss, 89 N. Y. 338. judgment, suing out an execution, and * Shellington v. Howland, 53 N. Y. getting a return of nulla bona there- 371 ; followed in Flash v. Conn, 109 under. Thornton v. Lane, 11 Ga. U. S. 371. The National Bankruptcy 459, 514 ; Bank of United States v. Act is referred to. Compare Ansonia Dallam, 4 Dana (Ky.), 574. But B. & C. Co. v. New Lamp Chimney notice should be given the sharehold- Co., 53 N. Y. 123. er, that he may point out corporate 42 657 725.J THE LAW OF PRIVATE CORPORATIONS, [CHAP. XIII. the creditors of the corporation to an amount equal to the amount of stock held by the shareholders respectively, a single creditor may sue one or more shareholders as he deems proper in an action at law.^ Where, however, the shareholders are simply made individually liable for the corporate indebted- ness, to an amount equal either to the par value of the shares held by them respectively or in the proportion which their shares jsear to the total amount of the capital stock, the rule applied in many cases is that all the shareholders, so far as practicable, should be joined irj an action in equity ; which should be brought by all the creditors, or in such a form that all the creditors may come in.'' " The creditors should all join because they have a common interest in the funds to be realized ; 1 Flash V. Conn, 109 U. S. 371 ; Garrison v. Howe, 17 N. Y. 458; Mathez v. Neidig, 72 N. Y. 100 ; Weeks v. Love, 50 N. Y. 568 ; Mann V. Pentz, 3 N. Y. 415 ; Bank of Poughkeepsie v. Ibbotson, 24 Wend. 473 ; Wincock v. Turpin, 96 111. 135 ; Hull V. Burtis, 90 111. 213 ; Smith v. Londoner, 5 Colorado, 865 ; Culver v. Third National Bank, 64 111. 528; Norris v. Johnson, 34 Md. 485 ; Perry V. Turner, 55 Mo. 418 ; Grund v. Tucker, 5 Kan. 70. See Merchants' Nat. Bank v. Bailey M'f g Co., 34 Minn. 323. When the charter pro- vides that " each stockholder shall be iointly and severally liable to the creditors in an amount," etc., a single creditor can sue a single shareholder at law. Hall & Co. v. Klinck, 25 S. C. 348. But see Harper v. Union M'f g Co., 100 111. 225. These cases hold that an action at law is open to the creditor although he might have sued in equity. But under a Pennsyl- -vania statute an action at law has been held the exclusive remedy. Brinham V. Wellersburg Coal Co., 47 Pa. St. 43. See Deming v. Bull, 10 Conn. 658 409 ; Simonson v. Spencer, 15 Wend. 548. 2 Coleman u. White, 14 Wis. 700; Overmyer v. Cannon, 82 Ind. 457 ; Von Glahn v. Harris, 73 N. C. 323 ; Johnson ti. Fisher, 30 Minn. 173; Terry v. Martin, 10 S. C. 263 ; Fames V. Doris, 102 111. 350 ; Tunesma v. Schuttler, 114 111. 156. See Smith v. Huckabee, 53 Ala. 191; Jones v. Jarman, 34 Ark. 323 ; and cases in following notes. Compare Hull v. Burtis, 90 111. 213. Semhle contra. Morrow v. Supreme Cojirt, 64 Cal. 383. Where stockholders are made liable to pay up their shares and also to an amount equal to the amount of their stock, a creditor may, on behalf of himself and other creditors, bring a suit in equity against the stockholders, the assignee in bankruptcy of the cor- poration and such creditors as have brought suits at law, to collect the sums due from the stockholders, dis- tribute the same, and restrain the prose- cution of the other suits. Pfohl v. Simpson, 74 N. Y. 137. CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 726. or, if the action is commenced by one or more of them, the complaint should be so framed that the others may come in and prove their claims before the court or a referee, and share in the distribution of the moneys received. All the stockholders should be made defendants, because they too have a common interest, and without their presence it is impossible to adjust their rights and liabilities, and protect them from unequal and oppressive burdens. The same reasons exist for making all the stockholders parties to such actions as in proceedings against delinquent stock subscribers to compel them to contribute towards the payment of the debts of an insolvent bankrupt corporation. The corporation should be joined, unless it has been dissolved or its assets wholly exhausted, for the reason that both creditors and stockholders are interested in closing its affairs, and in having its available property appropriated to the payment of debts, without which there can be no final settlement and adjudication of the rights and liabilities of the parties."' § 726. The underlying distinction seems to be as follows: If the shareholders are made severally and individu- Distinction. ally liable to the creditors directly, one creditor alone may sue a single shareholder, and at law. If, however, from the general tenor of the statute it may be inferred that the legislative intention was to create a fund which, on the inability of the corporation to pay its debts, should be collected and ratably distributed among its creditors, then the liability of each shareholder is rather to contribute to a common fund in a certain proportion than to pay the debt of any one creditor. In such case one shareholder cannot sue alone ; all the shareholders, so far as practicable, should be made defendants ; and equity is the proper tribunal.^ Giving the opinion of the Federal Supreme Court in Terry v.. Little,* Chief Justice Waite said : " The individual liability of stockholders in a corporation is always a creature of statute, ' Coleman v. White, 14 Wis. 700, Palmer, 117 111. 619; Crease v. Bab- 702, per Dixon, C. J. cock, 10 Mete. (Mass.) 526 ; Grew v. " Pollard V. Bailey, 20 Wall. 520 ; Breed, ib. 569. Compare Mills w. Terry v. Little, 101 U. S. 216 ; Eames Scott, 99 U. S. 25. V. Doris, 102 111. 360 ; Queenan v. « 101 U. S. 216, 217. 659 § 727.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIII. It does not exist at common law. The first thing to be deter- mined in all such cases is, therefore, what liability has been created. There will always be difiiculty in attempting to re- concile cases of this class in which the general question of remedy has arisen, unless special attention is given to the pre- cise language of the statute under consideration. The remedy must always be such as is appropriate to the liability to be en- forced. The statute whicji creates the liability may declare the purpose of its creation and provide directly or indirectly a remedy for its enforcement. If the object is to provide a fund out of which all creditors are to be paid, share and share alike, it needs no argument to show that one creditor should not be permitted to Appropriate to himself, without regard- to the. rights of others, that which is to make up the fund. " The language of the charter is peculiar. The stockholders are not made directly liable to the creditors. They are not in terms obliged to pay the debts, but are ' liable and held bound . . . for any sum not exceeding twice the amount of . '. , their .... shares.' This we think means that on the failure of the bank, each stockholder should pay such sum, not exceeding twice the amount of his shares, as shall be his just proportion of any fund that may be required to discharge the outstanding obligations. The provision is, in legal effect, for a proportionate liability by all stockholders. Undoubtedly the object was to furnish additional security to creditors, and to have the payments when made applied .to the liquidation of debts. So, too, it is clear that the obligation is one that may be enforced by the creditors ; but as it is to or for all creditors, it must be enforced by or for all. The form of the action, there- fore, should be one adapted to the protection of all. A suit at law by one creditor to recover for himself alone is entirely in- consistent with any idea of distribution. As the liability of a stockholder is not to any individual creditor, but for contribu- tion to a fund, out of which all creditors are to be paid alike, the appropriate remedy is by suit to enforce the contribution, and not by one creditor alone to appropriate to his own use that which belongs to others equally with himself." § 727. The Federal Supreme Court has also rendered an in-' structive decision regarding the liability of shareholders in 660 CHAP. XIII.] SHAREHOLDERS AND CREDITORS.- [§ 727. national banks. The shareholders in a national bank are " in- dividually responsible equally and ratably, and not Lig^^iit f one) for another, for all contracts, debts, and engage- share- ments of such association, to the extent of the amount national of their stock therein, at the par value thereof, in addi- ^^^ ^' tion to the amount invested in the shares."' An assessment of seventy per cent, of the value of their shares was made on the shareholders of an insolvent national bank, in order to discharge its liabilities. This assessment was not sufficient, but would have been if all . the shareholders had been solvent and within the jurisdiction of the court. A creditor requested the comp- troller of the currency to order a further assessment of thirty per cent., and to direct the receiver to proceed as before to col- lect it. The comptroller refused, and was sustained in his re- fusal by the Supreme Court, who held that this liability ot shareholders was several and not joint, and that the insolvency of one shareholder, or his being beyond the jurisdiction of the court, did not affect the liability of another ; and if the bank itself held any of its stock, the several liability of the other shareholders would not thereby be increased, but would be com- puted as if the stock held by the bank was in the hands of a natural person.^ Giving the opinion of the court. Justice S way ne said: "In the process to be pursued to fix the amount of the separate liability of each of the shareholders, it is necessary to ascertain (1) the whole amount of the par value of all the stock held by all the shareholders; (2) the amount of the deficit to be paid after exhausting all the assets of the bank ; (3) then to - apply the rule that each shareholder shall contribute such sum ' Shareholders in national banks, each shareholder shall pay, up to the liable for its debts, are liable for inte- amount of stock held by him. In an ac- rest thereon (to the same extent with tion by a creditor to enforce the indivi- the bank), but not in excess of their dual liability of shareholders under this maximum liability fixed by the statute, statute, where not all the shareholders Richmond v. Irons, 121 U. S. 27. are before the court, and it does not s United States v. Knox, 102 U. S. appear that those not served could not 422. See also Crease v. Babcock, 10 have been served, it is error to assess Mete. 525 ; Matter of the Hollister on the shareholders served the whole Bank, 27 N. Y. 393. The Ohio Re^ amount of the corporate indebtedness, vised Statutes, § 3260, provide for joint Bonewitz v. Van Wert County Bank, action and ascertaining the proportion 41 O. St. 78. 661 § 728.] THE LAW OF PRIVATE CORPOKATIONS. [CHAP. XIII. as will bear the same proportion to the whole amount of the deficit as his stock bears to the whole amount of the capital stock of the bank at its par value."' § 728. Under statutes by which shareholders are made liable to a certain limited amount, determined either by the number of shares held by them respectively, or by the proportion borne by that number to the total capital stock, a shareholder may extinguish his lia- bility by paying a debt of the corporation equal in amount to the sum for which he is liable.^ Extin- guish- ment of liability. > United States w. Knox, 102 U. S. 425.. After such an assessment on the shareholders of a national bank has been made, a suit at law may properly be brought by the receiver to collect it. Bailey v. Sawyer, 4 Dill. 463. § 50 of the National Banking Act of 1864, which provides that suits to which officers or agents of the United States are parties shall be conducted by the district attorney, is so far but directory that it cannot be set up by shareholders to defeat a suit brought against them by a receiver, who, with the approval of the Treasury Depart- ment, had employed private counsel. In such a suit it is necessar}' that ac- tion on the part of the comptroller of the currency touching the personal liability of the shareholders, should precede the institution of any suit by the receiver, and the fact must be averred in the bill. It is no objection to such a bill that shareholders with- out the jurisdiction of the court are not made parties ; and creditors are not proper parties to it. Kennedy v. Gib- son, 8 Wall. 498, followed in Casey V. Galli, 94 U. S. 673. The liability of shareholders in national banks sur- vives the death of a shareholder, and attaches to his representatives. Rich- mond V. Irons, 121 U. S. 27. But it 662 does not arise in respect to debts con- tracted after the bank has gone into liquidation. lb. 2 Garrison v. Howe, 1 7 N. Y. 458 ; Woodruff, etc. Iron Works v. Chitten- den, 4 Bos. (N. Y.) 406; Jones v. Wiltberger, 42 Ga. 575; Boyd v. Hall, 56 Ga. 563 ; San Josfe Savings Bank v. Pharis, 58 Cal. 380 ; Thomp- son V. Meisser, 108 111. 359, When shareholders are liable to the amount of their stock, and a share- holder pays a corporate debt equal to the amount o;^his shares, he cannot be held liable again as to those shares, nor can the assignee of them be held liable. Trebusr. Smiley, 110 111. 316. After a creditor, however, has be- gun a suit against a shareholder, then the latter cannot defeat him by paying another debt of the corporation. Jones V. Wiltberger, supra. A shareholder cannot, under a double liability clause, get a friend to buy up claims at a discount, confess judgment in his favor, and then plead thjs judgment as a bar to other credi- tors of the corporation. Manville v. Karst, 16 Fed. Kep. 173. See Bu- chanan V. Meister, 105 111. 638. And when a shareholder is liable to credi- tors to an amount equal to the stock held by him, he cannot buy up claims CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 731. § 729. A shareholder, however, indebted to an insolvent cor- poration for unpaid subscriptions, cannot, against his liability therefor, set off" a debt owing him from the ^^°^^ corporation. He is first bound as a shareholder to siibscrip- pay whatever may be due on his shares, whereupon he will be entitled to participate in the assets of the corpora- tion ratably with the other creditors.* " The debts must be mutual ; must be in the same right. . . . The debt which appellant owed for his stock was a trust fund devoted to the payment of all the creditors of the company. As soon as the company became insolvent, and this fact became known to the appellant, the right of set-off for an ordinary debt to its full amount ceased. It became a fund belonging equally in equity to all the creditors, and could not be appropriated by the debtor to the exclusive payment of his own claim."^ § 730. Likewise, a shareholder, who has been paid dividends by an insurance company when insolvent, cannot, in ggj,^^. a suit by its receiver to recover them, set off his Dividends claims as a creditor of the corporation.^ " The de- eriy re- fendant must restore the trust funds received in vio. ''^'^*^- lation of law and improperly withheld, and then he will be in a position to claim, as a creditor of the company, a participa- tion in common with other creditors, in a fund realized and secured for their common benefit; but, I apprehend, not till then.'"' § 731. On similar principles, if the statutory liability of shareholders is in effect to contribute to a common fund to be ratably distributed among creditors, or if statutory their statutory liability assumes this character by '°' " ^' at a discount and set them off at their ■ Sawyer v. Hoag, 17 Wall. 610. face in a suit by a creditor. Gauch v. See also Lawrence v. Nelson, 21 N. Harrison, 12 111. App. 459; Thomp- Y. 158; Singer «. Given, 61 Iowa, 93. son V. Meisser, 108 lU. 359; Thebus s Sawyer v. Hoag, 17 Wall. 610, V. Smiley, 110 111. 816. When a 622; opinion of court per Miller, J. shareholder pays a debt of the corpo- 3 Osgood v. Ogden, 4 Keyes (N. ration, and takes an assignment, the Y.), 70. debt is extinguished, and the share- * Osgood v. Ogden, 4 Keyes (N. holders cannot revive it by assigning Y.), 70, 89 ; opinion of court per it. Hardy v. Norfolk M'f g Co., 80 Bacon) J. Va. 404. 668 § 732.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIII. virtue of the nature of the proceeding brought to enforce it, a shareholder cannot, against this liability, set off an indebted- ness of the corporation to him." " Dnder a proceeding for winding up a corporation, where an account of all the debts and of the effects, including the aggregate liabilities of the stockholders, is required to be' taken, there is no reason why a creditor should be in any better situation on account of being at the same time a stockholder. In the latter character the constitution and the statute make him liable to the creditors to an amount equal to his stock, or to his just proportion of that amount if the whole is not required ; but as a creditor he is entitled only to a dividend in proportion to the other creditors. In a case of deficiency in means to pay all the debts, he must take his dividend pro rata. But if he could set off his claim as a creditor against his liability as a stockholder, he might be paid in full, while the other creditors would receive only a part of the amount due them."' § 732. "When, however, a single creditor can and does sue a shareholder at law, to. enforce the statutory liability of the latter, it is then competent for the shareholder to set off a debt owing him from the corporation.^ " The statutory liability constitutes a fund which belongs to the creditors to secure the payment of their debts ; but it belongs to all the creditors, as well those who are stockholders as those who are not. The defendant as a creditor, has an interest in the fund as well as the plaintiff, ^ Matter of the Empire City Bank, This reasoning is not applicable when 18 N. Y. 199; Matthews v. Albert, the shareholders' liability is unlimited ; 24 Md. 527; Hillier v. Allegheny because each shareholder " is liable to Mut. Ins. Co., 3 Pa. St. 470 ; Thomp- contribute to any amount until all the son u. Meisser, 108 111. 359; Thebus liabilities of the company are satisfied, ■V. Smiley, 110 111. 316; Grissell's and therefore it signifies nothing to Case, L. R. 1 Ch. 528 ; Black & Co.'s the creditors whether the set-off is Case, L. B. 8 Ch. 254 ; Callisher's allowed or not." Grissell's Case, L. Case, L. R. 5 Eq. 214 ; Barnett's R. 1 Ch. 528, 536, per Lord Chelms- Case, L. R. 19 Eq. 449. See also ford. Lawrence v. Nelson, 21 N. Y. 158 ; ^ Matter of the Em.pire City Bank, Emmert v. Smith, 40 Md. 123; We- 18 N. Y. 199, 227; opinion of court ber V. Fickey, 47 Md. 196. But see, per DeiKo, J. perhaps, contra, Briggs v. Penniman, » Mathez v. Neidig, 72 N. Y. 100 ; 8 Cow. (N. Y.) 387 ; Tallraadge v. Jerman v. Benton, 79 Mo. 148. But Fishkill Iron Co., 4 Barb. 382, 391. see Buchanan v. Meisser, 105 111. 638. 664 CHAP. XIII.] SHAREHOLDERS AND CREDITORS, [§ 733. and his debt was one that would be chargeable against the fund, because it was a debt against the company, for the payment of which stockholders were individually liable, and this would be so irrespective of the question whether the money advanced by the defendant was used to pay obligations for which he was in- dividually liable or not. An action at law cannot be main- tained against a stockholder, who is also a creditor to an amount equal to his stock, for the reason that he has an in- terest in the fund sued for, and it cannot be known but that the whole fund is sufficient to pay all the debts. No account- ing can be had, because the proper parties are not before the court.'" A case recently arose in New York, where the defendant, who was indebted to the corporation for his unpaid subscription, was sued by a creditor to recover, under the Manufacturing Companies Act of 1848, an amount equal to the stock held by the defendant. The corporation was also indebted to the de- fendant, and this indebtedness he sought to set off in the action brought against him by the creditor. The Court of Appeals held that the defendant could set off only the excess of the in- debtedness of the corporation to him over his indebtedness on his unpaid subscription to it ; and since, as a matter of fact, the balance was in favor of the corporation, the set-oft' was entirely disallowed.'' § 733. A creditor of a corporation who is also a shareholder cannot ordinarily sue another shareholder at law to recover his debt from the individual statutory lia- shareholder bility of the latter. For the same liability affects Tcreditor" the plaintiff" himself, who accordingly is not entitled anothe/"^ to recover his full claim from another shareholder, shareholder Contribution from the other shareholders is all that ' Mathez v. Neidig, 72 N. Y. 100, under this New York statute, share- 104; "opinion of the court per Church, holders who are also trustees cannot C. J. See Matter of Empire City set off the amount which they have Bank, 18 N. Y. 199, 227; Agate v. paid to extinguish their liability as Sands, 73 N. Y. 620. trustees to creditors, under another ' Wheeler v. Millar, 90 N. Y. 353. section of the same statute, for failure Compare Emmert v. Smith, 40 Md. to file an annual report. Veeder v. 123; Weber v. Fickey, 47 Md. 196. Mudgett, 95 N. Y. 295. As against the liability as shareholder, 665 § 733.] THE LAW OF PRIVATE CORPOKATIONS. [CHAP. XIII. he is entitled to ; and only a court of equity is competent to adjust the rights of the plaintiff and defendant.' It has even been held that a creditor, who is also a shareholder, is estopped from enforcing the individual liability of another shareholder, when such liability arises on a default in the responsibility for which both plaintiiF and defendant share.^ If, however, one shareholder is, as against a certain other shareholder, entitled to the full amount of a debt due the former from the corporation, there is no reason why he should not sue the other shareholder at law. Thus, where a statute provides that all shareholders shall be severally individually liable to creditors to the amount of unpaid stock held by them respectively, a creditor may maintain an action at law against a shareholder ; even though the former is also a shareholder, provided his stock is paid in full.' ' Thayer v. Union Tool Co., 4 Gray, 75 ; Bailey v. Bancker, 3 Hill (N. Y.), 188; B,ichardson v. Abend- roth, 43 Barb."l62; Beers v. Water- bury, 8 Bosw. (N. Y.) 396 ; Thomp- son V. Meisser, 108 111. 359. See Bisset V. Kentucky Eiv. Nav. Co., 15 Fed. Rep. 353. Compare Clark V. Myers, 11 Hun, 608. But it has been held that an assignee of a judg- ment obtained in a suit against the corporation, of which the plaintiff in the suit was a shareholder, may sue a shareholder at law. Woodruff, etc. Iron Works v. Chittenden, 4 Bosw. (N. Y.) 406. But see Potter v. Stevens Machine Co.,, 127 Mass. 592. The Now York courts rest their de- cisions on the not altogether satisfac- tory grounds that plaintiff and defen- dant are partners. A moment's con- sideration will show that even when a shareholder sues his corporation and obtains from it the payment of his demand, he does not in reality obtain the face of his debt ; for the corporate assets in which he is interested as a 666 shareholder are so much diminished by the satisfaction of his claim as a creditor. Only when one shareholder sues another, then it is apparent that he is not entitled to the full amount of the debt. " Potter V. Stevens Machine Co., 127 Mass. 592. See § 701, note. ' Smith V. Londoner, 5 Colorado, 365. A shareholder in a corporation, to the members of which personal lia- bility attached, became bankrupt. He pledged with one Of his creditors some bonds of the company which itself had become insolvent. The assignee in bankruptcy disputed the creditor's title, but settled and gave up all claim to the bonds, the creditor agreeing to indemnify the assignee from any liability as shareholder in the com- pany. The creditor then sued on the bond to enforce the individual liability of the shareholders. His agreement to indemnify the assignee was set up in defence. But the defence was held bad, as the agreement was only an agreement to indemnify the assignee, CHAP. XIII.] SHAKEHOLDERS AND CEEDITOKS. [§ 734. § 734. "When the shareholders are made liable only for debts of a particular class, as for money due employes, they j^. ....^ may plead that the debt sued on does not come within for debts of that class.' For instance, by a New York statute ciass.""^" ^"^ stockholders are made liable for all debts due "la- "^^^^^•" bourers, servants, and apprentices, for services performed for such corporation." The Court of Appeals hold that the ser- vices referred to are menial or manual ; and that he who per- forms them must be of a class whose members usually look to the reward of a day^s labor or service for immediate or present support, from whom the company does not expect credit, and to whom its future ability to pay is of no consequence ; one who is responsible for no independent employment,, but does a day's work or a stated job under the direction of a superior. Accord- ingly, a bookkeeper who "worked by the year," and often acted as manager, is not in this category,^ nor an assistant chief engineer.* So where shareholders are made liable for the " debts" of the corporation a shareholder may plead that the claim of who was not liable as a shareholder, it was no agreement to indemnify the bankrupt. American File Co. v. Gar- rett, 110 U. S. 288. ' "Wakefield v. Fargo, 90 N. Y. 213 ; Conant b. Van Schaick, 24 Barb. 87 ; Larrabee v. Baldwin, 35 Cal. 155. Compare Wilson v. Shareholders, 43 Pa. St. 424. " Wakefield v. Fargo, 90 N. Y. 213. Compare Short v. Medberry, 29 Hun, 39. The right of action under this statute is assignable. Oneida Bank v. Ontario Bank, 21 N. Y. 490. A suit in equity against all the other shareholders is the proper means of enforcing contribution when a share- holder has paid wages of an employe. Clark V. Myers, 11 Hun, 608. So a travelling salesman was held not to be a laborer. Jones u. Avery, 50 Mich. 326. See Sleeper v. Gordium, 67 Wis. 577, for a construction of a stat- ute of this nature. The liability of shareholders to credi- tors, to the extent of their unpaid sub- scriptions, is not excluded by the ex- istence of a. statute rendering share- holders individually liable to the amount of stock held by each of them, for all work or labor done, or materials furnished to carry on the operations of the corporation; even though the claims of the judgment creditors suing to enforce the payment of the unpaid subscriptions arose from labor done and materials furnished. Bunn's Ap- peal, 105 Pa. St. 49. ' Brock way v. Innes, 39 Mich. 47 ; nor a railroad contractor. Peck v. Miller, 39 Mich. 594. A corporation cannot be an " employ 6" of another corporation within the purview of a statute making shareholders liable for debts due employ6s. Dukes v. Love, 97 Ind. 341. 667 § 736.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. XIII. Waiver^or repeal of statutory liability. SnbstaDtial compliance with stat- ute. the creditor is not a " debt" in the sense in which the term is used in the statute. Thus, a judgment against a corporation for pei'sonal injuries is not a " debt contracted" by it.^ § 735. Shareholders may also plead that their individual lia- bility has been waived in respect of the claim on which suit is brought against them,' or that the statutory provision on which rests their liability had been repealed either before they became shareholders,* or before the debt on which suit is brought was con- tracted ;* or that the statutory liability was created after the debt was contracted by the corporation, and repealed before suit was brought against the shareholder." And when a statute on failure to comply with which shareholders are made liable has been substantially complied with, this, where the creditor is not injured, may absolve a shareholder from liability.* § 736. When, according to the construction put on the stat- ute, the individual liability of shareholders is pri- UmitaMons. ^^^T Of coordinate with that of the corporation, and not contingent on the inability of the creditor to satisfy his claim from the corporate assets, the statute of limi- tations begins to run from the time when the debt matures against the corporation.' And under a statute providing that " if any loss or deficiency of the capital stock in any bank shall arise from the official mismanagement of the directors, the stockholders at the time of such mismanagement shall in their individual capacities be liable to pay the same," the Massachu- ' Bohn V. Brown, 33 Mich. 257 ; Hacock u. Sherman, 14 Wend. 68 ; Doolittle V. Marsh, 11 Neb. 243. Compare Dryden v. Kellogg, 2 Mo. Ap. 87. See § 773. ^ French v. Tesuhemaker, 24 Cal. 518; Basshorw. Forbes, 36 Md. 154. See Brown v. Eastern Slate Co., 184 Mass. 590. ' Ochiltree v. Railroad Company, 21 Wall. 249. * But where bonds were issued by a corporation while personal liability at- tached to its shareholders, the holder of them, though he became such after 668 the repeal of this personal liability, has all the rights of his assignor, in- cluding the latter's right of action against the shareholders. Blakeman V. Benton, 9 Mo. App. 107. ' Jerman v. Benton, 79 Mo. 148. " Booth V. Campbell, 37 Md. 522. ' Davidson v. Rankin, 34 Cal. 503 ; Lindsay v. Hyatt, 4 Edw. Ch. (N, Y.) 97 ; compare AUibone v. Hager, 46 Pa. St. 48. See also Terry v. Mo- Lure, 103 U. S. 442 ; Carrol v. Green, 92 U. S. 509. But see Mitchell v. Beckman, 64 Cal. 117; Hawkins v. Furnace Co., 40 O. St. 607. CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 737. setts Supreme Court holds that the statute begins to run from the happening of the loss or deficiency in respect of which the liability exists.' If, however, the liability of shareholders is contingent on the inability of the corporation to discharge the debt and the exhaustion of the legal remedies of the creditor against it, then the statute of limitations does not run against the liability of the shareholders until the creditor has had a reasonable time to exhaust his remedies against the corpora- tion.^ § 737. Where the suit against the sharieholder is brought to enforce his statutory liability, and a judgment on the -^g^^^f claim of the creditor has been obtained against the judgment corporation,* it is held in some cases that the share- corpora^ holder may contest the suit as being based on a debt *'°°' not due from the corporation, thus virtually having the whole matter retried, and compelling the creditor to prove again his original right to recover against the corporation.* But the 1 Baker w. Atlas Bank, 9 Mete. 182. ' Longley v. Little, 26 Me. 162. See Handy v. Draper, 89 N. Y. 334. Where a statute enacts that when "a corporation ^ has unla-wfully made a division of its property, or has pro- perty which cannot be attached or is not by law attachable, any judgment creditor may file a bill in equity" to obtain the satisfaction of his debt from such property, the right of action con- ferred does not accrue until the return of execution unsatisfied ; and not till then does the statute of limitations begin to run. Taylor v. Bowker, 111 U. S. 110. When a bank charter contains pro- vision making shareholders liable for the " ultimate redemption of the bills, ' ' the liability of the shareholders arises when the bank refuses to redeem or becomes notoriously insolvent, and from that time the statute of limita- tions runs in favor of the sharehold- ers. Terry v. Tubman, 92 U. S. 156. See Godfrey v. Terry, 97 U. S. 171 ; Long V. Bank of Yancey ville, 90 N. C. 405. When, however, the statute requires suit within a certain time to be begun against the shareholder, that time is not extended by the recovery of judg- ment against the corporation. Stilphen V. Ware, 45 Cal. 110. ' Union Bank v. Wando M'g, etc. Co., 1 7 S. C. 339 ; Strong v. Wheaton, 38 Barb. 616; MacMahon v. Macy, 51 N. Y. 155; Miller v. White, 50 N. Y. 137 ; Whitman u. Cox, 26 Me. 335; Heard v. Sibley, 52 Ga. 310. See Merrill v. Shaw, 38 Me. 267; Trippe v. Huncheon, 82 Ind. 307 ; Neilson v. Crawford, 52 Cal. 248. Directly opposed to this view are Holyoke Bank v. Goodman Paper M'fg Co., 9 Cush. 576; Farnum v. Ballard Vale Machine Shop, 12 Cush. 607; Bobbins v. Justices, 12 Gray, 225, which hold that when a share- holder, whom creditors intend to hold 669 § 738.] THE LAW OF PRIVATE CORPORATIONS. [CHAP, XIII. weight of authorit;^ is, perhaps, in favor of the view that judgment against the corporation can, in a suit by creditors to enforce the statutory liability of shareholders, be impeached by a shareholder only on grounds of collusion or lack of juris- diction in the court rendering it.' This view seems at least well established when the liability sought to be enforced is not statutory, but merely that attaching to shareholders on account- of unpaid subscriptions or corporate property improperly re- ceived by them.* § 738. In a quit brought by a creditor against a shareholder Shar either for unpaid subscriptions, or on account of his holder can- statutory liability, the shareholder cannot deny the corporate legal existence of the corporation.' If the corpora- existence. ^^^^^ j^ illegally or irregularly formed, very likely individually, is required to be sum- moned in the suit against the corpora^ tion, he cannot dispute the merits of the claim against it. ' Milliken v. Whitehouse, 49 Me. 527 ; Wilson u. Pittsburgh, etc. Coal Co., 43 Pa. St. 424 ; Donworth v. Coolbaugh, 5 Iowa, 300 ; Slee v. Bloom, 20 Johns. (N. Y.) 669; Lowry v. Parsons, 5'2 Ga. 367. See Black V. Womar, 100 111. 328 ; Manu- facturing Co. V. Bradley, 105 U. S. 175; Singer v. Given, 61 Iowa, 93. In such case judgment against the corporation is prima, facie evidence against the shareholder according to Grund 0. Tucker, 5 Kans. 70 ; Sohaef- fer V. Missouri Home Ins. Co., 46 Mo. 248 ; Hoagland v. Bell, 36 Barb. 67. ^ Wetherbee v. Baker, 36 N. J. Eq. 501 ; Bisset v. Kentucky, River Nav. Co., 16 Fed. B,ep. 363 ; Clapp V. Peterson, 104 111. 26; Glenn «. Williams, 60 Md. 93, 116. , Held prima, facie evidence in Hastings v. Drew, 76 N. Y. 9 ; Stephens u. Fox, 83 N. Y. 313. 'Casey v. Galli, 94 U. S. 673; 670 Eaton V. Aspinwall, 19 N. Y. 119; Hickling v. Wilson, 104 111. 64; Dan- bury and N. R. R. Co. v. Wilson, 22 Conn. 435 ; McParlan v. Teuton Ins. Co., 4 Denio (N. Y.), 392 ; Eppes v. Railroad Co., 35 Ala. 33 ; Hughes v. Bank of Somersett, 5 Litt. (Ky.) 47 ; Tar River Nav. Co. v. Neal, 3 Hawks. (N. C.) 520 ; McHose v. Wheeler, 46 Pa. St. 32; Hammond v. Straus, 53 Md. 1 ; Slocum v. Providence Steam, etc. Co., 10 R.I. 112; Wheelock u. Kost, 77111. 296; Central Agricultural Ass'n !). Alabama Gold Life Ins. Co., 70 Ala. 120 (the last four cases were actions brought by creditors to enforce statutory liability) ; Ossipee Hosiery, etc. Co. V. Canney, 64 N. H. 295; Keyser v. Hitz, 2 Mackey (Dist. of Col.), 473. See §§ 145 et seq., and §637. Shareholders, who form under a special charter, whereby they render themselves liable to creditors in an amount equal to double the amount of their stock, cannot escape by pleading that the charter contravenes the state constitution. McCarthy v. Lavasche, 89 111. 270. As against creditors suing CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 739. there will be all the more reason and justice, in holding persons who purport to be shareholders therein to their full liability.* And, although where the capital stock is fixed at a certain amount no action ordinarily lies against a shareholder to enforce his subscription until the entire amount is subscribed for, yet if the directors undertake to organize the company upon a partial subscription of the capital stock, and a subscriber takes part in such organization, knowing that the whole amount has not been taken, and attends corporate meetings at which money is voted and contracts are made for purchases, he will be es- topped' in a suit by a creditor from pleading that the capital stock had never been fully subscribed for." § 739. On the other hand, persons who have contracted with &de facto corporation as a corporation, cannot deny jjopcanthe its corporate existence in order to charge its share- creditor or- holders individually as partners." But it is held that when the enabling act under which a corporation is formed pro- vides that a substantial failure to comply with its requirements shall render the shareholders individually liable, and the statute is not complied with, they are primarily liable, and may be sued by a creditor before the corporate assets are exhausted ; and this, although the creditor has dealt with the corporation as a corporation.* for unpaid subscriptions a shareholder * Garling u. Baechtel, 41 Md. 305. cannot deny the corporate existence, ' Stout v. Zulick, 48 N. J. L. 599 ; even when a judgment of ouster has Merchants', etc. Bank v. Stone, 38 been rendered. Rowland v. Meader Mich. 779 ; Humphreys v. Mooney, 5 Furniture Co., 38 Ohio St. 269. Colorado, 282; Second Nat. B'k v. 1 Thus a shareholder cannot defeat Hall, 35 Ohio St. 158 ; Stafford Nat. an action by the receiver of his bank B'k v. Palmer, 47 Conn. 443 ; First to recover the amount of a note given Nat. B'k v. Almy, 117 Mass. 476; for his st,ock, by showing that he and Laflin, etc. Powder Co. v. Sinsheimer, other shareholders illegally gave notes 46 Md. 315. See Trowbridge v. for stock instead of paying cash, in de- Scudder, 1 1 Cush. 83 ; New York fraud of the banking laws. Farmers' Iron Mine v. First Nat. B'k, 39 Mich, etc. Bank v. Jenks, 7 Mete. 592. See 644. But see Johnson v. Corser, 34 also Abbott w.Aspinwall, 26 Barb. 202. Minn. 355, and compare Foster v. Nor can a shareholder plead that the Moulton, 35 Minn. 458. corporate enterprise has been aban- * Clegg v. Hamilton, etc. Grange doned, in an action brought against Co., 61 Iowa, 121 ; Marshall v. Har- him by a creditor. Bish v. Bradford, ris, 55 Iowa, 182 ; Kaiser v. Lawrence 17lnd 490 ' Savings Bank, 56 Iowa, 104 ; Eisfield 671 § 740.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIII. Who are sharehold ers as to creditors. § 740. As evidently the most obvious plea which a defendant can interpose, when sued either for unpaid subscrip- tions or on account of statutory liability, is that he is not a shareholder, it is important to determine the circumstances or conditions Avhich constitute a person a shareholder as to creditors.' Where the name of ah individual appears ou the stock-book of a corporation as a shareholder, the primd facie presumption is that he is the owner of stock, and in an action against him by or on behalf of creditors, the burden of proving that he is not such rests on him." If, however, the defendant has never consented to become a shareholder, or held himself out as such, or accepted a certificate, he may plead that his name was placed on the books of tl^e corporation without his authority.^ But if a person subscribes for shares, signs the V. Kenworth, 50 Iowa, 389 ; see Smith V. Colorado Fire Ins. Co., 14 Fed. Rep. 399. InBigelowu. Gregory, 73 111. 197, it is said that there is a differ- ence between corporations formed under a general enabling act, in this respect ; that if the provisions of an enabling act are not substantially com- plied with, the would-be corporators will be liable as partners. Thus, shareholders have been held liable as partners for contracts made before the articles of incorporation were filed. Garnett u. Richardson, 35 Ark. 145 ; Ferris v. Thaw, 72 Mo. 446. Cress- well V. Oberly, 17 111. App. 281 ; see § 451, note. Of course persons who engage in business together without taking any steps to incorporate them- selves, will be liable as partners, though they have ^regarded themselves as "stockholders." Farnum v. Patch, 60 N. H. 294. And when persons deal as partners through a common agent, and afterwards become incor- porated, but do not change their style or manner of doing businesp, they will be liable as partners for debts con- tracted in the business to persons who 672 have had no notice of their incorpora- tion. Martin v. Fewell, 79 Mo. 401. 1 In general these conditions will be the .same as those which render a person liable on his subscription to the corpo- ration. See §§ 510 et seq. 2 Turnbull v. Payson, 95 U. S. 418; Hoagland v. Bell, 36 Barb. 57 ; Rock- ville, etc. Turnpike Road v. Van Ness, 2 Cr. C. Ct. 449 ; Pittsburgh, W. and R. R. R. Co. v. Applegate, 21 W. Va. 172. See Stratton v. Lyons, 53 Vt. 130. A stockholder named in a certificate is liable as such unless he promptly dis- avow the relation. McHose v. Whee- ler, 45 Pa. St. 32. If the certificate show the stock subscribed for, but un- paid, it is conclusive as to the liability of the holder to this extent, that he can- not show that the stock was subscribed for by him as an agent of the company, and that such as was owned by him individually was fully paid up. AUi- bone V. Hager, 46 Pa. St. 48. " Mudgett V. Horrell, 33 Cal. 25 ; see Matter of Reciprocity Bank, 22 N. Y. 10, 17. CHAP. XIII.J SHAREHOLDERS AND CREDITORS. [§ 741. articles of association, acts as an officer, and appears as a share- holder on the books, he will not, as against creditors, be per- mitted to deny that he is such, although no certificate has ever been issued to him.* And when sued by a creditor, mere irregu- larities in becoming a shareholder will not avail the defendant.'' It has also been held that if a person makes a subscription conditioned on an amendment to the charter being obtained from the legislature, and subsequently the corporation is organized without obtaining the ataendment, the defendant taking no active part in its organization, he may be held as a shareholder if he pays up a portion of his subscription, and, through his clerk, takes a receipt wherein the corporation receipts for " ten per cent, of his stock iji this bank."* § 741. One to whom shares have been transferred in pledge or as collateral security for money loaned, but who appears on the books of the corporation as the owner of ghare™* of the shares, is liable to creditors, or for their benefit as collater- al security. as a shareholder** For this the Federal Supreme Court say there are several reasons. " One is that he is estopped from denying his liability by voluntarily holding himself out to the public as the owner of the stock, and his denial of owner- ship is inconsistent with the representations he has made ; another is, that by taking the legal title, he has released the former owner; and a third is, that after having taken the appa- rent ownership, and thus become entitled to receive dividends, vote at elections, and enjoy all the privileges of ownership, it I Wheeler u. Millar, 90 N. Y. 353. 148; Holyoke Bank v. Burnham, 11 In general a certificate is not essential Cush. 183 ; Magruder v. Colston, 44 to constitute a person a shareholder, Md. 349 ; Crease v. Babcock, 10 Mete. §511. j525; Wheelock v. Kost, 77 111. 296; " Holyoke Bank v. Goodman Paper Hale v. Walker, 31 Iowa, 344; Bow- M'f g Co., 9 Cush. 576 ; Burr v. Wil- den«. Farmers', etc. Bank, 1 Hughes, cox, 22 N. Y. 551. 307 ; Erskine v. Loewenstein, 82 Mo. ' Lehman v. Warner, 61 Ala. 465. 301. Semble, contra, McMahon v. See §§ 517-521, as to conditional sub- Macy, 51 N. Y. 155. So as an ex- scriptions. ecutor holding shares may be charge- * National Bank v. Case, 99 U. S. able with the individual liability of his 628 ; Pullman v. Upton, 96 U. S. 328; testator. Diven v. Duncan, 41 Barb. Adderly v. Storm, 6 Hill (N. Y.), 520. Compare Rev. St. § 5152. 624; Roosevelt v. Brown, 11 N. Y. 43 «73 § 741i] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIII. would be inequitable to allow him to refuse the responsibili- ties of a shareholder."'' In a recent Missouri case, Griswold v. Seligman," it was de- cided that the defendants were liable to creditors as share- holders, where they held a certificate of stock absolute on its face ; although the stock in the resolution of the directors in pursuance of which it was issued, was expressed as " in trust," and on the stock books appeared as " in escrow." The defen- dants had voted on it and elected their own officers to control the corporation. The same court held more explicitly in a sub sequent case' against the same /iefendants, that in order to sus- tain the claim of a right by contract to vote on stock without incurring the obligations of a shareholder, it must appear that, at the time when the stock was voted on, there was a contract in force authorizing the holder to vote on it. And hence, where the corporation deposited its own unpaid and unsubscribed stock with a banking firm to be held as collateral security for a year, with no provision for voting on the stock ; and after the lapse of a year the firm did vote on it, elected their own direc- tors and obtained control of the corporation, they became liable as shareholders. A mere pledgee of shares, however, who is not registered as owner, and never receives dividends or exercises any of the rights of a shareholder, is not liable as a shareholder to credi- tors of the corporations.^ Thus it is held by the Federal Su- preme Court that a pledgee of shares in the stock of a national bank, who in good faith while the bank is not in failing cir- cumstances, takes the transfer in the name of an irresponsible ' National Bank v. Case, 99 U. S. by the Federal Supreme Court in con- 628,631. Brokers who purchase shares struing the same facts and the same and cause themselves to be registered statutes ; and the same defendants on the books of the company as share- were held not liable. Burgess v. Selig- holders, are liable as shareholders, man, 107 U. S. 20. In respect of although the shares be purchased for a Federal Courts following state deci- customer. McKim v. Glenn, 66 Md. sions, in construing a state statute, see 479. Flash v. Conn, 109 U. S. 371. " 72 Mo., no. 4 Anderson <;. Philadelphia Ware- 3 Fisher «. Seligman, 75 Mo. 1.3; house Co., Ill U. S. 479; Henkle v. compare Bray v. Seligman, ib. 31. Salem M'f 'g Co., 39 O. St. 547. These Missouri cases were not followed 674 CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 745. person, for the avowed purpose of avoiding liability as a share- holder, and who never exercises any rights of a shareholder or receives any dividends, incurs no liability as a shareholder to the creditors of the bank. The dividends were paid to the pledgor, the real owner.^ § 742. On the other hand, if a person is the real owner of shares, and, as between himself and the apparent • IT 1 c 1 f • -n -T Real owner holder, entitled to the proiits thereor, it will not avail of shares him as a defence against creditors that the shares did '* ^' not stand in his name.^ And thus a person cannot escape lia- bility as a shareholder by taking his shares in the name of an infant.^ § 743. Summing up, the rationale of the preceding decisions mav be said to be this. Any person who appears to T. 1 T. n 1- • i 11 ^.■ Rationale- be a shareholder, or any person who is actually enti- tled to the emoluments of shares in a corporation, is liable as a shareholder to creditors.* § 744. When, after the insolvency of the corporation, suit is brought by or on behalf of creditors against share- holders, either on their statutory liability or for un- when no paid subscriptions, the latter cannot successfully plead ^^'^^'"=^- that they were induced to subscribe by fraudulent misrepre- seiatations on the part of the corporation or its officers or agents.* § 745. It is in view of the right of shareholders to contribu- tion among themselves, that the English courts hold that directors cannot release shareholders from- lia- „o defence, bility, except in accordance with the provisions of ' Anderson v. Philadelphia Ware- Case, L. R. 19 Eq. 588. Compare house Co., Ill U. S. 479. The court Maxwell's Case, 24 Beav. 321. said that the creditors of the bank were * See § 749, as to colorable trans- put in no worse position by the trans- fers. fer than they would have been in had ^ Ogilfie v. Knox Ins. Co., 22 How. the shares remained in the name of the 380; Upton u. Tribilcock, 91 U. S. pledgor. 45 ; Schaeffer u. Missouri Home Ins. « See Burr v. Wilcox, 22 N. Y. 551 ; Co., 46 Mo. 248 ; Upton v. Englehart, Stover V. Flack, 30 N. Y. 64. 3 Dill, 496 ; Turner v. Grangers' Lifs ' Roman v. Fry, 5 J. J. Marsh. Ins. Co., 65 Ga. 649. See § 525 ; (Ky.) 634. See also Cox's Case, 4 compare Weber v. Fickey, 52 Md. De G. J. & S. 53 ; Pugh & Sharman's 500. Case, L. R. 13 Eq. 566 ; Richardson's 675 I 745.J THE LAW OF PRIVATE CORPORATIONS. [OHAP. XIII. the deed of settlement.^ But in America, it is recognized to be the right of creditors that no shareholder shall be released from his liability except in accordance with the constitution of the corporation.^ " It must also be conceded that if the company has, in fraud of its creditors, released subscribers to its stock from the payment of their subscriptions, the release is inopera- tive to protect those subscribers against claims of the creditors. . . . . It has been settled by very numerous decisions that the directors of a company are incompetent to release an origi- nal subscriber to its capital stock, or to make any arrangement with him by which the company, its creditors or the state, shall lose any of the benefit of his subscription. Every such arrange- ment is regarded in equity not merely as ultra vires, but as a fraud upon the other shareholders, upon the public, and upon the creditors of the company."' When a subscription payable in property is made for shares, it is no defence to a suit by ■ See Directors, etc. v. Kisch, L. K. 2 H. L. 99; Smith's Case, L. R. 2 Ch. 604. 2 Slee V. Bloom, 19 Johns. (N. Y.) 456 ; Eisenlord v. Oriental Ins. Co., 29 N. J. Eq. 437; Allen v. Mont- gomery R. R. Co., 11 Ala. 437, 450: Mann w. Cooke, 20 Conn. 178; Pey- chaud V. Hood, 23 La. Ann. 732 ; Putnam v. New Albany, 4 Biss. 365 ; compare Cooper v. Federiok, 9 Ala. 737. Thus, an unauthorized cancel- lation of a subscription when the cor- poration is insolvent, does not as to creditors release the subscriber. Rider V. Morrison, 54 Md. 429. So the withdrawal of shareholders, in pursu- ance of a resolution of the directors in a probably insolvent corporation to allow shareholders to withdraw on payment of five per cent, of their shares on which ninety per cent, was unpaid, is void as to creditors. Gill V. Balis, 72 Mo. 424. A shareholder, however, who surrenders unpaid stock to a corporation is not liable thereon 676 to a creditor whose claim accrues after the surrender. Johnson v. Lullman, 15 Mo. App. 55 ; S. C, 88 Mo. 567 ; Erskine v. Peck, 13 Mo. App. 280. On the other hand, a majority of shareholders cannot by a by-law im- pose individual liability on sharehftld- ers. Reid v., Eatonton M'f 'g Co., 40 Ga. 98. 3 Burke v. Smith, 16 Wall. 390, 394, per Strong, J. Where share- holders were by statute individually liable to the amount of the unpaid balance on their subscriptions, for cor- porate debts contracted during their ownership of stock, and it was provi- ded that such liability should continue for one year after a transfer, it was held that a solvent corporation could not release a shareholder so as to affect creditors, even in consideration of a payment by him of an amount in ex- cess of the calls made or due at the time of his release. Vick v. La Ro- chelle, 57 Miss. 602. 'chap. XIII.] SHAREHOLDERS AND CREDITORS. [§ 747. creditors against the subscriber, that the corporation has re- turned the property and the subscriber has released all claim to the shares.' § 746. A bona fide compromise between a shareholder and the corporation has, however, been sustained.' And if the company actually forfeits the shares for non- m^^s™" payment of calls, creditors cannot hold the person Forfeit- whose shares have been forfeited liable for the re- maining instalments, unless the forfeiture was collusive.* § 747. Upon a transfer of shares made in accordance with the constitution and by-laws of the corporation, the lia- bility of a shareholder to creditors ordinarily ceases ;* and the transferee succeeds to all the rights and liabilities of the transferrer." The transfer, however, in order to free the transferrer from farther liability on account either of unpaid subscriptions or statutory liability, must be absolute so that the transferee does not become a trustee for the transferrer ;^ and, moreover, must be to a person capable of succeeding to all the liabilities of the transferrer. Accordingly, a transfer to an infant leaves the transferrer liable,^ Effect of transfers of shares. Transfer to ("orpo- ration. ' Singer v. Given, 61 Iowa, 93. But it is held that a shareholder who surrenders unpaid shares to the corpo- ration is not liable thereon to creditors whose claims accrue after such surren- der, Johnson v. LuUman, 88 Mo. 567. » New Albany v. Burke, 11 Wall. 96. See Gelpke v. Blake, 19 Iowa, 263, 267; but compare Putnam o. New Albany, 4 Biss. 36.5. » Mills. fc. Stewart, 41 N. Y. 384; Allen «. Montgomery, etc. R. K. Co., 11 Ala. 437. * Huddersfield Canal Co. v. Buckley, 7 T. E. 36 ; Cole v. Ryan, 52 Barb. 168. Except according to the cases holding otherwise in regard to statu- tory liability. See §718. s Hartford and N. H, R. K. Co. v. Boorman, 12 Conn. 530. Transferee is liable to creditors for unpaid sub- scriptions. Webster v. Upton, 91 U. S. 65. See §§ 719, 720. ' National Bank v. Case, 99 U. S. 628; Davis y. Stevens, 17 Blatchf. 259. To relieve a stockholder in a manufacturing corporation from per- sonal statutory liability, his stock must have been transferred on the books of the company, and such transfer must have been made in pursuance of an actual bona fide sale, without any secret understanding or trust in favor of the transferrer. Veiller v. Brown, 18 Hun, 571. ' Symon's Case, L. R. 5 Ch. 298 ; Weston's Case, ib. 614; Costello's Case, L. R. 8 Eq. 504. See Reave- ley's Case, 1 De G. & Sm. 520 ; S. C, aff'd 1 Ha. & Tw. 168 ; Richardson's Case, L. R. 19 Eq. 588. 677 748.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIII. as does a transfer to the corporation or its nominee ;* for it is held that the person succeeding to the liability of the trans- ferrer must be one who succeeds to a personal liability distinct from and in addition to that of the corporation ; some one who can assume the full liability, of a shareholder.^ § 748. If a transfer is irregular, as, for instance, not recorded on the books of the company, when that formality is tranfftrY required, the transferrer is not freed from his lia- bility ;^ though it does not follow that no liability attaches to his transferee.* Creditors are entitled to treat a;s shareholders all persons whose names appear on the books of the corporation ; and until the name of a shareholder is removed from those books, a creditor is justified in acting on the assump- tion that that person is a shareholder. It has been held, however, that when a person has done " all in his power" to ' Morgan's Case, 1 De G. & Sm. 750 ; Bennett's Case, 5 De Cr. M. & G. 284; Zulueta's Claim, L. E. 5 Ch. 444 ; Richmond's Exrs. Case, 2 De G. & Sm. 244 ; Ex parte Henderson, 1 9 Beav. 107 ; Daniell's Case, 22 Beav. 43 ; Hunt's Case, ib. 55 ; Eyre's Case, 31 Beav 177. But these are English cases; and in England a corporation cannot purchase its own shares. See also cases in following note, and §552. ' Matter of Keeiproeity Bank, 22 N. Y. 9. See Currier v. Lebanon Slate Co., 56 N. H. 262. See § 134. A person who is a creditor at the time of the transfer to the corporation, may follow the property received by the shareholder in exchange for his shares, and subject it to the satisfac- tion of the full amount of his claim. The defendant may have equities over against other shareholders ; but this fact the creditor need not heed. Clapp V. Peterson, 104 111. 26. '■' Richmond v. Irons, 121 U. S. 27 ; Worrall v. Judson, 5 Barb. 210 ; 678 Shellington v. Rowland, 53 N. Y. 371; Dane v. Young, 61 Me. 160; Fowler v. Ludwig, 34 Me. 455 ; Cutting V. Damerel, 23 Hun, 339 ; In re Bachman, 12 Nat. Bankr. Reg. 223. Compare Jones v. Dunn, 70 Ala. 164 ; O'Brien v. Cummings, 13 Mo. App. 197. ,' * " So far from its being necessary to make a man a contributory, that he should be modo et forma a member according to the strict provisions of the deed of settlement, that on the contrary, if a man, by representations that he is entitled to be registered, becomes registered and admitted de facto as a shareholder, he is not at liberty as against those who do not dispute his liability, to refer to or in- sist on any invalidity as a ground for not being treated as a shareholder. So, if the directors themselves do an irregular act, and admit a man and treat him as a shareholder, they are also bound." Straffon's Exr's Case, 1 De G. M. & G. 57S, 594, per Lord Chan. St. Leonards. CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 749. have his name removed from the company's books, he is freed from liability, although, in fact, his name continues there.' This decision seems of doubtful correctness. It is submitted the shareholder did not do all he could to have his name removed, for he could have appealed to the courts ; and if in the mean time any one acted on the faith of -his being a share- holder, the loss should fall on the shareholder whom the corpo- ration represents, rather than on an innocent outsider.^ § 749. When shares are not fully paid up and the corporation is in failing circumstances, it is the general rule throughout the United States, that the holder cannot ^"'fraud^ validly transfer them to an irresponsible person for of eredi- the purpose of avoiding further liability in regard to them. The right of transfer cannot be exercised in defraud ot creditors of the corporation.' A similar rule applies to trans- fers of shares in the stock of a corporation whose shareholders are by statute rendered personally liable to creditors.* The English cases, on the other hand, bold that a shareholder may transfer his shares to an irresponsible person for the sole purpose of freeing himself from further liability on them ; and, provided the transfer be absolute, so that, as between transferrer and transferee, the latter does not hold the shares in trust for the former, the transferrer will be freed from further liability. ' Shortridge u. Bosanquet, 18 Beav. 27; Aultmann's Appeal, 98 Pa. St. 84 ; but in this case there had been 505 ; McLaren v. Franciscus, 43 Mo. collusion between the plaintiff and di- 452 ; Provident Savings Ins. v. Jack- rectors. See Whitney v. Butler, 118 son Place Skating, etc. Rink, 52 Mo. U. S. 655; Nation's Case, L. R. 3 557; Bowden v. Santos, 1 Hughes, Eq. 77; Fyfe's Case, L. R. 4 Ch. 158; Magruder v. Colston, 44 Md. 768 ; Ward & Garfit's Case, L. R. 4 349 ; Central Agricultural, etc. Ass'n Eq. 188. "• Alabama Gold Life Ins. Co., 70 2 See § 525. Ala. 1 20. See Miller v. Great Repub- ' Dauchy v. Brown, 24 Vt. 197; lie Ins. Co., 50 Mo. 55. Nathan v. Whitiock, 9 Paige (N. Y.), Where a general banking law ira- 152; Marcy v. Clark, 17 Mass. 330; posed on shareholders individual lia- Rider v. Morrison, 54 Md. 429 ; Gaff bility while they continued such, and u. Flesher, 33 Ohio St. 107. See for one year thereafter ; and a creditor Angell and Ames on Corp., § 535 ; 2 of a bank made demand on a share- N. Y. Rev. Stat., 7th ed., 1482. holder for payment, and the latter re- « Bowden v. Johnson, 107 U. S. quested delay, promising not to trans- 251 ; Richmond v. Irons, 121 U. S. fer his shares, but did secretly and 679 § 750.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIII. in respect of the shares.' The English law does not recognize the doctrine that corporate funds are held in trust for creditors as well as shareholders, and the English decisions respecting the transfer of shares seem consistent with the general English view of corporation law. Provisions in English deeds of settle- ment are regarded as existing for the security of shareholders ; and creditors are held to derive few rights directly from them. And so, in regard to the "Winding-up Act," Lord Eomilly says: "The object of the Winding-up Act was only to settle the equities between the partners in order that when the partner- ship was wound up, they might obtain contribution from each other.'"" § 750. From what has been said of the relations between creditors and shareholders, it is plain that upon the insolvency or winding-up of a corporation, a creditor has a right to be paid the debt due him prior to any of the rights of shareholders in respect of the cor- porate funds.^ When a dividend, however, has been duly declared from surplus profits, the capital of the company being left entire, a shareholder is entitled to his por- tion of the dividend in preference to the claims of creditors ; even though he may not call for it until the company has Relations between ehare- boldereand creditors on winding up. Dividends. fraudulfently transfer them, it was held that the transfer was void as against such creditor, although his suit was brought more than one year after it had taken place. Paine v. Stewart, 33 Conn. 516. Compare also Marr v. Bank of West Tennessee 4 Lea (Tenn.), 578. ' Jessppp's Case, 2 De G. & J. 638 ; De Pass's Case, 4 De G. & J. 544; Harrison's Case, L. E. 6 Ch. 286; King's Case, ib. 196; Master's Case, L. R. 7 Ch. 292; Williams's Case, 1 Ch. Div. 576. In the follow- ing cases the transfer was held merely colorable, and the transferrer remained liable : Chinnock's Case, Johns. (Eng. Ch.) 714; Hyam's Case, 1 De G. F. & J. 75 ; Costello's Case, 2 De G. F. 680 & J. 302; Budd's Case, 3 De G. F. & J. 297 ; Ex parte Kintrea, L. R. 5 Ch. 95. ' In re Philips, 18 Beav. 629 ; com- pare regarding the English view, § 524. ' Brewer v. Michigan Salt Ass'n, 58 Mich. 351. Where a national bank is declared in default by the comp- troller, and a sufficient fund is realized from its assets to pay all claims against it, and leave a surplus, interest should be allowed on claims during the period of administration, before 'appropriating the surplus to the shareholders. Chemi- cal Nat. B'k V. Bailey, 1 2 Blatchf. 480. See also Hart's Appeal, 96 Pa. St. 355 ; Lum V. Robertson, 6 Wall. 277 ; and compare Cochran v. Ocean Dry Dock Co., 30 La. Ann. Pt. II. 1365. CHAP. XIII.] SHAREHOLDERS AND CREDITORS. [§ 751." become insolvent.* For the moment a dividend is thus declared, it becomes the property of the individual shareholders.' In a controversy coming before the l^ew York courts, the Erie Rail- way had declared a dividend and deposited money to pay it with D. S. & Co. Thereafter the company withdrew what re- mained of such money ; and this subsequently passed with the corporate property into the possession of a receiver of the road. Application was made by a shareholder to compel the receiver to pay him the amount of his dividend. It was held that the fund deposited with D. S. & Co. should be regarded as specifi- cally appropriated for the payment of the dividend, and that the shareholders acquired an equitable lien upon such fund to the extent of the amounts to which they were respectively en- titled ; and that the lien followed the fund into the hands of the receiver.^ § 751. The dissolution of a corporation does not increase the personal liability of shareholders as towards credi- tors,* nor make the* former liable as partners, even as yon'^'°°°^"" to debts contracted by the corporate agents after the dissolution, provided there is nothing to show fraud on their part, or an actual intention to transact business as partners.' I ^ ' Le Roy D. Globe Insurance Co., 2 "Walker, 66 N. Y. 424. But they Edw. Ch. (N. Y.) 657. See § 708. will become chargeable as partners ' Van Dyck v. McQuade, 86 N. Y. if, knowing of the expiration of the 38. charter, they agree to continue busi- " In re Petition of Julius Le Blanc, ness and appoint one of their number 14 Hun, 8 ; S. C, aflfd, 75 N. Y. 598. as manager. National Bank v. Lan- * Tarbell v. Page, 24 III. 46. don, 45 N. Y. 410. ' Central City Savings B'k v. 681 § 752.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. XIV. CHAPTER XIV. LEGAL RELATIONS BETWEEN OFFICERS AND CREDITORS OF A CORPORATION. Liability of oflScers contracting on be- half of their corporation, §§ 752, 753. When the contract is ultra vires, § 754. Officers' liability to outsiders for the acts of other agents, § 755. Responsibility of directors to creditors, § 756. For misapplication of the corporate funds, § 757. For neglect of duty, § 758. Director's duties to creditors on the insolvency of the corporation, §§ 759, 760. Statutory liability of officers to credi- tors. Four classes, § 761. First class, § 762. Second class, § 763. Third and fourth classes, §§ 764-766. Liability for failure to file annual re- ports, §§767-771. What debts are included in this liabil- ity, §§ 772-773. Liability for signing false reports, § 774. Forms of action. Joinder of parties, §775. § 752. Before entering on the discussion of the legal rela- tions between the officers of a corporation and cred- offlcers^ ° itors whose rights in respect of the corporate assets on behalf of ^i^^e already accrued, it will be well to notice the their corpo- relations between officers acting on behalf of the ration. . , corporation and persons with whom they deal, whose legal relations in respect of the corporate enterprise are first occasioned by their transaction with the officers. In contracting on behalf of a corporation, its officers owe to the person with whom thej"^ contract usually no duties which ordinary agents do not owe to persons with whom they contract on behalf of their principals. The same degree of fairness and good faith is to be observed by officers as is ordinarily required in the dealings between man and man.' And in general the ' See Edgington v. Fitzmaurioe, 29 corporation that in his opinion the Ch. Div. 459. An officer who states corporation is solvent, will not be lia- to a person about to sell goods to the ble for his misrepresentation if hon- 682 CHAP. XIV.] OFFICERS AND OKBDITORS. [§ 753. responsibility of corporate officers to outsiders for whatever torts the former may commit would be regulated by the rules applicable to the responsibility of ordinary agents under similar circumstances.! Thus, if acting on behalf of their corporation, officers commit a fraud or other palpable wrong or tort, there would seem to be no reason why they and their corporation might not be joined as defendants in the same action by the injured person.^ § 753. It may be stated as a general proposition, drawn from the principles of the law of agency as applicable to officers of corporations, that corporate officers contracting as such in good faith will not be personally liable to the other contracting party, if (1) the other party when contracting knows or ought to know that the officers are acting on behalf of their corporation, and (2) the officers have authority to make the contract, and (3) the contract is made in such form as to bind the corporation, and (4) there are no circumstances leading to the conclusion that the officers intended to make themselves personally responsible.^ estly made, although the corporation its money to the officer of another was insolvent at the time. Searight bank, and the latter officer knows that V. Payne, 2 Tenn. Ch. 1 75 ; but will ' the agent has no authority to pay the be liable for fraudulent misrepresenta- money, and that his bank has no right tions. Phillips v. Wortendyke, 31 to take it, he is liable personally to Hun (N. Y.), 192. If directors the first bank for the money, whether knowingly issue spurious stock and he has paid it over to his own bank or borrow money on it as collateral, rep- not. American Nat. B'k v. Wheelock, resenting it to be genuine, they are 45 N. Y. Super. Ct. 205. liable to the lender in an action for ^ See Hewett v. Swift, 3 Allen, deceit. National Exchange Bank v. 420 ; Campbell «. Portland Sugar Co., Sibley, 71 Ga. 726. So directors 62 Me. 552 ; 7n re Imperial Land Co.,' issuing bonds falsely purporting to be L. R. 10 Eq. 298 ; Wright v. Wilcox, "first mortgage bonds," are liable for 19 Wend. 343 ; Suydam v. Moore, 8 the fraud to an innocent purchaser Barb. 358 ; Phelps v. Wait, 30 N. Y. who buys from the agent in whose 78. But see Parsons v. Winchell, 5 hands the directors placed them for Cush. 592. sale. Clark v. Edgar, 84 Mo. 106. ' Thus, a treasurer of a corporation, » If the agent of a bank without to whose order as such a note is made authority— either because the author- payable, and who indorses the note ity has not been conferred by the bank "R. Beman, Treasurer," and nego- as a matter of fact, or because the tiates it on behalf of the corporation, bank has no power under its charter is not personally liable as indorser. to confer such authority— pays away Babcock v. Beman, 11 N. Y. 200. 683 § 753.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIV. In some states, however, the liability of officers to persons with whom they contract on behalf of their corporation, has been extended by statute.' See also Hicks v. Hinde, 9 Barb. 528 ; Farmers' and Mec. B'k v. Colby, 64 Cal. 352. But see contra the ques- tionable case of Heflfher v. Brownell, 70 Iowa, 591. If the covenants in the body of a sealed instrument are expressed as if made by a. corporation directly with the plaintiff, and in the instrument the defendant is not named, but signs, and, with his own seal, seals it as president of the corporation, and on their behalf, an action does not lie on it against him individually. Hopkins V. Mehaffy, 11 S. & R. (Pa.) 126. See also Randall v. Van Vechten, 19 Johns. (N. Y.) 60 ; Aggs v. Nichol- son, 1 H. & N. 165. The officers of a corporation described themselves in a contra,ct as the president, vice-presi- dent, secretary, treasurer, and direc- tors of the corporation, and covenanted on behalf of " themselves and their successors in office." They signed and sealed the contract without adding their official titles, and the corporate seal was not attached. Held, they were not liable personally. Wliitford V. Laidler, 94 N, Y. 145. Compare City of Kansas v. Hannibal and St. Jo. R. R. Co., 77 Mo. 180. But the directors of a joint stock company will be liable if they execute a note in the following form: "On demand, we jointly and severally promise to pay to H. or order, the sum of £250, value received, for and on behalf of the Wesleyan Newspaper Association," "P. S., J. W., Direc- tors." For the word "severally" is equivalent to "personally." Healey 684 V. Storey, 3 Exch. 3. Accord, Brad- lee V. Boston Glass Manufactory, 16 Pick. 347. See also Brockway v. Allen, 17 Wend. 40. A promissory note in the form "I promise to pay," and signed by " E., Pres. and Treas. C. Co.," is the note of E., who is liable thereon, and it is not competent to introduce parol evidence to show that the parties at the time understood the note to be the note of the com- pany. Davis V. England, 141 Mass. 587. See McCIure v. Livermore, 78 Me. 390. So a draft accepted by " B. T. L., Agent," may bind the acceptor personally, where nothing further in the draft appears to show that E. T. L. did not intend to bind himself per- sonally. Slawson V. Loring, 5 Allen, 340. And persons who personally covenant in a deed, and 'execute it with their own signatures and seals, will likely be held personally on the covenants ; although, from the general tenor of the deed, it might appear reasonably probable that they executed it as representatives of a corporation. See Stinchfield v. Little, 1 Me. 231 ; Trippets v. Walker, 4 Mass. 595. ' £.17. " Any officer of a corpora- tion making, or professing to make any contract not in writing, in, the name of or in behalf of any corpora- tion, of the value of one hundred dol- lars or less, shall be liable as surety for such corporation upon such con- tract ; and may be sued either with the corporation or separately for a breach thereof." Battle's Rev. Stat, of N. C, p. 266, § 24. CHAP. XIV.J OFFICERS AND CRBDITOKS. , [§ 754. If corporate officers, on behalf of their corporation, enter into a contract which they have no authority to make, yet if, under the circumstances, by the operation of any rule of law,' the con- tract binds the corporation to the other contracting party, the officers will not be personally liable to him, for he has suffered no damage from the fact that in reality the contract was unau- thorized. If, however, officers make an unauthorized contract on behalf of their corporation, allowing the other contracting party acting as a reasonable man to infer that they have the requisite authority, and in consequence of their lack of author- ity, the other party is unable to hold the corporation on the contract, what is their liability to him? Here distinctions must be drawn. The officers may have no authority to contract either (1) because their superior officers or the corporation has not authorized them to make the contract, or (2) because the corporation itself has no power to make such a contract, or (3) both of these reasons may unite. § 754. In the first supposed case, the officers would be liable, either on the ground of fraud, or implied warranty ^j^^^^ ^^^ of the requisite authority.' In the third supposed contract is 111 jii • r 3 ultra vires. case there would usually be present sumcient iraud or misrepresentation of fact on their part to render them liable. In the second case, where the corporate officers may have conceived themselves authorized to make the contract, but the contract is ultra vires the corporation, as a rule the officers acting in good faith would not be personally liable ; because the powers of a corporation are matters of law with knowledge of which persons dealing with it are affected.' Accordingly, the ' See§§ 193, 75. S. C, 10 Cush. 392; Weare v. Gove, ' Where two directors wrote to a 44 N. H. 196. bank saying that they had authorized ^ Ellis v. Colman, 25 Beav. 662 ; the manager of the company to over- Kashdall v. Ford, L. R. 2 Eq. 750 ; draw on the company's account, the Beattie v. Ebury, L. R. 7 Ch. 777. directors themselves having no author- Contra, Wilson v. Goodman, 4 Hare, ity to overdraw, it was held that they 54 ; Richardson v. Williamson, L. R. impliedly warranted that the manager 6 Q. B. 276; Weeks v. Propert, L. had authority, and were persoflally R. 8 C. P. 427. In the three last liable. Cherry v. Colonial Bank, 38 cases the person contracting with the L. J. P. C. 49 ; S. C, L. R. 3 P. C. officers had executed his side of the 24. See Jefts v. York, 4 Cnsh. 371 ; contract, and would have been remedi- 685 I § 754.J THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIV. correct rule seems as follows : if officers contract as such with a person who acts in good faith, believing them to be authorized to make the contract in question, such contracting party cannot hold the officers personally liable if, in order to make out his case, it is necessary for him to base his claim against them on such honest though mistaken misrepresentation of the powers of' the corporation as arises by implication from their having executed the contract in its behalf.^ And even if the repre- sentations by the officers of the powers of the corporation were express, nevertheless such representations would be only as to matters of law presumably as much within the knowledge of the other contracting party as of the officers of the company, and so if they were honestly made and did not amount to a warranty, there would still seem to be no sufficient reason for holding the officers personally liable. Still, it is to be borne in mind that probably the contracting parties do not stand on equal footing in regard to actual knowledge of the corporate powers ; for the person contracting with the officers as a matter of fact is very likely ignorant of the scope of the corporate powers ; with which the officers are just as likely conversant. So it would require but slight evidence in such cases to show fraud on the part of the latter; and, indeed, the rule ignorantia legis neminem excusat has been relaxed as between persons who actually are very unequal in their knowledge of the law.* Very likely, moreover, if the contract were in such a form that an intention on the part of the officers to bind themselves per- sonally could in any way be inferred, the fact that the contract was not within the powers of the corporation'might strengthen less had the decision been the other the lender is not misled by any word way. Still they seem to the writer to or act of the agent, he would have no be wrong in principle, and to afford legal remedy against the agent ; not in illustrations of hard cases making bad assumpsit, for it was not his contract ; law. See cases in next note. not in tort, for he is chargeable with ' Abeles v. Cochrane, 22 Kans. no deceit." Jefts v. York, 10 Cush. 405 ; Humphrey v. Jones, 71 Mo. 62. 392, 395, per Shaw, C. J. Compare, "If the defect of authority arises however, Weare v. Gove, 44 N. H. from a want of legal capacity, and if 196. the parties act under a mutual mistake * See Wheeler v. Smith, 9 How. of the law, and are both equally well 55; Carrugi v. Atlantic Fire Ins. Co., informed in regard to the facts, so that 40 Ga. 135. 686 CHAP. XIT.] OFFICERS AND CREMTORS. [§ 755. the presumption that they intended to make themselves per- sonally liable; since otherwise the contract would be invalid, a result which cannot be presumed to have been intended by the parties.* § 755. An agent is not liable to third persons for the frauds or other tortious acts or omissions of inferior agents, officers' although they may have been appointed by him. If "awjity to the superior agent fails to use due care in selecting for the 9.CtjS of sub-agents or servants, he will be liable to his princi- other pal for damages resulting from their dishonesty or ^se^ts. inefficiency ; but, should parties dealing with such sub-agents or servants suffier injury, the maxim respondeat superior would fix the liability therefor on the. common principal and not on the superior agent.^ A similar rule applies to directors and other corporate offi- cers. Ordinarily, they would not be liable to outsiders for the wrongful acts of agents of the corporation other than them- selves, unless they authorized the wrong, or in some way par- ticipated in it, or knowingly derived benefit from it.^ Accord- ingly, the ]S^w York Court of Appeals has held that the facts that the name of a person was published as a trustee of a cor- poration and a certificate of stock issued to him, were not suf- ficient to warrant a verdict against him for a fraud perpetrated by other trustees and agents of the corporation.* But should a director lend his name or influence in any manner to promote the fraud of another agent of the company, he would be liable to the persons injured, as by so doing he would make the fraud his own ;° and for issuing false certificates of stock, officers of ' See Weare v. Gove, 44 N. H. of his associates. Hauser v. Tate, 85 196. N. C. 81. A superior officer directing ' Stone V. Cartwright, 6 Term Rep. a servant of the corporation to commit 411 ; Bath v. Caton, .37 Mich. 199. a tort is liable to the injured person. ' Scott V. Depeyster, 1 Edw. Ch. Peck u. Cooper, 112 III. 192. (N. Y.) 513; Weir v. Barnett, 3 * Arthur v. Griswold, 55 N. Y. Exch. Div. 32. 400; Wakeman v. Dalley, 51 N. Y. But where a person acts as the presi- 27. See Hume «. Commercial Bank, dent of a spurious bank, which never 9 Lea (Tenn.), 728. had any legal organization, he may be ' Salmon v. Richardson, 30 Conn, personally liable for deposits lost 360; Morgan v. Skiddy, 62 N. Y. through the mismanagement and fraud 319 ; Clarke v. Dickson, 5 Jur. N. S. 687 § 756.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIV. a corporation have been held liable to assignees of the certificates who purchased them in good faith.' § 756. -Coming now to the relations between directors and J, J creditors of the corporation — relations, that is, biiity of between directors and persons whose claims against to credi- the corporation have already arisen — we shall find *°''^" the rules heretofore stated not always applicable. To the extent of creditors' interests, corporate funds are held in trust for creditors as well as shareholders. Consequently, directors having in their charge funds on which creditors have valid claims and equitable liens, but in the management of which creditors ,have ordinarily no voice, hold a position of trust towards creditors as well as shareholders ; and owe it ac- cordingly to creditors to protect their interests, as they owe it to shareholders to protect the interests of the latter.* The only claim of creditors is to be paid what is due them, and their main right is that the corporate funds shall not be wasted, embezzled, or managed with reckless improvidence, and that those funds shall not, to the injury of the creditors, be applied to purposes manifestly beyond the objects of incor- poration. It is, moreover, a duty owed by directors to credi- tors to use reasonable care to keep the corporation solvent, a duty qualified by the duty of directors towards shareholders to use the corporate funds for the purposes of the corporate enter- prise, and by the right of directors in so doing to incur what- ever risk may be reasonably necessary.* And, accordingly, directors will he liable to the persons for whom they hold the funds of the corporation in trust, in the 1029. Subordinate oflScers concerned Moses, 77 Me. 465; Hurlbut v. Mar- may be liable as well as their superi- shall, 62 Wis. 590. The managers ors. CuUen o. Thomson, 6 L. T. N. and treasurer of a savings bank, when S. 870. charged with malfeasance by its re- ' Bruft' V. Mali, 36 N. Y. 200 ; see ceiver, are to bo regarded as trustees also Shotwell v. Mali, 38 Barb. 445 ; for depositors, and the statute of limi- Cazeaux v. Mali, 25 Barb. 578 ; § 696 ; tations applying to legal actions does but compare Peck v. Gurney, L. R. 6 not apply. Williams v. McKay, 40 H. L. 377. N. J. Eq. 189 ; Williams v. Reilly, 41 i' Compare Haywood v. Lincoln N. J. Eq. 137. Lumber Co., 64 Wis. 689 ; Sturges ii. ' See Bank of Mutual Redemption Knapp, 31 Vt. 1, 53; Baxter v. w. Hill, 56 Me. 385. 688 CHAP. XIV.] OFFICERS AND CREDITOKS. [§ 757. number of wbora creditors are to be included, if they commit either a positive breach of trust by misapplying the corporate funds, or a negative breach by grossly neglecting their duties.* § 757. In the first place, as to the liability of directors to creditors for positive misapplication or mismanage- ment of the corporate funds: "All creditors have SieaMcmof the right to look to it [the capital of the corporation] ti»e corpo- and to its faithful administration for the payment of their debts ... and they have an interest in and claim upon the fund set apart by law for their payment, and may hold the directors responsible for its unfaithful distribution, or may follow it into the hands of the distributees who hold'it as vol- unteer recipients, having no rightful claim upon it."^ There is no doubt that creditors may follow corporate property into the hands of those who have wrongfully acquired it ;' and of this rule, it is not only a necessary consequent, but, as it were, a neces- ' Perm Bank v. Hopkins, 17 Weekly Notes (Pa.), 49 ; see cases cited in following notes and text. But in such suits judgment must first be had against the corporation, and unless this is alleged the bill is demurrable. Van Weel V. Winston, 115 U. S. 228; Baxter v. Moses, 77 Me. 465. According to some decisions, to ren- der directors liable to creditors, they must have been guilty of some fraudu- lent or malicious act. Fusz v. Spaun- horst, 67 Mo. 256 ; Zinn v. Mendel, 9 W. Va. 580. Two special term cases in New York, both decided by the same judge, go even further, and hold that directors are not liable to creditors even for wilful and fraudulent mis- management of the corporate assets. Winter v. Baker, 34 How. Pr. 183 ; Branch v. Roberts, 50 Barb. 435. But the reasoning in these two cases is palpably erroneous. Moreover, it is submitted that every breach of trust on the part of a trustee, whether it consist in a positive misapplication of the trust 44 funds, or merely in wilful neglect of the duties of the trust, will be regarded as fraudulent by a court of equity. And it is thought that the weight of authority sustains the proposition in the text. Compare Lyman v. Bonney, 101 Mass. 562; S. C, 118 Mass. 222. The position of a treasurer is held to be different ; and that he, being a mere ministerial officer having no control over corporate funds, or discretion in paying them out, owes no duties to creditors. Taylor v. Taylor, 74 Me. 582. Still, semble, he would be liable to creditors if he embezzled the funds, and thereby rendered the corporation insolvent. 2 Gratz V. Redd, 4 B. Mon. (Ky.) 178, 196, p6r Ewing, C. J. This case held directors liable to refund to the creditors dividends improperly re- ceived by themselves. ' See §§ 656, 657. And see in par- ticular Union Nat. Bank v. Douglass, 1 McCrary, 86 ; Jones v. Arkansas Mechanical Co., 38 Ark. 17. 689 § 758.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIV. sary antecedent, that the directors being the trustees, will, for their wrongful disposal of this property, be personally liable to creditors. Whether a person acquiring trust funds will be lia- ble to account to the beneficiary of the trust, will depend on the circumstances of their acquisition. But the trustee will always be liable to his beneficiary for their wrongful disposal.* Accordingly, the directors of a bank who, in order to sub- serve their personal interests, accept in payment for stock, secu- rities not authorized to be taken, instead of cash, will be per- sonally liable to note-holder§ and other creditors for the whole amount of the so-called paid-up capital.* Similarly, if the charter of a bank require a certain portion of the capital stock to be paid up in specie before the bank has authority to issue bank liotes, and the stock is subscribed, but the specie is not paid, yet the directors nevertheless circulate bank notes, "if the bank fail or become insolvent, the bill-holders and creditors may proceed at once against the directors for a breach of trust in so acting contrary to their duty under the charter."* If a director of a bank withdraws a large amount of its funds, giving no security, and uses th^m in his own business, and in consequence thereof the bank becomes insolvent, he will be liable to account to the creditors of the bank for the funds so withdrawn.* But it would seem that directors are not liable to account to creditors for the profits they have made from the use of the corporate funds for their personal advantage, although they might be accountable to shareholders for such profits.* § 758. Through gross neglect of their duties, directors may -render themselves liable to creditors for the frauds or other ' The assignees of an insolvent bank tors sue directors for such injuries as may recover damages from the direc- have accrued to the creditors ut uni- tors for a fraudulent sale by them to versi, through the unlawful manage- the bank of its own stock. Shultz v. ment by the directors of the corporate Christman, 6 Mo. App. 338. In Rail- affairs. Raymond v. Palmer, 36 La. way Co. V. Ailing, 99 U. S. 463, it is Ann. 276. said that directors represent creditors. * Bank of St. Mary's v. St. John, V. Ocoee Bank, 1 Lea 25 Ala. 566. (Tenn.), 398. 5 Lexington R. R. Co. v. Bridges, ' Schley V. Dixon, 24 Ga. 273, 277. 7 B. Mon. (Ky.) 556. A receiver may in the interest of credi- 690 CHAP. XIV.] OFFICERS AND CREDITORS. [§ 758. wrongful acts of officers and agents of the corporation other than themselves, by which creditors have suffered injury. If it is the duty of directors to supervise the actions of^ut^'^"* of each other and of the other officers of the corpo- ration, and through gross neglect of duty on the part of direc- tors, the funds of the corporation are embezzled or wasted by others, as they could not have been had the directors attended to their duties, the delinquent directors will be liable to the persons to whom they owe the duty of supervising the corpo- rate affairs for the loss. This duty directors owe to the corpo- ration as the representative of the interests of all persons in the corporate funds. If the corporation fails to enforce it, or to sue for the damages which a breach of it has occasioned, the share- holders may proceed against the directors.' Directors also owe this duty to creditors, since for them as well as for shareholders the corporate funds are held in trust. Consequently, if it can be shown that had it not been for the gross negligence of direc- tors, the wrongful acts of the other officers could not have been committed, all the directors who have been either dishonest or delinquent will be liable for the consequences of such acts to creditors of the corporation who are injured.^ If, indeed, it ^ See § 694. by its officers, and by them converted ' Directors who misappropriate cor- to the use of the bank without au- porate funds or through culpable neg- thority-from the plaintiffs, and that ligence allow other corporate agents to the defendants had, or by the most do so, will be individually liable to ordinary diligence and investigation, judgment creditors, whose executions could have had am{)le notice of this., against the corporation have been re- The complaint was held good ; the turned unsatisfied. Shea v. Mabry, 1 following being in substance the views Lea (Tenn.), 319. See also Maisch taken by the court. The defendants V. Saving Fund, 5 Phila. 30 ; Penn could not rely on any lack of privity Sank V. Hopkins, 17 Weekly Notes between them and the plaintiffs. In (Pa.), 49. When the guilty directors a certain sense, directors are the bank, control the corporation no previous de- and the public has a right to expect i mand on the corporation to sue need reasonable care from them. They owe be alleged. lb. And compare Robin- this duty to creditors of the bank. It son V. Smith, 3 Page (N. Y.), 222. is the duty of directors to use ordinary In an action against the directors of diligence to acquaint themselves with an insolvent bank, the complaint the business of the bank, and whatever charged that bonds, specially deposited information might be acquired by or- with the bank, were wrongfully taken dinary attention to their duties, they § 759.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIV. should be held that the creditor himself could not sue in the absence of some enabling statutory provision, he could in case of the insolvency of the corporation- — the only case in which his interests ordinarily would have been injured — apply for the appointment of a i-eceiver ; whose duty it would then be to sue the delinquent directors, and apply the moneys recovered to the discharge of the corporate indebtedness.' § 759. When a corporation becomes insolvent, the duty of its directors towards its creditors becomes even stricter and more imperative ; for, under such circumstanQes, the rights of creditors are paramount, and it has be- come pi'obable that they will be somewhat damaged ; and the plain duty of directors, who control the funds from which corporate debts are paid, is to see that the loss is as small as possible. Moreover, since, upon the insolvency of the corporation, the rights of unsecured creditors are equal, it would seem to be unlawful, even in the absence of a statute expressly forbidding it, for directors to make preferences among them.^ And certainly, when directors are themselves among the number of corporate creditors, they cannot make use of their official position in order to secure to themselves advantages over other creditors in the settlement of the corporate indebted- ness. Any such unfair transaction will be set aside at the suit of creditors ; and directors will be compelled to account for the ratable benefit of all the creditors, for whatever corporate assets they have taken possession of or assigned to themselves, after Directors' duties to creditors on the in- solvency of the cor- poration. may, in controversies with persons doing business with the banl^, be pre- sumed to have. They cannot then be heard to say that they *ere not ap- prised of facts shown to exist by the books of the bank, and which would have come to their knowledge except for their gross neglect. It is not neces- sary in many cases to show that the directors actually had their attention called to the mismanagement of the bank's affairs or to the misconduct of the subordinate officers. It is sufficient to show that the evidence of such mis- 692 management or misconduct was suffi- cient to apprise them of it, had they not been grossly negligent or wilfully careless in the discharge of their duties. United Society of Shakers v. Under- wood, 9 Bush (Ky.), 609. ^ Compare Attorney - General v. Guardian Mut. Insurance Co., 77 N. Y. 272. ' Richards v. New Hampshire Ins. Co., 43 N. H. 263 ; Haywood v. Lin- coln Lumber Co., 64 Wis. 639. See Casserly v. Manners, 9 Hun, 695. CHAP. XIV.] OFFICERS AND CREDITORS. [§ 760. the insolvency of the corporation, for the securing of their own claims.' Nor will directors in defenee.be allowed to plead their own ignorance of the corporate insolvency .^ Moreover, when a corporation has been adjudged bankrupt or has become insol- vent, if its officers buy up claims against it at a discount, in a settlement of their own statutory liability (as shareholders), they will not be allowed more than they actually paid for such claims." § 760. In Drury v. Cross,^ a sale was made of the entire pro- perty of a railroad company, at a price far below its value, under a scheme between the directors and the purchasers, by which the former escaped liability on certain endorsements made by them for the corporation. At the suit of other creditors the sale was set aside, and the purchasers were held as trustees for the complaining creditors for the full value of the property purchased, less a sum which the purchasers had actually, paid for a lien claim, which they had bought at a large discount. Interest on the balance from the time of the purchase to the date of the final decree was also added. So, in Jackson v. Ludeling,' where the directors and local managers of an embar- rassed railroad company holding a small portion of its bonds obtained a hasty order of sale, and sold out the road, grossly disregarding the interests of the other bondholders, the sale was set aside.* Directors and other officers, however, who are also creditors, ' Hopkins & Johnson's Appeal, 90 697. Compare Duncomb v. N. Y,, Pa. St. 69 ; Smith v. Putnam, 61 N. Housatonic,, etc. R. R. Co., 88 N, Tf. H. 632; Wilkinsons. Bauerle, 41 N. 1; S.'C, 84 N. Y. 190; Bassett v. J. Eq. 635; Haywood v. Lumber Monte Christo M'g Co.,.15 Nev. 293, Co., 64 Wis. 639; Bradley v. Far- §632. well, 1 Holmes, 433; Corbett v. Wood- ' Corbett v. Woodward, 5 Sawyer, word, 6 Sawyer, 403 ; Stout v. Yaeger 403 ; Clay v. Towle, 78 Me. 86. Milling Co., 13 Fed. Rep. 802; Gas- ' Holland v. Heyman, 60 Ga. 174; light Improvement Co. v. Terrell, L. Lingle v. National Ins. Co., 46 Mo. R. 10 Eq. 168. See Kingsley v. First 109. But see Craig's Appeal, 92 Pa. Nat. Bk. 31 Hun (N. Y.), 329 ; St. 396. Contra, Planters' Bankr. Whittle, 78 * 7 Wall., 299. Va. 737; Foster w MuUanphy Plain- = 21 Wall., 616. ing Mill Co., 16 Mo. App. 150 ; Gar- ^ See also James v. Railroad Co., 6 rett V. Burlington Plow Co., 70 Iowa, Wall., 752. 693 § 762.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. XIV. are of course not excluded, because officers, from sharing ratably with the other creditors of their corporation.' § 761. Throughout the states of the Union many statutes have been passed regulating the relations between fiawiity'^ directors and creditors of corporations. The majority to credi™ °^ *^®™ ^®®™ ^ proceed on the theory that corporate tors. Four funds are trust funds to be managed with due regard for the security of creditors as well as the profit of shareholders; and that in the management of these funds directors are charged with duties to creditors. These statutes may be divided into four classes: the first providing for certain liability of the directors in contract ; the second for certain liability of the directors in tort, beyond their common law or equitable liability ; the third for certain acts to be performed by the directors ; and the fourth forbidding certain acts abso- lutely or under certain circumstances. By violating statutes of the third and fourth classes, directors either (1) incur specific pecuniary penalties, (2) render themselves individually respon- sible, for certain corporate liabilities, or (3) commit a misde- meanor or felony. § 762. The first class of statutes* seem to apply rather to those relations between directors and persons dealing class. with them which arise directly from the transaction occasioning the claims of such person against the corporation, than to the relations with such persons after the latter have become creditors of the corporation. Statutes of this class create a liability arising through no fault of the direc- tors, but sounding in contract ; and to repeal one of them so as to afi'ect the relations between creditors whose debts have already arisen, and directors holding office at the time of the ' Bristol Milling, etc. Co. v. Pro- shareholders of such corporation or as- basco, 64 Ind. 406. See Christian's sociation, equally and ratably to the Appeal, 102 Pa. St. 184. extent of their respective shares of. ^ Illustrations: "The officers and stock in such corporation or associa- stoekholders of every corporation or tion." Cons, of Mich., art. xv. §3. association for banking purposes, issu- "The trustees of a corporation cre- ing bank notes or paper credits to ated for a purpose other than profit, circulate as money, shall be individu- shall be personally liable. for all debts ally liable for all debts contracted dur- ofthe corporation by them contracted." ing the term of their being officers or Rev. Stat, of Ohio, § 3261. 694 CHAP. XIV.] OFFICERS AND CREDITORS. [§ 764. repeal would confliet with the Federal Constitution.^ Many of them create a liability of directors as shareholders, and indeed seem hardly applicable to directors as such. § 763. A single instance of statutes of the second class will suffice: "The directors or trustees of corporations .... shall be jointly and severally liable to the 1^^°^^ creditors and shareholders for all moneys embezzled or misappropriated by the officers of such corporations .... during the term of office of such directors or trustees."* This statute, which creates a liability on the part of directors for wrongful acts of other corporate agents far in excess of any common law or equitable liability, apparently proceeds on the idea that it is a duty, for the non-fulfilment of which a director would be liable to all persons interested, to see that the corpo- rate funds are not misapplied. In fact, it makes him an insurer against their misapplication. And a director held to the liabil- ity imposed by a statute of this nature, himself innocent of all misfeasance, would seem entitled to contribution from his co- directors.* § 764. The statutes of the third and fourth classes, whether positive — commanding — or negative — forbidding — Third and are of essentially the same character,, i. e., penal; and fourth this, too, whether the penalty consists in (1) a specific sum of money, (2) creation of general liability on the part of directors for corporate debts, or (3) in making certain acts or omissions felonies or misdemeanors.^ From the view that ' See Hawthorne v. Calef, 2 Wall., in the same action by any claimant 10; Corning u. McCuUough, 1 N. Y. under these provisions;" the action 47. must be brought in a court of equity. ' Cons, of California, 1879, art. xii. Crown v. Brainerd, 57 Vt. 625. § 3. * "Wiles V. Suydara, 64 N. Y. 173 ' See Ashhurst v. Mason, L. B. 20 First Nat. Bank v. Price, 33 Md. 487 Eq. 225. Where by statute directors Sturges v. Burton, 8 Ohio St. 215 'are liable " to the creditors and stock- Breitung v. Lindauer, 37 Mich. 217 holders of said corporations for any Kritzer v. Woodson, 19 Mo. 327 loss which may be sustained in conse- Gregory v. German Bank, 3 Col. 332 quence of any incompetency, unfaith- Union Iron Co. v. Pierce, 4 Biss. 327 fulness, or remissness in the discharge Irvine w. McKeon, 23 Cal. 472 of their ofBcial duties ..... and any Nassau Bank v. Brown, 30 N. J. Eq. number of such directors may be sued 478, 484; Stebbins w. Edmands, 12 695 § 765.J THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIV. statutes of these two classes are penal, important consequences follow. First, they will not be ejifoi'ced outside of the state enacting them.' Secondly, when the liability of a director under one of these acts is enforced against him, it seems that he will have no action for contribution against his co-directors f and thus the "joint and several" liability of directors .under these statutes may mean little more than they may be joined as defendants. Thirdly, these statute^ are to be construed strictly.* Fourthly, a repeal of them even so as to afl'ect existing debts is constitutional ;* for there can be no vested right to recover a penalty.* And, finally, the liability which they impose will not survive the death of the delinquent director, unless reduced to judgment before that event.* § 765. The courts of all the states, however, have not been unanimous in holding statutes of these two classes to be penal, when, by violating one of them directors render themselves liable for the debts of the corporation. In N'eal v. Moultrie,' it was held that the liability, being created in favor of indi- viduals, could not constitute a penalty. ^ But the pertinency of this reasoning is not clear. In Hargroves v. Chambers,* it was said that the liability of the directors would not be affected by the extinguishment of the debt as to the corporation ; which Gray, 203 ; Billings w. Trask, 30 Hun S. 452. See Pier v. Hanmore; 86 N. (N. Y.), 314 ; Gadsden B. Woodward, Y. 95. Compare Western Union Tel. 103 N. Y. 242. See §771. Co. u. Hamilton, 50 Lid. 181. Judg- ' First Nat. Bank v. Price, 33 Md. ment against the corporation is not 487 ; Derrieksonw. Smith, 27 N. J. L. even prima facie evidence in an action 166 ; Halsey v. McLean, 12 Allen, against the directors to charge them 438 ; Bird v. Hayden, 2 Abb. Pr. N. with the debts of the corporation for S. (N. Y.) 61 ; S. C, 1 Robt. (N. their failure to file a report. Miller «. Y.) 383 ; Veeder v. Baker, 83 N. _Y. White, 50 N. Y. 137. 156. See "Story, Confl. of Laws, §§ * Breitung v. Lindauer, 37 Mich. 620, 621; Whart. Confl. of Laws, §§ 217; Union Iron Co. v. Pierce, 4 863 et seq; and compare § 393 ante. Biss. 327 ; Gregory v. German Bank,. 2 Andrews!). Murray, 33 Barb. 354. 3 Col. 332. Contra, Nickerson v. Wheeler, 118 ° Yeaton u. United States, 5 Cranch, Mass. 295. See §§ 767, 805. 281 ; Norris v. Crocker, 13 How. 429. 3 Bonnell v. Griswold, 80 N. Y. ^ Mitchell w. Hotchkiss, 48 Cona. 9. 128; Steam Engine Co. v. Hubbard, See §771. 101 U. S. 188; Gray v. Coffin, 9 ' 12 Ga. 104. Cush. 192; Chase v. Curtis, 113 U. « 80 Ga. 580. 696 CHAP. XIV.] OFFICERS AND CREDITORS. [§ %QT. last is opposed to the 'Sew York case of Jones v. Barlow.* Certain it is, however, that some of these statutes come near creating a liability sounding in contract. For instance, it would be hard to construe the following as creating a mere penalty : " If a bank shall become indebted beyond the amount allowed . . . . the directors .... shall be liable for the ex- cess in their private capacities, and an action in contract may, in such cases, be brought against them, or any of them ; their or any of their heirs, executors, or administrators, by any credi- tor of the bank ; or such creditor may have a remedy by a suit in equity."^ Where such a statute as this creates liability on the part of directors onl}', that may be a reason for presuming the statute to be penal ; while a presumption that the liability is of a different nature might arise in some cases where the liability is extended to shareholders, especially if directors are affected only as shareholders. § 766. There are finally a few statutes, falling properly under none of the preceding classes, whose object it is, by creating presumptions, to put on the directors the disproof of certain matters which it might be hard for other persons to prove. For instance : " Every insolvency of a chartered bank . . . shall be deemed fraudulent."^ " It is presumed that directors present at a meeting assent to the measures there passed ; and that within a certain time, or after such measures are entered on the books of the corporation, absent directors have know- ledge of them."* Although it would be beyond the limits of this treatise, to discuss in detail the effect of the various statutes which impose liability on directors either for failure to do certain acts which are prescribed, or for doing certain other acts which are forbid- den," still a few illustrations of the more frequent of these stat- utes and their effect may not be out of place. § 767. Enabling acts very commonly require corporations to file annual reports of .their condition, and make directors ' 62 N. Y. 202. ■ * California Penal Code, §§ 569, > General Stat, of Mass. 203, § 27. 570. ' Georgia Code 1873, § 4428. ' /• e., statutes of the third and fourth classes. 697 § 768.] ' THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIV. liable for the debts of the corporation on a failure to do so. Such a requirement is contained in the ISTew York Liability ^ . e ioao j for failure Manufacturing Companies Act oi l»4s, and many anDuai important decisions in regard -thereto have been ren- reports. ^Qr&di by the New York courts ; and, indeed, the sec- tion containing the provision is somewhat open to construction. It is as follows: "Every such company shall, within twenty days from the first day of January* . . . make a report which shall be published in some newspaper published in the town, city, or village . . . where the business of the com- pany is carried on, which shall state the amount of capital, and of the proportion actually paid in, and the amount of its exist- ing debts, which report shall be signed by the president and a majority of the trustees, and shall be verified by the oath of the president or secretary of said company, and filed in the office of the clerk of the county where the business of the company shall be carried on, and if any of said companies shall fail to do so, all the trustees of the company shall be jointly and severally liable for all the debts of the company then existing, and for all that shall be contracted before such report shall be made ; but whenever under this section a judgment shall be recovered against a trustee severally, all the trustees of the company shall contribute a ratable share of' the amount paid by such trustee on such judgment, and such trustee shall have a right of action against his co-trustees, jointly or severally, to recover from them their proportion of the amount so paid on such judgment."^ § 768. According to this section, as it has been judicially ex- pounded : " Upon default of a company to report, all the trustees then in office are jointly and severally liable for all the debts of the company then existing, whether contracted by them or their ' A court cannot by allowing the tion against his co-trustees, §§ 764, filing of a report nunc pro tunc relieve 8 05. trustees from the penalty of not filing To an action by a creditor to charge a report within the twenty days. But- a director with the penalty for a fail- ler «. Smalley, 101 N. Y. 71. ure to file a report, the director can- ^ Laws of 1848, chap. 40, § 12. nofplead that he did not know of the Had contribution among the trustees law requiring it, and that the failure not been specifically provided for, it was not intentional. Van Etten ». would seem that one trustee would Eaton, 19 Mich. 187. Compare Cooke have had no action over for contribu- o. Pearce, 23 S. C. 239. 698 CHAP. XIV.] OFFICERS AND CREDITORS. [§ 770. predecessors, and for all that may be subsequently contracted during their continuance in office, till such report be made. Trustees who, upon such default, retire from office, are liable for all debts of the company then existing, but for no subse- quent ones. Their successors, by promptly obeying the require- ments of the statute, may escape all liability ; but if they con- tinue the default until the next January, they are liable for the debts contracted during their administration up to that time, and for no other, unless they then and there make default, in which latter case they become liable for all debts then existing. Thus the members of successive boards may become liable for the same debts, by reason of successive defaults."* § 769. Under this statute, trustees are elected for one year, and, unless they hold over and act for the corporation after the expiration of their term of office, they are not liable for a sub- sequent failure to file a report, although no new trustees are elected.^ The mere fact, moreover, that a stockholder is elected a trustee, is nofenough to charge him with the penalties for a failure to file a report. There fnust be evidence of his accept- ance of the office.' And this liability does not arise if a report be filed, although the same is in some respects untrue.* § 770. To relieve trustees from their duty to file annual re- ' Vincent v. Sands, 1 J. & S. (N. Croome, 14 Hun, 164; S. C, affd 77 Y.) 511, 517. Opinion of the Court N. Y. 629. per Freedman, J. ; S. C, aff'd, 58 ♦ Bonnell v. Griswold, 80 N. Y. N. Y. 673. See Eorke v. Thomas, 128. Nor does the liability arise for 56 N. Y. 559 ; Chambers v. Lewis, 28 a failure to state, in accordance with N. Y. 454; Boughton v. Otis, 21 N. chap. 333 of the laws of 1853, that Y. 261. the stock is issued in payment for pro- » Van Amburgh v. Baker, 81 N. perty. ■ lb. Another section of the Y. 46. In this case before the ex- act of '48 provides penalties for filing piration of their term the trustees an untrue report. See § 774. passed a resolution discontinuing Under the section quoted above, business. which requires the report to be signed If, however, a trustee holds over, by the president and a majority of and there is a debt contracted while he trustees, it is sufficient if the president is a trustee de facto, he is liable for a with the trustees who sign constitute default. Deming v. Puleston, 55 N. a majority of the trustees ; as the Y. 655. president is a trustee ex officio. ' Cameron v. Seaman, 69 N. Y. Glens Falls Paper Co. v. White,. 18 396 ; Osborn & Cheeseman Co. v. Hun, 214. 699 § 771. J THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIV. ports a technical dissolution of the corporation is not requisite. This duty is at an end when the corporation is practically abandoned and has ceased to carry on business ;' or when its affairs have passed into the hands of a receiver or an assignee in bankruptcy.' The action against the trustee must be brought on the original claim of the creditor; and not on a judgment obtained against the corporation, as the latter is not even prima facie evidence to charge the trustees with a debt.* The decla- rations, however, of an officer, relating to matters in which he was competently acting for the corporation, are admissible as evidence against a trustee in an action brought to charge the latter with a debt of the corporation, there having been a failure to file the annual report.* And in such an action the trustees cannot avail themselves of a defence not personal to themselves, but going to the foundation of the claim against the corporation ; unless the corporation itself could have suc- cessfully relied on the same defence.* The statute of limi- tations begins to run in favor of the trustees from the time when the cause of action acci'ued against them, i. e., from the time of their first failure to file a report,' and successive failures do not prevent the statute from running.* § 771. A liability of this character being penal does not sur- vive the death of the delinquent trustee, as against his repre- sentatives,' nor the death of the plaintiff occurring in the course of the action.* Yet it has been held that if the default ' Kirkland v. Kille, 99 N. Y. 390 ; * Whitney Arms Co. v. Barlow, 63 Losee v. Bulkrd, 79 N. Y. 404 ; N. Y. 62. For a case where the de- Huguenot Nat. Bank v. Studwell, 74 fendant trustee was allowed to deny N. Y. 621 ; Bonnell v. Griswold, 80 that a corporation had ever been N. Y. 128 ; Bruce v. Piatt, ib. 379. organized, see De Witt v. Hastings, But compare Sanborn v. Lefferts, 58 69 N. Y. 518. N. Y. 179. 6 Duckworth v. Roach, 81 N. Y. 49. 2 Miller v. White, 50 N. Y. 137 ; "■' Losee v. Bulkrd. 79 N. Y. 404. Esmond v. BuUard, 16 Hun, 65; ' Stokes w. Stickney, 96 N. Y. 328 ; Chase V. Curtis, 118 U. S. 452. Com- Mitchell v. Hotchkiss, 48 Coon. 9. pare Bassett v. St. Alban's Hotel Co., ' Brackett v. Griswold, 108 N. Y. 47 Vt. 313. Contra, Thayer v. New 425. The cause of action here was England Lithographic Co., 108 Mass. not a failure to file the report, but the 523. filing a false report. » Hoag V. Lamont, 60 N. Y. 96. 700 CHAP. XIV.] OFFICERS AND CREDITORS. [§ 774. occur after the death of the original creditor, the delinquent trustees are liable to his executor.^ And likewise the right to enforce this liability passes with an assignment of the debt.^ § 772. Although the language of the New York statute is broad enough to include a debt of the corporation to one of the trustees who are in default, yet such a re- yhatdebts suit IS held not to be within its spirit ; and neither a ^'^ naMH. delinquent trustee nor a firm of which he is a mem- ' ^'. her can take advantage of a default for which he is in part re- sponsible, to recover against his co-trustees.* An assignee for value, however, who takes an absolute assignment of a debt of the corporation can maintain an action against, the trustees, . although his assignor remains a trustee up to the time of the default.* § 773. Where on account of a failure to file a report, direc- tors or trustees are made liable fori the " debts" of the corporar tion, corporate liabilities "which, may give causes of action against it and result in judgments are not within the statute unless they constitute present debts ;" for a debt is " something which may be subject to a suit as a debt, and rot something to which the party may be entitled as damages in consequence of a failure to perform a duty or keep an engagement."* § 774. A provision of the following .g^Vacter is not infi-e- quent in enabling acts. " If any certificate or report made, or public notice given by the officers of any foV eigning such company, in pursuance of the provisions of this 0^^^"" ^' Carley v. "Hodges, 19 Hun, 187. 76, 78, per Cooley, J. ; ace. Cady v. ..^.Eier v. George, 20 Hun, 210; S. Sanford, 53 Vt. 632. See Whitney C, aff'd, 86 N. Y. 613. Arms Co. v. Barlow, 68 N. Y. 34 ; ' Knox V. Baldwin, 80 N. Y. 610; Victory Webb Printing Co. v. Bucher, Briggs V. Easterly, 62 Barb. 51. See 26 Hun, 48. A claim in tort is not a Adams v. Mills, 60 N. Y. 533. But "debt" within the meaning of such a a creditor who is also a stockholder, statute. Chase v. Curtis, 113 U. S. may recover on this liability of the 452 ; nor is the liability for damages trustees. Sanborn v. LeflFerts, 58 N. which arises from the infringement of Y. 179. a patent. Child v. Boston, etc. Iron * Cornell w. Roach, 101 N. Y. 373. Works, 137 Mass. 516. Compare But compare Brackett v. Griswold, Trinity Church v. Vanderbilt, 98 N. 103 N. Y. 425. Y. 170. See § 734. ° Lockhart v. Van Alstyne, 31 Mich. 701 § 775.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XIV. act, shall be false in atiy material representation,* all the officers who shall have signed the same, knowing it to^be false, shall be jointly and severally liable fof all the debts of the company contracted while they are stockholders or officers thereof."^ tinder a provision of this kind, in order to charge the officers signing the false report, some fact must be proved showing bad faith, or wilful and fraudulent intent to deceive^ on the part of the officers.' § 776. In regard to the form in which actions to enforce the statutory liability of directors should be brought, little of general value can be said ; since this is a mat- ter so largely dependent on the terms of the statute itself, as well as on the rules of procedure in force in the different states. It may be said, however, that if the appa- rent intention of the statute creating the liability is to provide a fund for the security of all the creditors, then, on principles heretofore discussed in relation to the statutory liability of shareholders,* the action should be brought in a court having equitable powers, and on behalf of all creditors who are willing to share in the expense. Thus, a statute provided that " if the indebtedness of the company shall at any time exceed the amount of its capital stock, the trustees assenting thereto shall be personally and in- dividually liable for such excess to the creditors of the com- pany." The Federal Supreme Court held that an action at law Forms of actionB. Joinder of parties. ' See Butler e, Smalley, 101 N. Y. 71 ; which held that knowingly omit- ting certain liabilities of the company did not make the report "false in any material representation." Compare Whitaker v. Ma'sterton, 106 N. Y. 277. 2 Chap. 40 N. Y. Laws of 1848, sec. 15. ' Pier V. Hanmore, 86 N. Y. 95 Bonnell v. Griswold, 89 N. Y. 122 Stebbins v. Edmands, 12 Gray, 203 See Arthur v. Griswold, 55 N. Y, 401 ; Waters v. Quimby, 27 N. J. L, 296. 702 Where directors are made liable for all debts of the company contracted by them in excess' of a . certain amount, a director who protests verbally against contracting the debt is not liable. Schofield V. Henderson, 67 Ind. 258; Aimen v. Hardin, 60 Ind. 119 ; see B,aber v. Jones, 40 Ind. 436. Com- pare in regard to provisions of this kind, White v. How, 3 McLean, 111 ; Cornwall v. Eastham, 2 Bush (Ky.), 561 ; Irvine v. McKeon, 23 Cal. 472; National Bank v. Paige's Executor, 58 Vt. 452. ' See § 726. CHAP. XIV.] OFFICERS AND CREDITORS. [§ 775. could not be maintained by one creditor among many to enforce for bis own benefit the liability thus created; but that the remedy was in equity, since the excess, for which the directors were liable, constituted a fund for the benefit of all the credi- tors.^ Justice Miller said, giving the opinion of the court: " The remedy for this violation of duty as trustees is in its nature appropriate to a court of chancery. The powers and instrumentalities of that court enable it to ascertain the excess of indebtedness over the capital stock, the amount of this which each trustee assented to, and the extent to which the funds of the corporation may be resorted to for the payment of the debts ; also, the number and names of the creditors, the amount of their several debts : to determine the sum to be recovered of the trustees and apportioned among the creditors, in the manner which trial by jury and the rigid rules of common law pro- ceeding render impossible."^ . * ' Horner v. Heming, 93 U. S. 228. ment against the corporation before ' Horner v. Heming, 93 U. S. 228, proceeding against the directors to 232. Accord, Merchants' Bank v. enforce a liability of this nature. Mer- Stevenson, 10 Gray, 332; Low v. chants' Bank v. Stevenson, 5 Allen, Buchanan, 94 HI. 76 ; Buchanan v. 398. But see Kinsley v. Rice, 10 Bartow Iron Co., 3 111. App. 191 ; Gray, 325 ; Johnson v. Churchwell, Anderson v. Speers, 21 Hun, 568. 1 Head (Tenn.), 146. See Peele v. Phillips, 8 Allen, 86 ; When on account of paying a divi- Bond V. Morse, 9 Allen, 471. But dend out of capital, directors are ren- see Cornwall v. Eastham, 2 Bush dered liable for the debts of the cor- (Ky.), 561 ; Buell v. Warner, 33 Vt. poration, it has been held that the cor- 570; Bassett v. St. Alban's Hotel poration need not be joined as defend- Co., 47 Vt. 313. As to the form of ant. The guilty directors have no an action at law, see Union Iron Co. right of subrogation, and no recourse V. Pierce, 4 Biss. 327. ■ against the corporation. Hill v. Fra- It has been held that it is not neces- zier, 22 Pa. St. 320. sary for the creditor to recover a judg- 703 777.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XV. CHAPTER XV. LEGAL RELATIONS AMONG THE SHAEEHOLDERS OF A CORPORATION. Relations discussed, § 776. Two classes of legal relations between shareholders," §§ 777, 778. Right of shareholders that each shall bear his proportion gf the corporate burdens, § 779. Releases. Transfers, § 780. Subscriptions induced b_? fraud, § 781. Changes in the corporate constitution, ' § 782. Contribution among shareholders, § 783. Where shareholders are also creditors, § 784. Classes of shareholders, § 785. iRights of preferred shareholders, § 786. §776. Shares more fully paid up, § 787. Equal rights of shareholders, § 788. Relations between transferrer and transferee, § 789. Specific performance, § 790. Indemnification of transferrer, § 791. Fraud, § 792. Warranty by transferrer, § 793. Pledge of shares, § 794. Validity of assignment of stock cer- tificates, § 795. As against assignor's creditors, § 796. Stock certificates " in trust," § 797. Right to dividends as between trans- ferrer and transferee, § 798. As between life-tenant and remainder- man, §§ 799-801. The legal relations between individual shareholders and the majority acting as the body corporate, were duculsed. discussed in Chapter IX. It remains in this chapter to consider the relations among individual share- holders acting for themselves and representing only their own rights and interests in the corporate enterprise. § 777. The legal relations between shareholders are of two classes, and may appropriately be treated under two general divisions. First, those which subsist between shareholders, as it were indirectly, by reason of the relationship sustained by them towards the body cor- porate ; of which relationship the general result that works itself out into relations between the shareholders indi- vidually, is that each is entitled as against all others to share in the profits of the corporate enterprise in the proportion 704 Two classes of legal 'relations between sbai'e- holders. CHAP. XV.J LEGAL RELATIONS AMONG SHAREHOLDERS. [§ 779. borne by' his shares to the total number, and has the further right, that each shall bear a proportionate share of whatever liability may arise out of the corporate enterprise. Secondly, those legal relations which subsist directly between the succes- sive holders of the same shares of stock, or between persons possessing rights in the same shares : legal relations which have no reference to the rest of the shareholders, and do not depend primarily on a relationship sustained towards the corporation. § 778. The rights and liabilities constituting the legal rela- tions of the first class are as a usual thing enforceable by individ- ual shareholders against each other only after some default or failure to act on the part of the corporate management, or else they come into play only on the insolvency of the corporation. But with legal relations of the second class, the corporate management has 4ittle or nothing to do. An instance of the first class is the right which each shareholder has that no other shareholder shall be released from his liabilities as such in a manner unauthorized by the corporation constitution. In- stances of the second class appear in the right of the vendor or vendee of shares to have the other take the necessary' steps to complete the transfer; or in the rights which subsist between a person having the life interest in certain, shares and the re- mainder-man. § 779. It is the right of shareholders that every one of their number shall pay over to the corporate manage- Kights of ment a value in cash or property equal to the par value ^^'^^.^ of the shares subscribed for by him.' Consequently, that each every agreement between a subscriber and the corpo- his propor- rate agents by which the former is not to pay the corpora** face of his subscription, is fraudulent and void as to burdens, shareholders not consenting.^ Thus, a separate agreement made ■ See §545. Rivers R. R. Co. o. Bailey, 24 Vt. 'White Mountains, etc. R. R. Co. 465, 476 ; Jewett v. Valley R'y Co., V. Eastman, 34 N. H. 124 ; Graff v. 34 Ohio St., 601, 609. See Bailey u. Pittsburgh, etc. R. R. Co., 31 Pa. St. Pittsburgh, etc. Gas-coal Co., 69 Pa. 489 ; Robinson v. Pittsburgh, etc. R. St. 334 ; Wood v. Pearce, 2 Disney R. Co., 32 Pa. St. 334; Miller v. (Ohio), 411. Compare Buford v. Hanover Junction, etc. R. R. Co., Keokuk Northern Line Packet Co., 87 Pa. St. 95; Connecticut, etc. 69 Mo. 611. 45 705 § 780.] THE LAW OF PRITATB CORPORATIONS. [CHAP. XV. on subscribing for shares, whereby the subscriber on surrender- ing his certificate of stock is to receive back the part of his subscription already paid, and to be released from further pay- ments, is a fraud on other shareholders : and when on the in- solvency of the corporation, the receiver is enforcing subscrip- tions for the benefit of creditors, and is not including as share- holders the fraudulent subscribers, any shareholder may bring a bill for himself and others who may join, to compel such sub- scribers to assume their liabilities as shareholders.' § 780. Likewise is it as essentially a right of shareholders as of creditors that no shareholder shall withdraw or be Transfers released from any liability arising out of the corpo- rate enterprise, except in accordance with the consti- tution of the corporation;' and, except in accordance with that constitution, it is beyond the powers of the body corporate to release any of their number.' But it would seem that a share- holder whom the body corporate had voted to release, might, under some circumstances, have the right to be indemnified by those who voted to release him from any liability in respect of ' Melvin v. Lamar Ins. Co., 80 111. of a company to retire under certain 446. conditions agreed to by a public meet- ^ Spackman v. Evans, L. R. 8 H. ing of the shareholders, convened after L. 171; Dixon's Case, L. K. 5 Ch.- due notice to all the shareholders, is 79; Gill V. Balis, 72 Mo. 424; Bed- not in itself valid unless made in ac- ford R. R. Co. !'. Bowser, 48 Pa. St. 29. cordance with the provisions of the See Houldsworth v. Evans, L. R. 8 H. deed of settlement ; and if not assented J... 263 ; Miller v. Hanover Junction to directly or indirectly, after due no- R. R. Co., 87 Pa. St. 95. tice, by all the shareholders, it may be A decree is objectionable which impeached by any one of them. But confers on the receiver discretionary if the means of notice to all appear powers to compromise with share- sufficient, so as to raise a clear pre- holders ; for each shareholder has a sumption of knowledge and acquies- vested right in the subscription con- cence, and the arrangement is left un- tract of every other shareholder ; and impeached for a great number of years, it is beyond the power of a court of the shareholder who has been allowed equity to invest any one with a discre- to retire, and whose name has been tionary right to release it. At least removed from the lists of the company, this cannot be done by a decree to will be held to be relieved from his which all the shareholders are not liability as a shareholder. Evans v. parties. Chandler v. Brown, 77 111. Smallcomb, L. R. 8 H. L. 249. See 333. §§ 549, 550. 3 An arrangement allowing members 706 CHAP. XV.] LEGAL RELATIONS AMONG SHAREHOLDERS. [§ 782. the corporate enterprise.^ A transfer of shares made to an irre- sponsible person when the corporation is insolvent, for the pur- pose of escaping liability, is a fraud on the other shareholders, who will have to contribute more if the transfer is held valid,* just as much as such a transfer would be a fraud on creditors.' § 781. If a person is induced by a fraud of the corporate agents, for which the corporation is responsible, to subscribe for shares, he may rescind his contract by tiousTn?' acting promptly. But it would be unjust to allow ^^^^^^ him to withdraw to the injury of others who have subsequently subscribed for shares or contracted with the cor- poration on the faith of his subscription. " It would be ex- tremely difficult to maintain, upon general principles of law, that a private fraud between the original subscribers and commis- sioners, could be permitted to be set up, to the injury of subse- quent purchasers, who become bona fide holders, without any participation or notice of the fraud."* § 782. Just as it is beyond the powers of the body corporate to release any shareholder from liability attaching to chanees him under the constitution of the corporation, so it in the is also beyond the powers of the majority to increase constita- the liability of shareholders to creditors.* And it *"'°' would seem that a change in the corporate constitution, pro- ■ In pursuance of a resolution passed Tw. 320. See Zulueta's Claim, L. R. at an extraordinary meeting of an un- 5 Ch. 444. incorporated company, a shareholder ^ See Nathan u. Whitlock, 9 Paige sold his shares to the directors, upon (N. Y.), 152; Everhart v. West- the terms that he should -withdraw Chester, etc. R. E. Co., 28 Pa. St. 389 ; from the company and be no longer Chouteau Spring Co. v. Harris, 20 liablefor any of its debts. No power Mo. 382, 390; Johnson «. Laflin, € to enter into such an arrangement was Cent. L. J. 131 ; S. C, 5 Dill. 76 ; contained in the deed of settlement. Angell and Ames on Corp., § 535. It was held that the shareholder was ' See § 749. still liable for the debts of the com- * Minor v. Mechanics' Bank, 1 Pet. pany, and was properly included in the 46, 66, opinion of the court per Story, list of contributories. Lord Chancellor J. See §§523-525. The English Cottenham, however, intimated that cases, however, are not in accord with there might be equities between such this view. See Smith's Case, L. R. shareholder and any shareholder who 2 Ch. 604. could be shown to have assented to the * Trustees v. Flint, 13 Mete. (Mass.) release. Ex parte Morgan, 1 Ha. & 539. See § 583. 707 § 783.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. XV. cured by a majority from the legislature, would release a dis- senting shareholder from his obligation to pay calls, at least so far as regards the rights of the members comprising the majority which procured the change." § 783. "When the condition of the corporate affairs is such c ntribu *^^* liability to creditors for unpaid subscriptions tion arises, or where shareholders are affected with a stat- share? utory liability, either several or joint and several, and holders. ^^.^^ shareholder is compelled to pay a debt of the corporation, he is in all cases entitled to contribution from the other shareholders, to an extent that will equalize among them all in proportion to the amount of stock held by them respect- ively, the corporate burdens.' " The right of contribution grows out of the organic relation among the stockholders. As between them and the creditors, each stockholder is severally liable [if the statute so declare him] to all the creditors; as between themselves, each stockholder is bound to pay in pro- portion to his stock."' It has been held, however, that one shareholder who has paid a debt of the corporation, is not entitled to contribution from the other shareliolders, until he has exhausted the property of the corporation that is bound to reimburse him.'' And if the liability on which the shareholder has been held to a creditor is statutory and the statute provides a remedy \Vhereby share- ^ See Hartford and N. H. R. R. personally liable for the corporate Co. V. Croswell, 5 Hill, 388 ; §§ 530 debts, and certain shareholders pay et seq. those debts, they are entitled to 2 Aspinwall v. Torrance, 1 Lans. contribution, even from those who (N. Y.) 381; Brinham v. Wellers- have paid up their stock. Richardson burg Coal Co., 47 Pa. St. 43 ; Weber v. Pitts, 71 Mo. 128. If the mode of V. Pickey, 47 Md. 196. See Mat- obtaining contribution be prescribed thews V. Albert, 24 Md. 527 ; Masters by statute, it should be followed. V. Rossie Lead M'g Co., 2 Sandf. Ch. Brinham v. Wellersburg Coal Co., 47 (N. Y.) 301 ; Hadley v. Russell, 40 Pa. St. 43. N. H. 109; Erickson u. Nesmith, 46 " Umstead v. Buskirk, 17 Ohio St. N. H. 371 ; Wincock i'. Turpin, 96 113, 118, per White, J. III. 135. * Gray v. Coffin, 9 Cush. 192. But Whei-e a corporation is not fully or- in this case the plaintiff held for his ganized, so that, under the Missouri security a mortgage on the corporate law (see Hart v. Salisbury, 55 Mo. property, which he had not enforced. SIO ; § 739), the .shareholders remain 708 CHAP. XV.] LEGAL RELATIONS AMONG SHAREHOLDERS. [§ 786. holders shall obtain contribution from each other, the statutory remedy must be followed.' There is no implied promise on the part of shareholders to indemnify others, who, at the request of the former, became sureties for the corporation.^ § 784. The relations among shareholders may be complicated by a shareholder being also a creditor of the corpora- ™., tion. In such case those rights and liabilities of the share- person holding such double status which appertain ■ also credi- to him as shareholder must be regarded as distinct " *°''^" from the rights which belong to him as creditor. Ordinarily such a person can bring no action to enforce his rights as credi- tor in a form that will i-ender it impracticable to discriminate between the two positions held by him ; nor can an action by such a person suing as creditor be maintained in a court which has not the capacity to adjust his rights and liabilities.' § 785. In an honestly conducted corporation the interests of all shareholders will for the most part coincide, un- cj^gggg ^f less there are different classes of shareholders. A share- separation of shareholders into classes with somewhat divergent interests may be occasioned by the issue of preferred shares, or might possibly arise from the fact that part of the shareholders own fully paid-up shares, while the shares of others are not fully paid up. § 786. Preferred shares are usually issued to obtain further capital for the prosecution of the corporate enterprise ; and the rights of the holders as against the holders of preferred common shares depend on the terms of the issue of ^^%.s_ the preferred shares.^ The usual provision ir^cluded in those terras, the one, in fact, which constitutes shares pre- ferred shares, is that the holders shall receive from the profits of the corporate business a certain amount of dividends before the holders of common stock shall receive anything.* On ' O'Reilly v. Bard, 105 Pa. St. & Ores. 419. Compare SchaefFer u. 569; Brinham v. Wellersburg Coal Phcenix Brewery Co., 4 Mo. App. Co., 47 Pa. St. 43. 115. See § 733. ' Larson v. Dayton, 52 Iowa, 597. * For the power of a corporation to " See Thayer u. Union Tool Co., 4 issue preferred shares, see §§571, 572. Gray, 75; Bailey v, Bancker, 3 Hill ' "Unless there is some agreement (N. Y.), 188; Smith v. Huckabee, 53 or enactment to the contrary, prefer- Ala. 19J ; Milburn v. Codd, 7 Barn, ence shareholders are entitled to be 709 § 787.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XV.' the other hand, preferred shareholders are. not creditors of the corporation, and, in the absence of express provision, are entitled on the winding up of the business to receive the principal of their shares only in the same proportion with the holders of common stock.* It is apparent how the interests of preferred shareholders may differ from those of the holders of common shares. For instance, one course of policy may insure for the corporation sufficient profits to pay the dividends on the preferred stock; while another course, proper but more hazardous, will probably result in profit sufficient to pay dividends on all the stock, common as well as preferred. Evidently it will be for the interests of the preferred shareholders to have the corporation pursue the former course. § 787. Again, a divergence of interest might arise from the „. J. fact that some shares in the corporate stock are fully more fully paid up, while others are not. When there is no special provision regulating the matter, it would seem in such case that any dividends earned should be dis- tributed among the shareholders, not in proportion to the nominal amount of stock held by them, but according to the amounts of capital they have actually paid in." But, however this may be, undoubtedly on the winding up of the company and the distribution of its assets, each shareholder is entitled to paid out of the profits of the company L. R. 5 Eq. 519 ; McGr^or v. Home their dividends to the amount guaran- Ins. Co., 33 N. J. Eq. 181. teed, before the other shareholders ' Still this is by no means clear, receive anything ; so that if the profits "Where there are several classes of divisible at any given time are not shares on which unequal suras have sufficient to pay the guaranteed divi- been paid up, the profits of the com- dends in full, the deficiency must be pany ought prima facie to be divided made good out of the next divisible amongst the shareholders in proportion profits; the ordinary shareholders to the sums paid upon their respective taking no profits until all arrears of shares, and not in proportion to the guaranteed dividends have been paid nominal values of such shares." 2 to the preference shareholders." 2 Lindley on Part., 797. See Somes v. Lindley on Part., 796; ace. Boardman Currie, 1 E. & J. 605 ; In re Hodges V. Lake Shore, etc. Ry. Co., 84 N. Distillery Co., Ex parte Maude, L. Y. 157. See § 664. R., 6 Ch. 51. ' In re London India Rubber Co., 710 CHAP. XV.] LBSAL RELATIONS AMONG SHAREHOLDERS. [§ 788. receive in proportion to the amount which he has actually con- tributed for corporate purposes.* § 788. Aside from considerations arising from the circum- stance that part of the shares are preferred, or that a part are more fully paid up than others, every share- right! of holder is entitled, both in the distribution of profits ^oidtrs and on the winding up of the corporation, 'to partici- pate in proportion to the number of shares held by him. '■'■Prima facie all stockholders at any particular period are equally interested in the property and business of a corporation. They assume the same liabilities, are entitled to the same rights, and are equal owners of the property. When, therefore, the directors undertake to distribute among the stockholders any portion of the funds or property of a corporation, whether it be called profits or not, all stockholders are entitled to an equal share in the fund, proportionate to their stock; whether they have been stockholders for a longer or shorter period. Unless the charter give to the directors power to dis- criminate between stockholders at different periods in the dis- tribution of profits, they are all entitled to share therein."^ 4-Ccordingly, at the suit of a minority, a court will restrain the majority from appropriating to themselves the assets of the corporation, or from obtaining advantages not shared in by the minority.' Agreements, however, entered into by a group of shareholders who hold a majority of stock, whereby they agree to act together in influencing the corporate management, may be upheld so long as the interests of the other shareholders are not fraudulently or unfairly sacrificed ; and even then will not be set aside at the instance of the parties to them, but only ' Hartman e. Insurance Co., 32 559. Compare Bailey v. Citizens' Gratt. (Va.) 242. In proportion to Gas Light Co., 27 N. J. Eq. 196. his "in-put," as it is expressed in this Certain parties fraudulently repre- case. senting that the entire assets of a cor- * Jones V. Terre Haute, etc. K. E. poration belonged to them, procured a Co., 29 Barb. 353, 357, perlngraham, decree of a court dissolving the corpo- .7.; S. C, aff'd, 57 N. Y. 196. Ace. ration, and acquired possession of its Jackson's Admr's v. Newark Plank assets. They were held as trustees Road Co., 31 N. J. L. 277. ex maleficio for bona fide share- ' Menier v. Hooper's Telegraph holders. .Bailey's Appeals, 96 Pa. St, Works, L. R. 9 Ch. 350. See §§ 558, 263. 711 § 790.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XV. §789. Relations between transferrer and trans- feree. on complaint of some innocent shareholder whose interests are injured.' Coming now to the second class of legal relations between shareholders, it may be remarked that many of the rules regulating the sale of personal property apply to the relations between the transferrer and transferee of shares.* The transferee of a certificate of stock occupies the position of the assignee of a chose in action which for most purposes is negotiable.' A reciprocal agreement to transfer and accept a transfer of shares is not a nudum -pactum ; but the mutual promises constitute good con- siderations for each other: and this, although nothing has been paid on the shares.* § 790. Further, a contract for the sale of shares will be spe- cifically enforced in equity, if it is not unconscion- able" or against public policy, when from the scarcity of the shares or other reasons the purchaser cannot go into the market and purchase similar ones.^ But if shares Specific perform- ance. 1 Faulds V. Yates, 57 111. 416. Compare Foil's Appeal, 91 Pa. St. 434 ; posU § 790. But see Woodruff V. Wentworth, 133 Mass. 309 ; Guern- say V. Good, 120 Mass. 501; § 577, note. ^ A person may sue another for the conversion of shares of stock. Kuhn V. McAllister, 1 Utah, 273 ; Nabring V. Bank of Mobile, 58 Ala. 204. Compare! Reid v. Commercial Ins. Co., 32 La. Ann. 546. In England a contract for the sale of shares is held not to be a contract for the sale of goods, wares, or merchandise, within the statute of frauds. Duncuft v. Albrecht, 12 Simons, 189. But in America the reverse is the law. Tis- dale V. Harris, 20 Pick. (Mass.) 9; Baltzen v. Nicolay, 53 N. Y. 467 ; North V. Forest, 15 Conn. 400; Pray ». Mitchell, 60 Me. 430; Colvin v. Williams, 3 H. & J. (Md.) 88. ' Stock may however be held by a 712 valid title, without a certificate, which is but indicia of title, and the right to the stock is in the nature of a non- negotiable chose in action. Accord- ingly, stock certificates issued by order of a Confederate court, after confisca- tion of the shares of "alien enemies," are void, and no better in the hands of a transferee than in those of the original holder, as against the rightful owner of the stock. Dewing v. Perdicaries, 96 U. S. 193. * Cheale v. Kenward, 3 De G. & J. 27. A memorandum of a contract to purchase shares signed by the pur- chaser, is an admission of the existence of the corporation. Mann v. Wil- liams, 143 Mass. 394. * See Mississippi and M. R. R. Co. V. Cromwell, 91 U. S. 643. « Johnson v. JBrooks, 93 N. Y. .337 ; White V. Schuyler, 1 Abb. Pr. N. S. (N. Y.) 300; S. C, 31 How. Pr. (N. Y.) 38; Todd v. Taft, 7 Allen, 371; CHAP. XV.] LEGAL RELATIONS AMONG SHAREHOLDERS. [§ 790. similar to those which are the subject of the sale, are readily purchasable in the market, equity will not, as a general rule, specifically enforce the contract ; but will leave the parties to their remedies at law.' And equity will pursue a similar course when for any reason the contract for the sale of the shares is against public policy. Thus it has been decided in Pennsyl- vania that, for reasons of public policy, equity will not decree the specific performance of a contract to sell shares in the stock of a national bank, the object of the purchase being to obtain the control of the bank.^ " While the legal right of the com- plainant to buy up suflBcient of the stock of this bank to con- trol it in the interest of himself and his friends may be con- ceded, it is by no means clear that a court of equity will lend its aid to help him. A national bank is a quasi public institu- tion Were we to affirm this decree, I see no reason why we may not be called upon to use the extraordinary powers of a court of equity to assist in miscellaneous stock jobbing operations."^ If the transfer of shares forms part of a contract that equity will specifically enforce, as, for instance, a contract for the sale of land, equity will specifically enforce the transfer in the course of enforcing the main contract.* On the other hand, if the con- tract to transfer shares is part of a contract which equity can- Cheale v. Kenward, 3 De G. & J. 27 ; wise the specific transfer oi- delivery of Duncuft u. Albrecht, 12 Simons, 189. particular shares, rather than others, Compare Chater u. San Francisco will not be enforced ; all being alike. Sugar Refining Co., 19 Cal. 219 ; Hardenbergh u. Bacon, 33 Cal. 856 ; Cushman «. Thayer M'f g Co., 76 N. Hubbell v. Drexel (U. S. Cir. Ct. Y. 368. Especially will equity spe- Eastern Dist. of Pa.), 21 Am. Law cificially enforce a transfer in the Reg. (N. S.) 452. See § 794. course of enforcing a trust. Coles v. ^ Foil's Appeal, 91 Pa. St. 434. Whitman, 10 Conn. 121; Draper v. Compare Faulds ». Yates, 57 111. 416 ; Stone, 71 Me. 175. Compare Wonson §788. ». Fenno, 129 Mass. 405; Colquhoun ' Foil's Appeal, 91 Pa. St. 434, V. Courtenay, 43 L. J. Eq. 338 ; John- 437. Opinion of the court per Pax- son V. Brooks, supra. son, J. 1 Ross V. Union Pac. Ry. Co., 1 * Leach v. Fobes, 11 Gray, 506; Woolw. 26. But see Ashe v. John- Bissell v. Farmers', etc. Bank, 5 Me- son, 2 Jones Eq. (N. C.) 149. Like- Lean, 495. 713 § 792.] THE LAW OF PKIVATE CORPORATIONS. [CHAP. XV. not or will not specifically" enforce, the transfer of shares will not be enforced specifically.' § 791. The purchaser is not the only party to the contract who is entitled to its specific performance. When cation of any liability is connected with the shares, either for transferrer. m,pg^jj subscriptions Or on» account of some statute creating individual liability on the part of shareholders, the vendor has the right to have the vendee specifically perform the contract, and register himself as owner of the shares, in order that the vendor may be freed from liability.^ And at all events after a valid sale has been inade, the vendee is bound to indemnify the vendor from all liability as to future calls,^ as well as from liability created by statute.^ § 792. If the transferrer is guilty of such misrepresentations or concealments as would entitle the purchaser of personal property to have a sale set aside, the trans- feree will be discharged from his agreement to purchase," or he may hold to his bargain and sue the transferrer for damages.^ Fraud. ' Ross V. Union Pac. E'y Co., 1 Woolw. 26 ; Danforth v. Philadelphia and C. M. R'y Co., 30 N. J. Eq. 12 ; Fallon V. Railroad Co., 1 Dill. 121. * Paine v. Hutuhinson, L. R. 3 Eq. 257 ; S. C, aff'd, L. R. 3 Ch. 888 ; Shepherd v. Gillespie, L. R. 5/Eq. 293 ; Walker v. Bartlett, 2 Jur. N. S. 643 ; S. C, 18 C. B. 845. 3 Hutzler v. Lord, 64 Md. 534 ; Shepherd v. Gillespie, supra ; Walker V. Bartlett, supra; Wynne v. Price, 3 De G. & Sm. 310; Cruse v. Paine, 87 L. J. Eq. 711 ; Evans v. Wood, ib. 159; Hodgkinson v. Kelly, ib. 837; Hawkins u. Maltby, L. R. 4 Ch. 200; Castellan v. Hobson, L. R. 10 Eq. 47. Contra and semble overruled by above cases. Humble v. Langs- ton, 7 M. & W. 517. * Wheeler v. Faurot, 37 Ohio St. 26 ; Brown v. Hitchcock, 36 Ohio St. 667. These were instances of liability 714 created by statute which was held to attach to shareholders who were such at the time when the debt was con- tracted by the corporation. See §§ 718 ei seq. * See Fosdick v. Sturges, 1 Biss. 255. If, however, the transferee's name is reffistered as a shareholder, the rights of creditors or other share- holders might intervene. ^ Riggs V. Tayloe, 2 Cranch Cir. Ct. 687. A person who agrees to pur- chase shares of a shareholder at a fu- ture date certain cannot plead, that before that date the company mort- gaged its road or consolidated with an- other, in pursuance of powers con- tained in its charter. Noyeso. Spauld- ing; 27 Vt. 420. A transfer of shares fraudulently procured from the owner when drunk may be set aside. Thack- rah V. Haas, 119 U. S. 499. CHAP. XV.] LEGAL RELATIONS AMONG SHAREHOLDERS. [§ 794. § 793. A party selling as his own personal property of which he is in possession, impliedly warrants his title to the thing sold. This doctrinfe applies to the sale of such ty trana- choses in action as shares of stock. The certificate ^^"^'^■ is the evidence of ownership, and if the certificate is forged, or the holder is not a bona fide holder, and from the circumstances transfers no valid claim as against the corporation, he will be liable to his vendee on this implied warranty of title. For his possession of the certificate is as to the vendee possession of the stock. But when the holder is such in good faith, and the cer- tificate is in the usual form, regular on its face, sealed with the genuine corporate seal, and issued by the duly constituted offi- cers of the corporation, the vendor's warranty does not cover the case,, but the vendee, if there is anything wrong with the stock, has a remedy for damages against the corporation.' § 794. It has been held that in eases of pledge the pledgee must be put into possession of the thing pledged, or if that be a claim the evidence of the obligation must f^arfs!"^ be delivered, and, accordingly, that shares cannot be pledged unless they are evidenced by certificates, which must be delivered to the pledgee.^ In the absence of specific agree- ment to the contrary, the pledgee of shares is entitled to have them transferred to his own name on the books of the company, and when such transfer is made, he is not bound to retain th^ identical shares pledged, provided he keep on hand a number of similar shares sufficient to answer the pledgor's demand on repayment of the loan.* It is held, moreover, that a pledgor 1 People's Bank v. Kurtz, 99 Pa. 364. Compare Cherry v. Frost, 7 St. 344. See §§ 592 et seq. The Lea (Tenn.), 1. transferrer of shares does not impliedly " Hubbell v. Drexel (Cir. Ct. East- warrant the corporation's title to its ern Dist.,of Pa.), 21 Am. Law Reg. property, nor is there any implied war- N. S. 452.; Nourse v. Prime, 4 Johns, ranty to that effect when the corpora- Ch. (N. Y.) 490 ; Allen v. Dykers, 3 tion is itself the nominal transferrer, Hill (N. Y.), 593 ; Gilpin v. Howell, if it is only the medium through which 5 Pa. St. 41 ; Neiler v. Kelley, 69 Pa. its then shareholders transfer their St. 409 ; Boylan v. Huguet, 8 Nev. shares to the transferee. State of 345; see Otis v. Gardner, 105 111. Louisiana v. North Louisiana and T. 436. See Hayward v. Rogers, 62 Cal. R. R. Co., 34 La. Ann. 947. 348 ; Barclay v. Culver, 30 Hun (N. « Lallande v. Ingram, 19 La. Ann. Y.), 1. Compare Langton v. Waite, 715 § 795.] THE LAW OF PRIVATE CORPORATIONS. [OHAP. XV. of shares is not entitled to an injunction restraining the pledgee, to whose name the shares have been transferred on the books, from voting on them, at least not if the complaint contain only allegations to the effect that the pledgee is voting the shares so as to subserve the interests of another corporation, and that it is greatly against the pledgor's interest to allow the pledgee to vote them.' § 795. Certificates of stock, even those bearing on their face such a phrase as " transferable only on the books of the company," are for most purposes negotiable. By an assignment of the certificate the legal title to the stock passes ;^ and the possession of the certificate properly indorsed is prima facie evidence of ownership. Con- sequently, the assignee for value without notice of prior equities, obtains a title superior to them ; and if the rightful owner has invested another with the usual evidence of title or with ap- parent authority to dispose of the shares, he will be estopped from disputing the rights of an innocent purchaser.* And the doctrine of the implied notice of lis pendens has no application to certificates of stock which pass from hand to hand like nego- Validity of assign- ment of stock cer- tificate. L. K. 6 Eq. 165; Cherry v. Frost, 7 Lea (Tenn.), 1. A pledgee of shares, that have been transferred on the books of the corporation, cannot sell them without notice to the pledgor and demand of payment ; nor at privat« sale, for less than market value. Na- bring v. Bank of Mobile, 58 Ala. 204. And an agreement that pledgee may sell without notice, does not permit him to sell without demand of pay- ment. Wilson V. Little, 2 N. Y. 443. An execution cannot be Jevied on shares of stock pledged by the execu- tion debtor and transferred on the books of the corporation to the pledgee. A purchaser at such execu- tion sale gets no title. Nabring v. Bank of Mobile, 58 Ala. 204. ' McHenry v. Jewett, 90 N. Y. 58. 716 The court did not decide who was entitled to vote the shares, but merely that the complaint was bare of facts justifying an injunction. See § 578. 2 Leitch 0. Wells, 48 N. Y. 585. The tender of a certificate properly indorsed is a good tender of shares "transferable on the books of the company." Noyes v. Spaulding, 27 Vt. 420. » Walker v. Detroit R'y Co., 47 Mich. 338; McNeil v. Tenth Nat. B'k, 46 N. Y. 325; Cherry v. Frost, 7 Lea (Tenn.), 1; Dovey's Appeal, 97 Pa. St. 153 ; Gass v. Hampton, 16 Nev. 185; Stinson v. Thornton, 56 Ga. 377; Otis v. Gardner, 105 111. 436. See Winter v. Belmont M'g Co., 53 Cal. 428 ; Caulkins v. Gaslight Co., 85 Tenn. 683. CHAP. XV.] LEGAL RELATIONS AMONG SHAREHOLDERS. [§ 796. tiable instruments.* But a bona fide purchaser of a stolen cer- tificate acquires no title as against the true owner." § 796. Likewise, although it be provided that all transfers of shares shall be recorded on the books of the cor- . poration, and the certificates state that shares are assignor's transferable only in that manner, a bona fide sale of the shares, or an assignment of them as collateral security, accompanied by a delivery of the certificates with a power of attorney, is valid as against the attaching creditors of the vendor or assignor,' and also as against his assignee in insol- vency.* But it has been held, where a statute provides that no assignment of stock shall be valid except as between the parties until it is entered on the books of the corporation, that an at- tachment by the assignor's creditors, levied before such entry, is valid as against the assignee of the certificate." And, in 1 Leitch V. Wells, 48 N. Y. 585 ; Holbrook v. New Jersey Zinc Co., 67 N. Y. 616. ' Barstow o. Savage M'g Co., 64 Cal. 388. ' Scott V. Pequonnock Nat. Bank, 15 Fed. Rep. 494 ; Smith v. Crescent City Live Stock, etc. Co., 30 La. Ann. Part. II. 1378; Cornick v. Richards, 3 Lea (Tenn.), 1 ; Broadway Bank v. McElrath, 13 N. J. Eq. 24 ; Colt v. Ives, 31 Conn. 25 ; Beckwith v. Bur- rough, 13 R. I. 294 ; Merchants' Nat. B'k V. Richards, 6 Mo. App. 454 ; S. C, aff'd 74 Mo. 77; Newberry v. Detroit, etc. Iron M'f'g Co., 17 Mich. 141 ; Sargent v. Essex Marine R'y Co., 9 Piek. 202. See Sargent v. Franklin Ins. Co., 8 Pick. 90; Clark V. German Security Bank, 61 Miss. 611 ; Seeligson v. Brown, 61 Tgx. 114. Put compare State Ins. Co. v. Sax, 2 Tenn. Ch. 507. But such an assign- ment of the certificates would not hold as against a bona fide purchaser who is not an execution creditor of the assignor, at sherifPs sale under an exe- cution. Farmers' Nat. B'k v. Wil- son, 58 Cal. 600. Compare Ne-vjberry V. Detroit, etc. Iron M'f'g Co., 17 Mich. 141 ; Weston v. Bear River M'g Co., 6 Cal. 425. See § 589. But transfers of shares made with intent to hinder and defraud creditors are void. Beckwith v. Burrough, 14 R. 1. 366. ■■ Sibley v. Quinsigamond Nat. B'k, 133 Mass. 515; Blouin v. Liquidators of Hart, 30 La. Ann. Part. I. 714. The equitable interest of a shareholder in his shares will pass by a general assignment in a trust deed for the bene- fit of creditors, as against an attaching creditor with notice of the assignment, although the charter of the Corpora- tion provides that transfers to be valid must be entered on the books. Black V. Zacharie, 3 How. 483. ' Application of Murphy, 51 Wis. 519. See also Newell v. Williston, 138 Mass. 240 ; Central National Bank V. Williston, 138 Mass. 244; Fisher V. Essex Bank, 5 Gray, 373 ; Boyd v. Rockport Steam Cotton Mills, 7 Gray, 406 ; Blanchard v. Dedham Gaslight 717 § 798.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XV. general, shares of stock are subject to attachment, and an attach- ing creditor acquires a lien superior to the claim of a subsequent bona fide purchaser for value with no actual notice of the attach- ment.^ § 797. The preceding rules protecting the assignee of certifi- cates of stock, are not applicable when the certificate tificates ■ bears on its face a notice that its holder is not the m trust, absolute owner. Thus, a person lending money on a certificate containing the words " in trust," is afl['eeted with notice of the trust, and the hypothecation will be invalid as against the cestui.^ And a similar rule would apply if the assignee of the certificate has or is affected with notice of the rights of persons other than the holder. Thus, it has been held, that a person purchasing shares from an administrator at an illegal private sale, will be liable to the distributees of the estate for dividends received by him." § 798. Individual shareholders have no right to profits made by the corporation until a dividend is declared. Ac- cordingly, a dividend belongs, to the owner of the shares at the time when it is declared, whether it was earned before he acquired the shares or subsequently.* And a sale of shares after a dividend has been Right to dividends, as between transferrer and trans- feree ; Co., 12 Gray, 21,3; Weston v. Bear Kiver, etc. Water and M'gCo., 5 Cal. 186 ; Naglee v. Pacific Wharf Co., 20 Cal. 529. But compare Weston v. Bear River M'g Co., 6 Cal. 425. ' Chesapeake and Ohio R. R. Co. V. Paine, 29 Gratt. (Va.) 502 ; Shen- andoah Valley R. R. Co. v. Griffith, 76 Va. 913. So the interest of a shareholder in the property of a cor- poration, represented by shares of stock, may be reached by garnishee process served on the corporation. The corporation may be the attaching creditor and garnishee itself. Norton V. Norton, 43 O. St. 609 (a case con- struing statutes). " Shaw V. Spencer, 100 Mass. 382; Loring v. Brodie, 134 Mass. 453 ; 718 BuddK. Monroe, 18 Hun, 316 ; Gaston V. American Exchange Nat. B'k, 29 N.J. Eq. 98. But see semJZe, contra, Brewster v. Sime, 42 Cal. 139 ; Win- ter V. Belmont M'g Co., 53 Cal. 428. ' Nutting V. Thomasson, 57 Ga. 418. * Jermain v. Lake Shore, etc. R'y Co., 91 N. Y. 483 ; Boardman v. Lake Shore, etc. R'y Co., 84 N. Y. 157; Brundage v. Brundage, 65 Barb. 397. See Hyatt v. Allen, 56 N. Y. 553 ; March v. Eastern R. R. Co., 43 N. H. 515. A bequest of shares does not carry a scrip dividend received by the testator during his life; but such a dividend declared after testator's death, belongs to the legatee. Brundage v. Brundage, supra. When preferred or guaranteed divi- CHAP. XV.] LEGAL RELATIONS AMONG SHAREHOLDERS. [§ 799. declared, does not carry the dividend, although it is not payable until after the sale.' Similarly it is held, where the directors " vote to pay a dividend of four per cent, this day, and another of like amount from earnings of last year," that the person who owns the shares when the dividends are thus voted is entitled to both dividends although he sell the shares before the day for the payment of the second dividend has been fixed.'' § 799. Difiicult and still unsettled questions respecting the ownership of dividends, arise when the shares are left ^^ tetwee in trust by will, the income of the trust to go to a life-tenant . and re- life-tenant, and the principal, at his death, to a mainder- remainder-man. There is little doubt that a reason- ™^°" able amount of profit, earned before the testator's death, but declared in the shape of an ordinary cash dividend after that event, is income and belongs to the life-tenant.* But an ordi- nary cash dividend earned before, but declared after the testa- tor's death is to be distinguished from a distribution in the shape of a cash dividend — consequent, perhaps, on a change of policy in the body corporate — of long accumulated profits. " Where the profits of a corporation have been accumulating for many years, till' the market value of the stock is double its original price, and the owner dies, directing the ' income' of his estate to be applied to particular objects for limited periods, these extraordinary'^ accumulations are as much a part of his capital as any other portion of his estate, and must therefore be dends should have been paid at a cer- dends received by him, in the first tain time, but were not declared, and instance, to a person claiming to be the shareholder entitled to them did the owner of the stock, but whose not enforce their declaration, they re- claim the company ignores. Such a main payable to the holder of the person must first establish his claim stock, and pass with a transfer of it. against the company. Peckham v. Jermain v. Lake Shore, etc. R'y Co., Van Wagenen, 83 N. Y. 40. This 91 N. Y. 483 ; Manning v. Quicksil- proposition might be affected, how- ver M'g Co., 24 Hun, 361. ever, by relations between the plaintiff ' Bright u. Lord, 51 Ind. 272; Spear and defendant. " V. Hart, 3 Rob. (N. Y.) 420. Contra 2 Hill v. Newichawanick Co., 8 (semble), Burroughs v. North Caro- Hun, 459, aff'd 71 N". Y. 593.. Una B,. K. Co., 67 N. C. 376. " Bates u. Mackinley, 31 Beav. 280 ; A shareholder is not liable for divi- Millen v. Guerrard, 67 Ga. 284. 719 § 800.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XV. regarded as forming part of the principal from which the future income is to arise."' Likewise, when after the testator's death, the corporation sells a portion of its property or franchises, and distributes the proceeds in the shape of a cash dividend, that too is a part of the principal, and is not income to be paid over to the life- tenant.'' Of a similar status is money paid to a corporation for property taken by a city, and distributed as a cash dividend.' But moneys arising from the sale of corporate property and distributed as a cash dividend, are income if they arise from a sale of property made by the corporation in the ordinary course of its business, when it sells only such property as its regular business is to sell.* § 800. In regard to the status of dividends not paya,ble in cash, the authorities are more conflicting. The rule has indeed been stated in Massachusetts, that cash dividends are income and stock dividends are principal.' But, even according to the Massachusetts decisions, that which may be distributed in the form of a cash dividend is sometimes principal;* and in New York, stock dividends declared out of earnings are held to be income.' It has also been held where a testator directed the ' Earp's Appeal, 28 Pa. St. 368, provided it is not a distribution of the 375, opinion of the court per Lewis, company's assets, as on winding-up. C. J. But all profit arising after the ^ Vinton's Appeal, 99 Pa. St. 434 ; death of the testator is "income," Wheeler v. Perry, 18 N. H. 307; Wiltbank's Appeal, 64 Pa St. 266; Gifford v. Thompson, 115 Mass. 478. Biddle's Appeal, 99 Pa. St. 278, 282 ; See Clarkson v. Clarkson, 18 Barb. Earp's Appeal, 28 Pa. St. 368 ; Van 646. But see Balch v. Hallet, 10 Doren v. Olden, 19 N. J. £q. 176. Gray, 402. See Moss's Appeal, 83 Pa. St 264. ' Heard v. Eldridge, 109 Mass. 258. Compare, In re Bouch, 29 Ch. Div. ■• Reed w. Head, 6 Allen, 174. 635. This distinction is discarded in ° Minot v. Paine, 99 Mass. 101. Richardson!'. Richardson, 75 Me. 670, SeeLelandu. Hayden, 102 Mass. 542; where the rule is stated to be, that all Baland w. Williams, 101 Mass. 571 ; cash dividends, declared from profits, In re Hopkins's Trusts, L. R. 18 Eq. go to the person holding the stock at 696. And see Richardson u. Richard- the time (i. e., the life-tenant), with- son, 76 Me. 570, 574. out regard to the time when the profits ^ Heard v. Eldredge, supra. were earned or their source, and re- ' Simpson v. Moore, 30 Barb. 637 ; gardless of the size of the dividend; Riggs v. Cragg, 26 Hun, 89; Gold- smith Ji. Swift, 25 Hun, 201. 720 CHAP. XV.] LEGAL RELATIONS AMONS SHAREHOLDERS. [§ 801. income of shares to be paid to one person for life, remainder to other parties, that dividends declared in the form of certificates of indebtedness go to the life-tenant, although they may consist in part of profits accumulated before the testator's death.' Bat where it is resolved to increase the corporate stock, and the right of shareholders to subscribe is valuable, and is sold, the proceeds are principal of which the interest only goes to the life-tenant.' § 801. In regard to this somewhat confusing matter of the rights of life-tenant and remainder-man in stock dividends, the following suggestions are hazarded. Usually to speak of a '" stock -dividend" involves in reality a contradiction in terms. A dividend is a distribution of profits. But when a corpora- tion has accumulated profits, and declares a " stock dividend," just what the corporation does not do is to declare a dividend. A "stock dividend" is no dividend, no real distribution, either of profits or capital ; but merely an increase in the immber of shares into which the capital is divided.' For instance, some years ago, when the stock of the Rock Island Railroad was selling at more than double its par value, the corporation issued to every shareholder an additional share for each share of stock already held by him. The object accomplished was the halv- ing of the market value of the shares. But by this^action no part of the capital or accumulated profits of the corporation was ^ Millen v. Guerrard, 67 Ga. 284. just as capable of meeting all demands The English cases seem to point to the upon it. After such a dividend the rule that the intention of the corpora- aggregate of the stockholders own no tion to declare a dividend as such more interest in the corporation than governs. See In re Bouch, 29 Ch. before. The whole number of shares Div. 635, 653 ; Hooper v. Rossiter, 1 before the stock dividend represented McClel. 527 ; Barclay v. Wainewright, the whole property of the corporation, 14 Vesey, 66 ; Price v. Anderson, 15 and after the dividend they represent Simons, 473 ; Preston v. Melville, 16 that^and no more. A stock dividend Simons, 163; Johnson «. Johnson, 15 does not distribute property, but sim- Jur. 714. ply dilutes the shares as they existed " Atkins V. Albree, 12 Allen, 359 ; before." Williams v. Western Union Biddle's Appeal, 99 Pa. St. 278; Tel. Co., 93 N. f. 162, 189. See Brinley v. Grou, 50 Conn. 66. also Gibbons v. Mahon, 4 Mackay » " After a stock dividend a corpo- (Dist. of Col.), 130. And compare ration has just as much property as it Commonwealth v. Pittsburgh, etc. Ey. had before. It is just as solvent and Co., 74 Pa. St. 83. 46 721 § 801.J THE LAW OP PEIVATB CORPORATIONS. [CHAP. XV. distributed among the shareholders. Take, for another in- stance, the present condition of the Chemical Bank of New York City. The par value of its shares, in number three thou- sand, is one hundred dollars ; but their market value, at the present time, is about two thousand dollars. Should the Chemical Bank issue another share of stock to each shareholder for every share already held by him, it would not distribute one cent. Where, before such issue or "stock dividend," if one so choose to call it, the holder of one share owns one three- thousandth'of the entire property, after such issue he will own two six-thousandths.i Consequently, since a " stock dividend" is no real dividend or distribution of profits, it would seem that even if such " divi- dend" were "declared out of profits," the stock so issued could not be regarded as income ; for it must be conceded that the life-tenant has no right to claim corporate earnings as income of the trust created in his favor until the corporate manage- ment has voted to distribute them as a dividend ; and if the corporate management decides on declaring a stock dividend, what it really decides on, is not to declare a dividend at all.' ' See Terry u. Eagle Lock Co., 47 pocket. To be sure, "stock divi- Conn. 141, 164; § 568, and Williams dends" may become very material in w. Western Union Tel. Co., 93 N. Y. view of outside considerations; as 162, 189, supra; also Osborne u. Os- where a corporation is restricted from borne, 24 Grat. (Va.) 392. New paying more than a certain percentage shares representing the surplus prop- of dividends. By issuing further stock erty of a corporation are principal and it might (if the issue were not declared not income. Petition of Brown, Ad- void) keep down the percentage of ministrator, 14 R. I. 371. dividends, while it increased their By noticing the rights of creditors, amount. But, none the less, the issue it will become still more apparent that of the stock would itself be no dividend, a stock dividend is no dividend at all. ' This rule might seem to work As against creditors a corporation, hardship on the life-tenant. But, if which has no surplus earnings, has no so, the real cause of his hardship is right to declare a cash dividend, and the action of the corporate manage- in that way distribute its capital among ment in not declaring a dividend ; and the shareholders. But it might declare possibly, in an extreme case, the life- " stock dividends" ad infinitum, and tenant might compel the declaration of no creditor be any the worse, or any a dividend, shareholder have a cent more in his 722 CHAP. XVI.] LEGAL RELATIONS AMONG OFFICERS. [§ 803. CHAPTER XVL LEGAL KELATIONS AMONG THE OFFICERS OF A CORPORATION. Directors, § 802. Contribution among directors ; re- specting liability to the corporation, §§ 803, 804. "Respecting liability to creditors, § 805. Between directors bound on the same instrument, § 806. Between directors and other officers, §807. Right of directors to inspect the corpo- rate books, § 808. De facto directors, § 809. Directors. § 802. Directors ineet together, consult, and together trans- act the business of the corporation. But their mutual legal relations as directors are few, perhaps their most important right as against each other being that no one of their number shall commit any wrongful act through which the cor- porate interests are injured in a way that will implicate other directors in liability to make good the damages. § 803. The common rule of law that there is no contribution among tort-feasors* must be strictly construed in re- contribu- lation to directors and other officers and agents of dkec^ors"^ corporations, for they may be held liable for the respecting wrongful acts of each other in cases which are not the corpo- within the contemplation of the rule. In two classes '■^*'°"" of cases the rule seems inapplicable. First, when directors are held liable for the acts of their appointees or associates f and secondly, when by some statute directors are rendered liable, although guilty of no default, for the wrongful acts of each other or of other corporate agents.' Accordingly, if directors ■ There seem to have been excep- tions to this rule at common law, e. g„ where one of two persons was held liable for the tort of their com- mon servant, contribution from the other was allowed. Wooley v. Batte, 2 Car. & P. 41 7. But see Oakes v. Spalding, 40 Vt. 347; and Spalding V. Oakes, 42 Vt. 348. " See § 624. » See, e. g., Const, of Cal., 1879, art. xii. § 3. 723 § 804.] THE LAW OF PRIVATE COKPORATIONS. [CHAP. XVI. are, for any reason, held liable for the damages resulting from the wrongful acts or omissions of their appointees, or of other directors, when they themselves have neither participated in the wrongful acts nor connived at them, they would certainly seem to be entitled to indemnification from their appointees in the one case, and from the other directors in the other. This notion of different degrees of liability for wrongful acts or omissions is by no means a new doctrine, nor altogether the result of statute. Lord Hardwicke said in Charitable Corpora- tion V. Sutton :' " In the present case one thing is clear, that [those] who were the five engaged in that'confederacy are cer- tainly liable to make good the losses which the corporation have sustained in the first place, and the committee-men [direc- tors] who were not partners in the affair, in the second place only." Lord Hardwicke had in his mind rather their degrees of liability as enforced in a suit brought by the corporation ; still, carried out logically, any such idea must end in allowing contribution or indemnification among directors and other offi- cers of a corporation. § 804. And decisions sustain this conclusion.* Thus, in an English case, it was held an irregularity for directors to take the promissory notes of one of their number, instead of cash, in payment for shares ; and an irregularity that would render them liable to make good to the company any loss occurring on a promissory note so taken. But the court also held that the transaction was not so fraudulent or illegal as to entitle the representatives of the debtor to repudiate his debt as to the company ; and that the directors, who had voluntarily made good the full price of the shares, were entitled to be indemnified out of the assets of the debtor.^ The court further held in another case, arising apparently from the same facts, that the directors who took part in the meetings at which the trans- actions were authorized, were entitled to contribution from each' 1 2 Atkyng, 400, 404, § 61 9. to the corporation for the whole amount " When a director, by agreement of profit realized, he is entitled to con- with his co-dircetors, for whom he is tribution from such of his co-directors to act as well as for himself in the as were associated with him in the matter, has taken bonds of the corpo- transaction. Widrig v. Newport Street ration below par, and sold them at a R'y Co., 82 Ky. 511. profit, and has been obliged to accounts ' Power v. Hoey, 19 W. R. 916. 724 CHAP. XVI.] LEGAL RELATIONS AMONG OFFICERS. [§ 806. other ; and that they need not wait until sued? by the company, or until a loss had certainly befallen it; but being themselves bound to make good the matter at once, they were at once enti- tled to contribution. The court said, moreover, that it would draw a line between those who participated, and those who were merely negligent in allowing the improper transactions.* A rule for such cases might perhaps be stated thus : If direc- tors A., B., C, and D. are held liable for -the wrongful act of director E., with which they were in no way concerned, either actively or by connivance, they will have the right*as against E. to complete indemnification ; and if one of their number, as for instance A., has been forced to pay all or more than his pro- portion of the loss arising from the wrongful act, he will be, as against B., C, and D., entitled to contribution.'' § 805. Still, when the liability is the result of an act or an omission which may be imputed to each, one of the - directors, it has been held that no contribution among liability to them would obtain. As in the case of Andrews v. <'''®^'''°™- Murray,' where it was held that no contribution could be had in respect of liability arising from a failure to file an annual report required by statute; Judge Ingram saying: "Either of the trustees might have avoided this liability by attending to the duty imposed upon him by the statute. He cannot charge any other trustees with the consequence of his own negligence. The statute imposes the duty on each, the liability attaches to each, and the policy of the law is to leave each one to the con- sequences of his own negligence, so as to insure stricter atten- tion to the provisions of the statute on the part of each of the trustees, which might not be the case if such negligence could be divided between the whole."* § 806. If the officers of a corporation bind themselves for its benefit on the same obligation, they will be entitled to contribution from each other in regard to liability directors ' Power V. O'Connor, 19 W. R. » 33 Barb., 354. ^ 923. * 33 Barb. 354, 356. Nickerson v. " Compare Ashhurst v. Mason, L. Wheeler, 118 Mass. 295, is directly R. 20 Eq. 225 ; Wilson v. Goodman, contrary to this decision. See §§ 764, 4 Hare, 54 ; Lewin on Trusts, 744, 767. ed. 6. 725 § 809.] THE LAW OF PKIVATB CORPORATIONS. [CHAP. XVI. bound on thereon*; as where, for instance, directors become the the same ■,-,■,!> • j- i instru- makers and endorsers of a note to raise money tor the ment. ,. . corporation.' § 807. There would seem to be no reason to doubt that if directors through neglect of their duties are held dfrectore ^^ *^® Corporation for damages resulting from a breach and other of trust committed by a subordinate officer or agent, officers ** they would be entitled to indemnification from him. On the other hand, supposing that an executive or ministerial officer incifrs liability from carrying out the orders of the board of directors, has he any rights over against them ? It would seem so, if he acted innocently in the matter; but if he knew of the breach of trust intended by the board, then unquestion- ably he would have been an active cognizant party to it, and would have no right to contribution or indemnification from his fellow wrong-doers. § 808. A director has a right at all times to inspect the Right of books of the corporation ; and if the board of direc- directors to tors, bv resolution or by-law, attempt to exclude one inspect J, , . ./ 1 jr corporate of their number from examining the books, he may obtain a mandamus, directing the proper officer to allow him to examine them ; and this holds true even when the other directors believe the one so excluded to be hostile to the corporation.'* § 809. It has been held that trespass may be brought in the name of the corporation, by a board of de'facto direc- directors. *''^^» ^^^o are in possession, against another board claiming to be the legal directors of the same corpo- ration. And in such a suit, the defendants cannot defend by impeaching the title of the de facto directors ; as this can only be done in some action in the nature of a quo warranto.^ ' Slaymaker v. Gundacker, 10 S. & 247 ; but compare Rosenfeld v. Ein- K. (Pa.) 75 ; Middletonw. McCartee, stein, 46 N. J. L. 479. 2Mackey(Dist. of Col.), 420. 'Atlantic, Tennessee, etc. K. K. 2 People V. Throop, 12 Wend. 183. Co. v. Johnston, 70 N. C. 348. People V. Mott, 1 How. Pr. (N. Y.) 726 CHAP. XVII.] LEGAL RELATIONS AMONG CREDITORS. [§ 810. CHAPTER XVir. LEGAL RELATIONS AMONG THE CREDITORS OF A CORPORATION. Creditors who are also shareholders or officers, §§810, 811. Other creditors, § 812. When the corporation is insolvent, §813. Capacities of receiver. Mortgage trus- tee, § 814. Grfeditors having claims founded on the same instrument, § 815. Provisions in railroad mortgages, § 816. Reorganizations, 816 a. Mortgages covering property to be ac- quired. Contractors' liens, §§ 817, 818. Mortgages of separate portions of the railroad. Rolling stock, § 819. Earnings, § 820. Appointment of receiver in foreclosure suit. Payment of current expenses, §§ 821, 822. Receiyers' orders, §§ 823, 824. Statutory liability of shareholders; priorities of creditors, §§ 825, 826. § 810. The relationship of creditor may be occupied either by a person holding no other relationship towards creditors the corporation, or by a shareholder, or by a director who are also share- or other officer. If a person occupies towards the holders or corporation a dual relationship, for the correct deter- ° ''®'*' mination of his rights and liabilities in respect of the corporate enterprise, his two relationships must be kept distinct. Indeed, the two relationships between a corporation and a person who is at once shareholder and creditor, or director and creditor, are so distinguishable that a person holding such double relation- ship is, for many purposes, to be treated as two persons, and will not always be entitled to take advantage of being one person.^ ' Nor can a person who is merely an ordinary debtor to a corporation, buy up claims against it at a discount after it has passed into the hands of a re- ceiver, or become evidently insolvent, and set them oif at their face against his liability to the corporation. Diven V. Phelps, 34 Barb. 224; Balch v. Wilson, 25 Minn. 299; Smith v. Mosby, 9 Heisk. (Tenn.) 501 ; Lanier V. Gayoso Savings Institution, ib. 506. 727 § 812.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XVII. § 811. Thus, when a corporation is insolvent, a person occu- pying the two relationships of shareholder and creditor, who is indebted as shareholder for calls, may not offset against his indebtedness to the corporation the indebtedness of the latter to himself. • He must paj' in his calls, and then he will rank as a creditor, receiving his due proportion of the corporate assets.' Again, a person occupying the dual relationship of director and creditor, may not, at least if the corporation is insolvent, use the advantages of his position as director to procure the pay- ment of his claims as creditor in preference to the claims of other creditors. As a director, he must, in good faith, discharge his full duty towards all the persons interested in the corporate enterprise ; and this forbids the favoring of any interest, as, for instance, his own.* It is held, however, that a shareholder may make use of what- ever advantages his position as shareholder may give him, to secure the pa3'ment of debts due him from the corporation, even to the exclusion of other creditors who are not shareholders.' , And at all events, the fact that a person occupies the status of shareholder or officer in a corporation, will not ordinarily pre- judice his rights as a creditor, if he happens to be one. Thus, directors are not excluded from sharing as creditors, when they are such, pro rata with other creditors of the corporation.* § 812. The legal relations between creditors occupying no \ other relationship towards the corporation are simpler. creators. ^"® creditor may ordinarily sue the corporation at his will without regard to the effect which his suit may have on the payment of debts due other creditors." And credi- ' See § 729. 6 In Robinson v. Bank of Darien, 2 See § 759. 18 Ga. ,65, 108, it is said in substance, ^ Whitwell V. Warner, 20 Vt. 444. that where a judicial preference has See §§ 710, 711. But, according to been established by the superior legal the better opinion, a corporation can- diligence of any creditor, that prefer- not make a valid insolvent assignment ence will be observed as to legal assets, with preferences. See § 668. For and execution creditors are entitled to the doctrine that corporate funds are preference ; though perhaps, as to trust funds for the payment of debts of equitable assets where the judgment the corporation, see §§ 654-659. creditor must go into equity, the rule * Bristol Milling and MTg Co. v. may be different, and creditors are Probasco, 64 Ind. 406. equal and must share proportionately. 728 CHAP. XVII.] LEGAL RELATIONS AMONG CREDITORS. [§ 813. tors of a railroad company may, in order to protect themselves, combine into an association and buy in the road ; provided there is no arrangement to prevent competition. Moreover, that the trustees making the sale, and two of the directors of the cor- poration were members of this association, was held not to render the sale void, but merely to give the corporation a right to redeem within a reasonable time, and before new equities had intervened.' § 813. When, however, a corporation becomes insolvent, its assets constitute a fund for ratable distribution amongst its creditors ; and no creditor can by suit or ^rnora^^ execution gain priority of payment over the rest.' t'"" >s mi • 1 in ^ , insolvent. Ihis, at least, holds true alter the corporate assets have passed into the hands of an assignee, or a receiver has been appointed.* Under such circumstances it is competent for a creditor to restrain the payment to another of a greater pro- portion of his claim than the rest receive:^ except, of course, when the claim of the other is based on a lien acquired before the insolvency of the corporation. Subsequent lien-creditors, however, have a standing in court to contest the enforcement of prior incumbrances on the corporate property," unless the secu- • Kitchen v. St. Louis, etc. R'y Co., were terminated. To this notice the 69 Mo. 224. plaintiff paid no heed, and subse- 2 Marr v. Bank of West Tennessee, quently suffered a loss. His claim 4 Coldw. (Tenn.) 471. was to participate in the assets of the ' Clinkscales v. Pendleton M'f'g cortipany in respect of his loss; but Co, 9 S. C. 318; Hadley v. Freed- the court held he could participate man's Savings Co., 2 Tenn. Ch. 122. only on account of his unearned pre- See Dobson v. Simonton, 86 N. C. mium; and based their decision on 492 ; Balch v. Wilson, 25 Minn. 299 ; the ground that after the dissolution of Smith V. Mosby, 9 Heisk. (Tenn.) a corporation and the appointment of 501 ; Lanier v. Gayoso Savings Insti- a receiver, a creditor could acquire no tution, ib. 506. new rights against the corporation. The plaintiff took a fire policy in an Dean & Son's Appeal, 98 Pa. St. insurance company on an agreement 101 . that the policy might be terminated at * Pfohl v. Simpson, 74 N. Y. 137. any time on notice by the insurers and See People v. Security Life Ins. Co., return of the proper proportion of the 71 N. Y. 222. premium, for the unexpired term. * Commonwealth w. Smith, 10 Allen, The company became insolvent and 448 ; see Fox w. Seal, 22 Wall. 424. was dissolved. Its receiver notified Compare § 185. all policy holders that their policies 729 §814.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XVII. rity of the subsequent lien-creditors is in terms made subject to the prior incumbrance.^ But a judgment creditor will never be entitled to dispute the validity of a prior mortgage merely on the ground that its execution was irregular, when the cor- poration has had the benefit of the mortgage and would itself be in no position to contest its validity.^ § 814. When there is a receiver of the corporate assets, the Capacities various rights of creditors are enforceable by him ; of re- and he may contest the payment of debts arising Mortgage from ultra vires or illegal transactions, and maintain trustee. actions to rccover moneys paid on illegal or fraudu- lent claims to persons assuming to be creditors of the corpora- tion.' If, however, the receiver is delinquent in the discharge of his trust, an injured creditor will have a standing in court to enforce the proper distribution of the corporate assets.* Mortgages or trust-deeds covering the property of corporations are usually made to a trustee for bondholders, who thereby be- comes, in accordance with the terms of the mortgage or trust- ' Bronson v. La Crosse, etc. R. K. Co., 2 Wall. 283 ; Bundy w. Iron Co., 38 Ohio St. 300. See Hasselman v. United States Mortgage Co., 97 Ind. 365. A decree of sale of a railroad, had in the foreclosure of a first mort- gage thereon, l-ecited that the sale "shall be subject to the liens estab- lished, or which may be established, by said court in this cause on refer- ences heretofore had and now pending, as prior and superior to the lien of the holder of bonds issued under the first mortgage, decreed to be foreclosed by former de(;ree in said cause." These references were to a master to deter- mine the priority of the lien of receiver's certificates and the like, and in the orders of reference, per- mission . was given to the bondholders to oppose any claims before the mas- ter. The purchaser at the sale was held to have no standing in court, even on the ground that these liens 730 had been established by fraud prac- tised on the master and the court, to re-litigate the liens expressly subject to which he bought and took title, the same recitals being in substance ex- pressed in his deed ; said purchaser having made no offer to surrender the property to be re-sold for |he benefit of those concerned. Swann v. Wright's Ex'r, 110 U. S. 590. ' Thomas v. Citizens' Horse R'y Co., 104 111.462; Taylor u. Agricul- tural, etc. Ass'n, 68 Ala. 229 ; Bundy V. iron Co., 88 Ohio St. 300. ■ ' See Whittlesey v. Delaney, 73 N. Y. 571 ; also §§ 273, 542. The re- ceiver of a corporation may avoid a chattel mortgage on its property, on the ground that it was not filed ac« cording to law. Farmers' L. and T. Cou V, Minneapolis, etc. Works, 35 Minn. 543. * See Pfohl v. Simpson, 74 N. Y. 137. CHAP. XVII.] LEGAL RELATIONS AMONG CREDITORS. [§ 815. deed, the representative of the bondholders for the purposes of the trust.» " The trustee of a railroad mortgage," said Chief Justice "Waite, giving the opinion of the Federal Supreme Court in Shaw v. Railroad Co., " represents the bondholders in all legal proceedings carried on by him affecting his trust, to which they are not actual parties, and whatever binds him, if he acts in good faith, binds them."* Bondholders ordinarily are not necessary parties to a foreclosure suit brought by their trustee ;' and notice to the trustee in matters relating to his trust is notice to the bondholders.* § 815. When a number of creditors, as, for instance, bond- holders, have claims against a corporation arising creaitors from the same transaction or series of transactions, '^^■V^s and secured by the same security, their mutual re- founded on lations, as well as their relations towards the corpora- iDstru- tion, will largely depend on the terms of their "'^°'" security. In such case, however, even in the absence of any special provision or agreement forbidding it, one creditor can- not proceed alone and enforce his rights against the corporation to the detriment of other creditors similarly situated. When persons have a common interest in a security, equity will not allow one of them to appropriate it exclusively to himself, or impair its worth to the others ; for community of interest in- ' Bondholders are aflfected with no- missioners, etc. v. Thayer, 94 U. S. tiee of the terms of the mortgage or 631. trust-deed securing their bonds. See A mortgage trustee in possession § 674. cannot bind the bondholders person- ' Shaw V. Railroad Co., 100 U. S. ally for the payment of the expenses 605, 611. of the road. See Chaffee !?. Kutland « Shaw V. Norfolk County R. R. K. R. Co., 53 Vt. 345. Compare Co., 5 Gray (Mass.), 162 ; William- Stui^is v. Knapp, 31 Vt. 1. son V. New Jersey Southep R. R. When a mortgage trustee is himself a Co., 25 N. J. Eq. 13. judgment creditor, bbndholders cannot ♦ Actual notice to a mortgage trus- object to his levying execution on prop- tee of an agreement to which property erty of the railroad company not cov- received by a railroad company is sub- ered by the mortgage. Eldridge v. ject, is notice to bondholders. Pierce Smith, 84 Vt. 384. V. Emery, 32 N. H. 484. So is ac- As to officers of the corporation tual notice to trustee of a prior equita- acting as trustees for bondholders, see ble mortgage. Miller v. Rutland, etc. § 629, note. R. R. Co., 36 Vt. 452. But see Com- 731 § 815.J THE LAW OF PRIVATE CORPORATIONS. [OHAP. XVII. volves mutual obligation. Thus, although one bondholder under a railroad mortgage may often use it to enforce the payment of his claim,! he cannot use it to obtain an advantage for himself over the other bondholders ; he cannot use it to become the ownei'-of the mortgaged premises at the lowest possible price, leaving unpaid the bonds of the other bondholders. His duty, if he uses the security, is to make it productive of the most ob- tainable for all interested in it; and if he seeks to make a profit at the expense of those whose rights in the security are the same as his own, he is unfaithful to the relation which he has assumed, and guilty of fraud.^ ' When a trustee under a mortgage, on being applied to in pursuance of its terms, refuses to sue, the bondholders may themselves sue, making the trus- tee, the corporation, and the rest of the bondholders parties. Hotel Co. v. Wade, 97 U. S. 13. See Galveston R. K. V. Cowdrey, 11 Wall. 459; § 682. But see Hackensack Water C,o.. V. DeKay, 36 N. J. Eq. 548; and compare New York Guaranty, etc. Co. I. Memphis Water Co., 107 U. S. 205. Unsecured creditors are not proper parties to a suit to foreclose a mortgage on the property of a corpora- tion. Herring v. N. Y., etc. R. R. Co., 105 N. Y. 340. In a recent case in Maine, damage was occasioned by sparks from a loco- motive, while the railroad was being operated by trustees under a mortgage, before foreclosure. An action was brought under a statute providing that, " when a building or other property is injured by fire communicated by a locomotive engine, the corporation using it is responsible for such injury." It was held that a corporation subse- quently formed of the bondholders was not liable ; nor were the bond- holders liable themselves, as the trus- tees were operating the road on their 732 own responsibility and not as agents for the bondholders ; and a statute protected the trustees. Stratton v. European, etc. R'y, 74 Me. 422. But see S- C, 76 Me. 269. « Jackson v. Ludeling, 21 Wall. 616. In this case, the managers and local officers of an embarrassed railroad company, holding a small portion of its bonds, had obtained a hasty order of sale and sold out the road, grossly disregarding the rights of the rest of the bondholders At the suit of the injured bondholders the sale was set aside. Compare Wabash, etc. Canal Co. V. Beers, 2 Black, 448. A bondholder under a mortgage will not be entitled on the foreclosure of the same to enforce a side agreement made by him with the corporation, by which he would obtain an inequitable advan- tage over the other bondholders. Vose V. Bronson, 6 Wall. 452. When bonds in excess of the limit under a mortgage are sold to bona fide purchasers, and nothing appears in the bonds or in the mortgage by which thg purchasers could have ascertained that the bonds which they purchased were unauthorized, such purchasers will be entitled to share pro rata with the otbei; bondholders. Stanton v. Ala- CHAP. XVII.] LEGAL RELATIONS AMONG CREDITORS. [§ 816. In another case, where a raih-oad mortgage of doubtful ade- quacy had been executed directly to all the bondholders by name, to secure specifically the sum due to each, it was held that no single bondholder, even though professing to act on behalf of all who might come in and contribute to the expenses of the suit, could proceed alone against the company, and ob- tain a sale of the property mortgaged. For, the sufi^iciency of the security being doubtful, all other creditors similarly situated should have had notice, in order to protect their interests ; and even in equity, a suit on a written instrument should be brought in the name of all who are formal parties to it, and retain an interest therein.^ And again, where a collusive and fraudulent sale of corporate property, procured by one set of creditors, had been set aside at the suit of-other creditors, the creditors procur- ing the collusive sale were held not entitled to recover back money which they had paid to the holders of a prior mortgage at a time when the suit to set the sale aside was pending ; nor were they entitled to be subrogated to the security of such mortgage.^ § 816. The provisions contained in some trust deeds and mortgages for the benefitof bondholders go far towards organizing the bondholders into a body corporate to in railroad take the place and perform the functions of the origi- '"°'"'g*gss. nal corporation npon the insolvency of the latter. Thus, in bama, etc. R. R. Co., 2 Woods, 523. The decision of the court, however, seems, in this case, actually to have rested on the inability of the court to determine which were the bonds that had been issued in excess, the court saying that it did not follow that the highest numbers were such, as the bonds might all have been negotiated together, and the highest numbers sold first. 1 Railway Co. v. On-j 18 Wall. 471. See Pennock v. Coe, 23 How. 117. ' Railroad Co. v. Soutter, 13 Wall. 517. Compare Dmry v. Cross, 7 Wall. 299 ; § 760. But trustees under a railroad mortgage containing cove- nants of warranty may buy up a prior incumbrance to protect the property from a forced sale, and will be entitled to subrogation to the security as against the company, and to be reimbursed the amount paid by them with legal in- terest. Memphis and L. R. R. R. Co. V. Dow, 120 U. S. 287. Where a majority of shareholders and creditors foreclose a railroad col- lusively, such shareholders are neces- sary parties to a bill to set the - sale aside. Ribon v. Railroad Cos., 16 Wall. 446. But bondholders under a mortgage are not ordinarily necessary parties to a foreclosure suit brought by the trustees under the mortgage. Wil- liamson V. New Jersey Southern R. R. Co., 25 N. J. Eq. 18, §814. 733 § 816 a.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XVII. the mortgage of a railroad it was covenanted and agreed by all the parties thereto, " that in case of any judicial foreclosure sale, .... and the holders of a majority of the then out- standing bonds secured by this mortgage shall in writing re- quest said trustees or their successors, they are authorized to purchase premises embraced herein for the use and benefit of the holders of the then outstanding bonds secured by this mort- gage, and having so purchased said premises, the right and title thereto shall vest in said trustees, and no bondholder shall have any claim to the premises or the proceeds thereof, except for his pro rata share of the proceeds of the said purchased premises, as represented in a new company or corporation to be formed for the use and benefit of the holders of the bonds secured hereby, and the said trustees may take such lawful measures as deemed for the interest of said bondholders, to organize a new company or corporation for the benefit of the holders of the bonds secured by this raqrtgage. Said new com- pany or corporation shall be organized upon such terms, condi- tions, and limitations, and in such a manner, as the holders of a majority of the said outstanding bonds secured by this mort- gage shall in writing request or direct, and said trustees so purchasing shall thereupon re-convey the premises so purchased by them to said new company or corporation." A default having been made, and a foreclosure brought, the court held that this agreement inured equally to the benefit of all the bondholders, and that each held his interest subject,to the con- trolling power therein given to the majority.' § 816 a. Ordinarily, a majority of mortgage bondholders can- not by an agreement that the railroad company may zations?"' issue a mortgage taking preference to theirs, aftect the rights of a minority.' And neither can bond- • Sage V. Central R. R. Co., 99 U. A person who advances money to S. 334. See also Shaw v. Railroad the corporation to take up coupons, Co., 100 U. S. 605. under an undisclosed agreement that » Poland V. Lamoille Valley R. R. they areto be delivered to him uncan- Co., 52 Vt. 144. As to priorities of celled, but ' the coupon-holders having the holders of detached coupons over no reason to think they were not paid, bondholders, see Sewall v. Brainerd, but rather liaving every reason to sup- 38 Vt. 364; Miller v. Rutland, etc. pose them simply paid and cancelled, R. R. Co., 40 Vt. 399. cannot claim a lien under the mort- 734 CHAP. XVII.] LEGAL RELATIONS AMONG CKEDITOKS. [§ 816 0. holders or shareholders claim the benefits of a reorganization when they fail to comply with its terms.^ In a case which not long ago came before the Supreme Court of the United States, the parliament of the Dominion of Canada had authorized a railroad corporation, existing under its authority^ to enforce a settlement upon the mortgage creditors of the company, by which they were to receive other securities of the company in place of their mortgage bonds; and the settlement preserved the right of citizens of the United States, being bondholders, to participate in the reorganization on the same terms as Cana- dians and other British subjects. The settlement, assented to by more than three-fourths of the bondholders, having gone into effect, the court held that it was binding on non-assenting bondholders, citizens of the United States, who brought suit in a Federal court to recover on their bonds.^ Giving the opinion of the court. Chief Justice Waite said : " Holders of bonds and other obligations issued by large corporations for sale in the market, and secured by mortgages to trustees or otherwise, have by fair implication certain contract relations with each other They are not corporations, and thus neces- sarily, in the absence of fraud or undue influence, bound by the will of the majority as to matters within the scope of the cor- gage; he is merely a creditor of the for money or property actually re- corporation. Cameron v. Tome, 64 ceived, or labor done; and all ficti- Mfi. 507. tious increase of stock or indebted^ ' Fidelity Ins. Co.'s Appeal, 106 ness shall be void," does not prevent Pa. St. 144. When a statute provides the carrying out of an agreement be- that any shareholder may within six tween mortgage bondholders of an em- months come in and assent to a plan of barrassed railroad, whereby trustees re-organization (after a railroad fore- are to buy the mortgaged property on closure) and comply with its terms and foreclosure, and convey it to a new thereby become entitled to share in the company to be organized by the bond- benefits, he gains no rights by an assent holders, which should issue new mort- after the six months have expired ; gage bonds in lieu of the old bonds, and equity cannot relieve him from and full paid up stock to the bond- the effect of his failure to perform this holders withoutany payment of money, condition precedent. Vatable v. New Memphis & L. K. R. K. Co. v. Dow, York, etc. R. R. Co., 96 N. Y. 49. 120 U. S. 287. A provision in the Constitution of » Canada Southern R. Co. v. Geb- Arkansas, that "no private Corpora- hard, 109 U. S. 527. tion shall issue stock or bonds except 735 § 817.] THE LAW OF PBIVATB CORPORATIONS. [OHAP. XVII. porate powers, but they are interested in the administration of a trust which has been created for their common benefit. Ordi- narily, their ultimate security depends in a large degree on the success of the work in which the corporation is engaged, and it is not uncommon for differences of opinion to exist as to what ought to be done for the promotion of their mutual interests. In the absence of statutory authority, or some provision in the instrument which establishes the trust, nothing can be done by a majority, however large, which will bind a minority without their consent.^ Hence it seems to be eminently proper that where the legislative power exists some statutory provision should be made for binding the minority in a reasonable way by the will of the majority ; and unless, as in the case in the states of the United States, the passage of laws impairing the obligation of contracts is forbidden, we see no reason why such provisions may not be made in respect to existing as well as prospective obligations. The nature of securities of this class is such that the right of legislative supervision for the good of all, unless restrained by some constitutional prohibition, seems almost necessarily to form one of their ingredients, and when insolvency is threatened, and the interests of the public, as well as creditors, are imperilled by the financial embarrass- ments of the corporation, a reasonable "scheme of arrange- ment" may in our opinion as well be legalized as an ordinary "composition in bankruptcy." In fact such "arrangement acts" are a species of bankrupt acts. Their object is to enable corporations created for the good of the public to relieve them- selves from financial embarrassments by appropriating their property to the settlement and adjustment of their affairs, so that they may accomplish the purposes for which they were incorporated."* § 817. A mortgage by a corporation, as for instance a rail- Mortgages ™^*^ company, when competently made, attaches to covering whatever of the property of the corporation it pur- property wu -A : 1, -J to be ac- ports to cover, whether acquired or to be acquired ; Contract- ^^^ *^® bondholders under such mortgage have ore' liens, ordinarily a lien on the property covered by the mort- ' Same language used in Gilfillan v. ' Canada Southern R. Co. v. Geb- Union Canal Co., 109 U. S. 401, 403. hard, 109 U. S. 527, 534, etc. 736 CHAP. XVII.] LEGAL RELATIONS AMONG CREDITORS. [§ 818. gage prior in law as in time to any subsequently accruing rights of other creditor.^ But if at the time of executing a railroad mortgage there exist statutes which give contractors a first lien on railroads for labor performed on them, a contractor by duly filing his lien in accordance with the statute will acquire as against the mortgagees and bondholders a lien prior in effect, although the mortgage may have been recorded first.^ § 818. When a railroad company mortgages its road, " built and to be built," although at the time when the mortgage is executed but a portion of the road is built, the mortgage attaches to the unbuilt portions of the road as they are built, and takes precedence of the claims of the contractors^ (unless there are statutes giving contractors a prior lien), and judgment creditors, as well as bondholders under a subsequent mortgage covering the portions of the road which were unbuilt when the first mortgage was given.* A mortgage, however, intended to cover after acquired property attaches to such property in the condition in which it comes into the possession of the company." Consequently, if property, when acquired by the company, is already subject to mortgages or other liens, the general mort- gage, though prior in time, does not displace them ; and if ' See, e. jr., Loudenslageri). Benton, against the purchaser of the road. 4 Phila. 382 ; Covey v. Pittsburgh, Ft. Ketchum v. St. Louis, 101 U. S. 306 ; W., etc. R. R. Co., 3 Phila. 173 ; Wilson v. Boyce, 92 U. S. 320. Hamlin u. Jerrard, 72 Me. G2 ; Ham- " Brooks v. R. R. Co., 101 U. S. lin V. European, etc. R. R. Co., 72 443; Meyer u. Hornby, ib. 728. See Me. 83. As to what property a rail- Fox v. Seal, 22 Wall. 424. Compare road mortgage covers, see § 676. Woods v. Pittsburgh, Cin. and St. L. So when a corporation accepts bonds Ry. Co., 99 Pa. St. 101. of a state or county issued by virtue of ^ Dunham v. Railway Co., 1 Wall, a law which declares that they shall be 254. a first lien on its property, such lien * Pennock v. Coe, 23 How. 117; will arise on the acceptance of them Galveston R. R. Co. v. Cowdrey, 11 by the corporation, and a purchaser of Wall. 459 ; First Nat. Bk. v. Ander- the road or of its bonds issued under a son, 75 Va. 250. See Buck v. Sey- subsequent mortgage, is bound to take mour, 46 Conn. 156 ; Branch v. At- notice of the act; and the lien of the lantic, etc. R. R. Co., 3 Woods, 481. county under the act is enforceable * Botsford v. New Haven, etc. R. against the funds in the hands of a R. Co., 41 Conn. 454; Williamson v. receiver, appointed in a foreclosure New Jersey Southern R. R. Co., 29 suit of the sabsequent mortgage, and N, J. Eq. 311. 47 737 § 819.] THE LAW OF PRIVATE COKPORATIONS. [CIIAP. XVII. a railroad company when acquiring property gives back a purchase-money mortglage, the giving of the mortgage and the purchase of the property constituting one transaction, the purchase-money mortgage will take precedeuce, in respect of the property purchased, over every lien, or mortgage, or judg- ment covering the entire property of the company.^ Thus, a railroad company mortgaged its present and future property, and then entered into a written agreement with a car company, by which the former hired certain cars at a rent payable monthly, reserving the right to purchase them at their original cost, the car company retaining the right to rescind the agree- ment if the railroad company failed to pay the interest on its bonds. While this contract was in force, the mortgagee filed a foreclosure bill, and a receiver was appointed in the foreclo- sure suit, who took charge of the road, and used the cars above mentioned in operating it. The court held that the contract between the railroad company and the car company was bind- ing, and that the latter was entitled to the possession of the cars, and to compensation for their use by the receiver, payable out of the fund to the credit of the foreclosure suit.^ § 819. A railroad company may give distinct mortgages covering separate portions of its road, and in such of "separate case One mortgagee has no rights over the portion railroad °^ °^ ^'^^ ^°^^ covered by the other mortgage, and is not Eoiiing even a necessary party to a suit to foreclose it.' In regard to rolling stock, however, it may -be different, and it has been held that in the absence of any specific appor- tionment between the several divisions of the road covered by separate mortgages, the terms of which are sufficiently broad ' United States y. New Orleans Rail- 41 Conn. 454; Hand' u. Savannah, road, 12 Wall. 362, where it was held etc. R. R. Co., 12 S. C. 314, 364 j that a failure to register the purchase- Hall v. Mobile, etc. Ry. Co., 58 Ala. money mortgage made no difference; 10. but the court said that if the purchased " jjyer v. Car Company, 102 U. property had been rails to be attached S. 1. to the road, the case might have been ^ Bronson v. Railroad Co., 2 Black, decided differently. See also Botsford 524. Compare Chicago, Danville, etc. V. New Haven, M. and W. R. R. Co., Ry. Co. v. Lowenthall, 93 111. 433. 738 CHAP. XVII.] LEGAL RELATIONS AMONG CREDITORS. [§ 821. to include rolling stock, such mortgages attach to all the roll- ing stock in the order of their priority.* ' § 820. Where, according to the terms of a railroad mortgage, _the company is to hold possession of the road and receive the earnings, until the mortgagees take pos- ^■'°'°ss. session, or the proper judicial authority interposes, such posses- sion gives the company a right to the whole fund of the earnings and subjects them to its control. The 'earnings, consequently, remain as liable to the creditors of the company as if the mort- gage did not exist.'' Thus, a corporation mortgaged its property, rents, issues, and profits, giving to the trustee the right to enter and take possession and collect the rents and issues. Default having been made, the trustee filed a bill to subject the moneys of the company on hand to the claims of the mortgage. A judgment creditor whose execution had been returned nulla ,bona, also filed a bill to obtain satisfaction of his judgment from the same moneys ; and it was held that, since the trustee had not taken possession, his claim to the moneys should be post- poned to that of the judgment creditor.* § 821. When pending the foreclosure of a railroad mortgage, the trustees or the bondholders procure the appoint- , * . . Appoint- ment of a receiver of the corporate property, it is ment of re- competent for the court to add to the order appoint- fOTecio'sure ing the receiver such terms and conditions in regard fJ^yj^jent of to the payment of tfie current expenses of the road current ex- * t)6Il&6S incurred prior to his appointment,* as well as in ' Minnesota Co. v. St. Paul Co., 6 rights to such profits and possession Wall. 742. See §676. during that period. lb. De (iraffu. Where a receiver in Kentucky is Thompson, 24 Minn. 452. Compare appointed under a mortgage including Coe v. Peacock, 14 O. St. 187; Coe rolling stock, an Ohio court -will en- v. Columbus, etc. R. R. Co., 10 O. force his claim on a part of such roll- St. 372; Coe v. Knox County Bank, ing stock, temporarily in Ohio, as 10 O. St. 412. Contra, Dunham v. against the attachment of an unsecured Isett, 15 Iowa, 284 ; Jessup v. Bridge, Kentucky creditor. Bank «. McLeod, 11 Iowa, 572. 38 Ohio St. 174. " American Bridge Co. v. Heidel- 2 Oilman v. Illinois, etc. Tel. Co., bach, 94 U. S. 798. Compare King 91 U. S. 603. A decree, silent as to v. Housatonic R. B. Co., 45 Conn, the profits and possession of the road 226. from the date of the decree until the * Metropolitan Trust Co. v. Tona sale thereby ordered, does not afiect wanda, etc. R. R. Co., 103 N. Y. 739 § 822.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XVII, regard to expenses incurred during the time of the receivership, as may seem to thevcourt just or expedient in view of the cir- cumstances of the case. § 822. Here the leading authority is Fosdick v. Schall,' where. Chief Justice Waite said, giving the opinion of the Federal Supreme Court : " We have no doubt that when a court of chancery is asked by railroad mortgagees to appoint a receiver of the railroad property, pending proceedings for foreclosure, the court, in the exercise of a sound judicial discretion, may, as a condition of issuing the necessary order, impose such terms with reference to the payment from the income during the receivership of outstanding debts for labor, supplies, equipment, or permanent improvement of the mortgaged property as may, under the circumstances of the case, appear to be reasonable. Railroad mortgages and the rights of railroad mortgagees are comparatively new in the history of judicial proceedings, They are peculiar in their character and aifect peculiar inte- rests. The amounts involved are generally large, and the rights of parties oftentimes complicated and conflicting. It rarely happens that a foreclosure is carried through to the end without some concessions by some parties from their strict legal rights, in order to receive advantages that could not otherwise be at- tained, and which it is supposed will operate to the general good of all who are interested. This results almost as a matter of necessity from the peculiar circumstances which surround such litigation. " The business of all railroad companies is done to a larger or less extent on credit. The credit is longer or shorter as the necessities of the case require ; and when companies become pecuniarily embarrassed it frequently happens that debts for labor, equipment, and improvements are permitted to accumu- , late, in order that bonded interest may be paid and a disastrous foreclosure postponed, or altogether avoided. In this way the daily and monthly earnings, which ordinarily should go to pay tjie daily and monthly expenses, are kept from those to whom in equity they belong, and used to pay the mortgage debt. 245, is adverse to this ; but the weight ' 99 U. S. 235. of authority favors the full proposition stated in the text. 740 CHAP. XVII.] LEGAL RELATIONS AMONG CREDITORS. [§ 822. The income out of which the mortgagee is to be paid, is the net income obtained by deducting ffora the gross earnings what is required for necessary operating and managing expenses, proper equipment and useful improvements. Every railroad mort- gagee impliedly agrees that the current debts made in the ordi- nary course of business shall be paid from the current receipts before he has any claim on the income. If, for the convenience of the moment, something is taken from what may not impro- perly be called the current debt fund, and put into that which belongs to the mortgage creditors, it certainly is not inequitable for the court, when asked by the mortgagees to take possession of the future income, and hold it for their benefit, to require as a condition of such an order, that what is due from the earnings to the current debt shall be paid by the court from the future current receipts before anything derived from that source goes to the mortgagees.* In this way the court will only do what, if a receiver should not be appointed, the company ought itself to do. For even though the mortgage may in terms give a lien upon the profits and income, until possession of the mort- gaged premises is actually taken, or something equivalent done, the whole earoings belong to the company and are subject to its control.^ ' " So far as current expense credi- lost in transport, and with damages tors are concerned, the court should done to property during his manage- use the income of the receivership in ment, in preference to the claims of the way the company would have been bondholders, under an existing mort- bound in equity and good conscience gage. Cowdrey^j. Galveston, etc. R. to use it if no change in the possession R. Co., 93 U. S. 352. Earnings of' had been made .... If current the road in hands of a receiver are earnings are used for the benefit of chargeable with injuries to a person sus- mortgage creditors before current ex- tained while the road is in the receiv- penses are paid, the mortgage security er's hands. Mobile and O. R. R. Co. is chargeable in-equity with the resto- v. Davis, 62 Miss. 271. ration of the fund which has been The assignee of a claim which is thus improperly applied to their use." entitled, as against the claims of bond- Burnham v. Bowen, 111 U. S. 776, holders, to be paid from earnings in 782 783. the receivers' hands, has all the rights 2 Compare King v. Housatonic R. of his assignor. Union Trust Co. v. R. Co., 45 Conn. 226. The earnings Walker, 107 U. S. 596 ; Burnham v. of a road in the bands of a receiver Bowen, 111 U. S. 776. If the claim are chargeable with the value of goods as against the funds of the receiver- 741 I § 822.] THE LAW OF PRIVATE CORPORATIONS. [bHAP. XVII, " The mortgagee has his strict rights, which he may enforce in the ordinary way.' If he asks no favors, he need grant none. But if he calls upon a court of chancery to put forth its extra- ordinary powers and grant him purely equitable relief, he may with propriety be required to submit to the operation of a rule which always applies in such cases, and do equity in order to get equity. The appointment of a receiver is not a matter of strict right. . . . " We think, also, that if no such order is made when the receiver is appointed, and it appears in the progress of the cause that bonded interest has been paid, additional equipment pro- vided, or lasting and valuable improvements made out of earn- ings which ought, in equity, to have been employed to keep down debts for labor, supplies, and the like, it is within the powers of the court to use the income of the receivership to discharge obligations, which, but for the diversion of funds, would have been paid in the ordinary course of business. This, not because the creditors to whom such debts are due have, in law, a lien upon the mortgaged property or the income, but because, in a sense, the officers of the company are trustees of the earnings for the benefit of the different clashes of creditors and the stockholders ; and if they give to one class of creditors that which properly belongs to another, the court may, upon an adjustment of the accounts, so use the income which comes into its hands, as, if practicable, to restore the parties to their original equitable rights. While, ordinarily, this power is con- fined to the appropriation of the income of the receivership and the proceeds of moneyed assets that have been taken from the company, cases may arise where equity will require the use of the proceeds of the sale of the mortgaged property in the same way The power rests upon the fact, that in the administration of the aftairs of the company the mortgage creditors have got possession of that which, in equity, belonged to the whole, or a part of the general creditors."* ship, is evidenced by commercial paper, Fosdick v. Car Co., ib. ^56; Huide- it is no waiver of the claim to renew koper v. Locomotive Works, ib. 258 ; the paper. Ib. Union Trust Co. v. Souther, 107 U. ' Fosdick V. Schall, 99 U. S. 235, S. 591; Burnham v. Bowen, 111 U. 251, etc. Affirmed and followed in S. 776; Williamson v. Washington 742 CHAP. XVII.] LEGAL RELATIONS AMONG CREDITORS. [§ 824. § 823. In accordance with the principles indicated in the foregoing opinion, it is held that a court of equity, which has appointed managing receivers of such or^err™' property as a railroad, when taken under its charge as a trust fund for the payment of incumbrances, has power to authorize the receivers to raise money necessary for the preser- vation and management of the property, and make such money chargeable as a first lien thereon.' This power is regarded as part of the jurisdiction which is exercised by a court of equity in carrying out its duty to protect and preserve trust funds in its hands. It should be exercised with caution, and if possible with the consent or acquiescence of the parties interested in the fund.^" § 824. In one of its latest decisions of importance on this subject the Federal Supreme Court held that a court of equity could create claims, through a receiver appointed by it on the foreclosure of a railroad mortgage, prior to the lien of the mortgage ; and could decree that the receiver should pay the City, etc. R. K. Co., 33 Gratt. (Va.) 624 ; Addison v. Lewis, 75 Va. 701 ; Atkins V. Petersburg R. R. Co., 3 Hughes, 307; Douglass v. Cline, 12 Bush (Ky.), 608. See also Hale v. Frost, 99 U. S. 389 ; Meyer K. Johnston, 53 Ala. 237 ; Union Trust Co. v. Walker, 107 U. S. 696 ; Farmers' Loan, etc. Co. v. Missouri, etc. R'y Co., 21 Fed. Rep. 264. Compare Newport, etc. Bridge Co. V. Douglass, 12 Bush (Ky.), 673. The cases of Metropolitan Trust Co. v. Tonawanda Valley, etc. R. R. Co., 103 N. y. 245, and Duncan v. Mobile, etc. R. R. Co., 2 Woods, 542, seem not to accord with the above decisions. ' Miltenberger v. Logansport Rail- way, 106 U. S. 286; Wallace v. Loomis, 97 U. S. 146 ; Langdon v. Railroad Co., 53 Vt. 228 ; see Same V. Same, 54 Vt. 593. ' Wallace v. Loomis, supra. While a railroad was in the hands of, a re- ceiver appointed in a foreclosure suit, the court authorized him to borrow money and issue certificates, to be a lien prior to the mortgage debt, and to part with them at not less than ninety cents on a dollar. The receiver borrowed money by hypothecating some of the certificates. Held, that the hypothe- cated certificates were not liens to the extent of their face ; but that a decree was proper allowing the repayment of . the moneys loaned on certificates issued at ninety cents on the dollar and making such certificates a lien. Swann V. Clark, 110 U. S. 602. For ordinary debts which were not allowed prior payment (over bond- holders) out of funds in hands of re- ceiver, see Addison t). Lewis, 75 Va. 701. Such are debts incurred in the construction (not maintenance) of the road. Boston, etc. Co. v. Cliesapeake and O. R. R. Co., 76 Va. 180. 743 § 8 24. J THE LAW OF PRIVATE COEPOEATIONS. [CHAP.^XVII. operating expenses of the road for ninety days preceding his appointment, and also certain, sums of money, amounting to ten thousand dollars, due other and connecting lines for ma- terials and repairs and for ticket, and freight balances, a part of which last indebtedness was incurred more than ninety days prior to the appointment of the receiver. The above claims were ordered to be paid out of the net proceeds of the sale, be- fore paying the mortgage bonds.' Giving the opinion of the court, Judge Blatchford said : " It cannot be affirmed that no items which accrued before the appointment of a receiver can be allowed in any case. Many circumstances may exist which make it necessary and indispensable to the business of the road and the preservation of the property, for the receiver to pay pre-existing debts of certain classes, out of the earnings of the receivership, or even the corpus of the property, under the order of the court, with a priority of lien. Yet the discretion to do so should be exercised with very great care. The payment of such debts stands prima facie on a different basis from the pay- ment of claims arising under the receivership, while it may be brought within the principle of the latter by special circum- stances. It is easy to see that the payment of unpaid debts for operating expenses, accrued within ninety days, due by a rail- road company, suddenly deprived of the control of its property, due to the operatives in its employ, whose cessation from work simultaneously is to be deprecated, in the interests both of the property and of the public, and the payment of limited amounts due to other and connecting lines of road for materials and re- pairs and for unpaid ticket and freight balances, the outcome of indispensable business relations, where a stoppage of the con- tinuance of such business relations would be a probable result, in case of non-payment, the general consequences involving largely, also, the interests and accommodation of travel and traffic, may well place such payments in the category of pay- ments to preserve the mortgaged property in a large sense, by maintaining the good-will and integrity of the enterprise, and entitle them to be made a first lien."^ ' ' Miltenberger v. Logansport Rail- » Miltenberger v. Logansport Rail- way, 106 U. S. 286. way, 106 U. 8. 286, 811. See also ' 744 CHAP. XVII.] LEGAL RELATIONS AMONG CREDITORS. [§ 826. § 825. In respect of the statutory individual liability of shareholders it is said that " a creditor who moves first and proceeds so far as to establish his right to nlbim^of seize the property of a stockholder, or to bring his ^oWcts suit, obtains a priority of right in the fund which Priorities of the statute has in effect set apart for the payment of his debt. By such proceedings, and the institution of a suit within the period fixed by the statute, he acquires a right to re- cover against the stockholder to the amount of his stock, with which no creditor subsequently moving can rightfully inter- fere, and any payment made to such subsequently moving creditor by such stockholder must be regarded as a payment in his own wrong."^ The case, however, in which these remarks occur, arose under the construction of a particular statute, and consequently is to be applied with caution.^ § 826. When an action has been instituted by part of the creditors of an insolvent corporation for the benefit of all the creditors, against the shareholders to enforce the (limited) statu- tory liability of the latter, no creditor can acquire priority, or Union Trust Co. v. Illinois Iilidland Ry. Co., 117 U. S. 434 ; Williamson V. Washington City, etc. K. R. Co., 33 Gratt. (Va.) 624 ; Poland v. Lam- oille "Valley K. R. Co., 52 Vt. 144. Compare Hand v. Savannah, etc. R. R. Co., 17 S. C. 219, 266 ; Ex parte Benson & Co., 18 S. C. 38 ; Ex parte Carolina Nat. Bk., ib. 289 ; Dennis- ton V. Chicago, Alton, etc. R. R. Co., 4 Biss. 414. When bondholders suffer certain persons to act as receivers, and issue negotiable certificates, which come into the hands of bona fide holders for value, the bondholders cannot set up that the receivers were improperly appointed. Langdon v. Vermont, etc. R. R. Co., 53 Vt. 228; see Hum- phreys V. Allen, 101 111. 490. But it has been held that receiver's certifi- cates payable to a given person "or bearer" are not negotiable, and when issued without benefit or consideration to the receivership, so that the payee could not have recovered on them against funds in the hands of the receiver, cannot be recovered on against such funds by a hona fide holder for value. Turner v. Peoria and S. R. R. Co., 95 111. 184. ' Cole V. Butler, 43 Me. 401, 404, per May, J., approved in Ingalls w. Cole, 47 Me. 530, 541. Accord, Jones V. Wiltberger, 42 Ga. 575 i Thebus v. Smiley, 110 111. 316. ' Semhle, contra, Pfohl v. Simpson, 74 N. Y. 137 ; Donnelly v. Mulhall, 12 Mo. App. 139. In Illinois a cre- ditor obtains a prior lien only through a final judgment in his favor. Chicago V. Hall, 103 111. 342 ; but see Thebus V. Smiley, 110 111. 316. Compare State Savings Ass'n v. Kellogg, 63 Mo. 540. • 745 § 826.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. XVII. institute a separate suit for the enforcement of such liability on his own behalf.' ' Wright V. McCormack, 17 Ohio 520. Also, specially, §§ 725, 726, St. 86 ; Pfohl V. Simpson, 74 N. Y. 704-706. 137. See Pollard v. Bailey, 20 Wall. 746 TABLE OF CASES. [kepekences ake to the sections.] SECTIOH Abbot V. American Hard Rubber Co. 229, 628, 638 Abbott V. Aspinwall 738 V. Chase 189 V. Baltimore, etc. Steam Packet Co. 273 V. Johnston, etc. E. K. Co. 170, 305 Abeles v. Cochran 696, 754 Abell V. Penn Mut. Life Ins. Co. 392 Aberdeen E'y Co. v. Blakie 627, 630 Ablemanw. Booth 456, 461 Academy v. Exeter 489 Ackerman v. Halsey 694 Adams v. Mills 772 Adams Express Co. v. Fenwick 353 u. Haynes 353 V. Schlesinger 193 V. Stettaners 353 fc. Wilson 363 Adams M'^ Co. v. Senior 642 Adden v. White Mountains, etc. R. R. Co. 179 Adderly v. Storm 741 Addison v. Lewis 632, 822 Adelbert v. Kearns 659 Adler v. Milwaukee, etc. Brick Co. 661, 704, 705 V. Reeves 583 Adrianee v. Roome 195, 196 A'D. St. Nar. and Coal Co., In re 572 iEtna Ins. Co. v. Black 396 V. Wheeler 364 jEtna Nat. Bank v. Fourth Nat. Bank 672 V. Ins. Co. 236 Agate V. Sands 7.S2 Aggs V. Nicholson 753 SECTION Agricultural Bank v. Burr 587 V. Wilson 587 Agricultural Branch R. R. Co. V. Winchester 530 Aiken u. Western Un. Tel. Co. 357 Aimen v. Hardin 774 Alabama v. Montague 676 Albany Northern R. R. Co. v. Bromwell 163a Alabama and F. R. R. Co. v. Kenney 163a Alabama and Tenn. Rivers R. R. Co. V. Kidd 360 Alabama and Tenn. Rivers R. R. Co. V. Burkett 179 Alabama Gt. Southern R. R. Co. V. Gilbert 163 Alabama Gt. Southern R. R. Co. V. Little 359 Albert v. Northern Cent. Ry. Co. 368 Albert v. Savings Bank 338 V. State 611 Albion Steele, etc. Co. v. Mar- tin 83 Aldham v. Brown 59 Aldrich v. Drury 162a Aldridge v. Tuscumbia R. R. Co. 163 Alexander v. Atlantic, etc. R. R. Co. 681 V. Cauldwell 267 V. Commissioners of McDowell Co. 325 V. Relfe 338 V. Rollins 284 Alexandria and F. R'y Co. v. Alexandria and W. R. R. Co. 163 Alexandria and P. R'y Co. v. Faunce 174 Alexandria Canal Co. v. Swann 137 Alibone v. -Hager 709, 736, 740 747 TABLE OF CASES. Allbritton v. J.,and G. N. R. R. Co. 377 Allegheny R. R. Co. v. Mc- Lain 347 Allen V. Baltimore and O. R. R. Co. 492J V. Citizens' Steam Nav. Co. 19.3 V. Curtis 690 V. Dykers 794 » V. First Xational Bank 301 I!. Freedman's Savings Co. 276 V. Jones 163, 473 V. London and S. W. R'y Co. 339, 344 V. Louisiana 620 V. Montgomery R. R. Co. 661, 703, 745, 746 V. Woonsocket Co. 130 Ailing V. Boston and Albany R. R. Co. 355 AUman v. Havana, etc. R. R. Co. 518 AUyn V. Boston and Albany R. R. Co. 376 Alma Spinning Co., In re 547 Alton Horse R'y Co. v. Deitz 1,73 American Bible Soc. v. Mar- shall 391 American Bridge Co. v. Heidel- bach, 820 American Central R'y Co. v. Miles 646 American Coal Co. v. Consolida- tion Coal Co. 497, 502 V. County Commis- sioners 479 American Express Co. v. Conant 395, 472 V. Second Nat'n'l Bank 353 V. Smith 361 V. Spell- man 859 American File Co. v. Garrett 733 American Ins. Co. v. Oakley 236 V. Wellman 401 American Merchants' Un. Exp. Co. V. Milk 360 American Mut. Life Ins. Co. v. Owen 384 American Nat. Bank v. Whee- lock 752 American Rapid Tel. Co. v. Con- necticut Telephone Co. 454, 455 748 American Ry. Frog Co. v. Ha- ven 136 American Tube Works v. Boston Machine Co. 541 ' American Union Exp. Co. v. Robinson 360 American Union Tel. Co. v: Union Pac. R'y Co. 305, 314 American Union Tel. Co. v. Western Un. Tel. Co. 383, 486 Ameriscoggin Bridge Co. v. Bragg 449 Amerman v. Wiles 277 Ames V. Kansas 460 V. Lake Superior, etc. R. R. Co. 464 Amesbury v. Bowditch Mut. Ins. Co. 583 Amesbury Woolen, etc. Co. v. Amesbury . 477a Amherst Academy v. Cowles 92 Amy V. Dubuque 326 Anderson v. Longden 235 V. Phila. Warehouse Co. 741 V. Santa Anna 318 V. Speers 775 Anderson County v. Houston, etc. R. R. Cp. 329 Anderson County Com'rs v. Beal 329 Andrews v. Murray 764, 805 V. Union Mut. Fire Ins. Co. 21, 269, 583 Androscoggin, etc. R. R. Co. v. Androscoggin R. R. Co. 308 Angier v. East Tenn. etc. R. R. 409 Angle V. Mississippi, etc. R. K. Co. 363 Anglo-Californian Bank v. Gran- gers] Bank 196, 601 Ansonia B. and C. Co. v. New Lamp Chimney Co. 724 Anspach v. Mahanoy, etc. R. R. Co. 162 Anthony u. County of Jasper 320 Antoni v. Greenehow 494 Appleby v. Erie County S'v'gs Bank' 199 V. Terre Haute and I. R. R. Co. 305 Application of Cooper 400 Archer v. Terra Haute, etc. R. R. Co. 805 Ardesco Oil Co. o. North Am. Oil Co. 180, 668 Arms V. Conant 225, 381 Arnold v. Covington Bridge Co. 1 63 TABLE OF CASES. SECTION Arnold v. Hudson River R. R. Co. 174 V. Illinois Central R. R. Co. 353 V. Suffolk Bank 599 Arnot V. Erie R'y Co. 280, 308 Arthur v. Commercial, etc. Bank 668 V. Griswold 755, 774 Ashbury Railway Carriage, etc. Co. V. Riche 291, 296 Ashe V. Johnson 790 Asher V. Sutton 236 Ashmore v. Penn. Steam Tow Co. 353 Ashpitel V. Sercombe 104 Ashtabula, etc. R. R. Co. v. Smith , 517 Ashton V. Burbank 531 Ashuelot M'f'g Co. v. Marsh 236 Ashuelot R. R. Co. v. Elliott 496, 499, 629, 642 Ashurst V. Mason 526, 763, 804 AshviUe UivisiOh v. Aston 159, 430, 437 Asiatic Banking Co., In re, Bank of India's Case 196 Aspinwall v- County of Daviess 320 V. Ohio, etc. R. R. Co. 382 V. Torrance 783 Association v. Fenner 153 Asylum v. New Orleans 488 Atchison and Neb. R. R. Co. «. Washburn 353 Atchison and D. R'y Co. u. Ijyon 178 Atchison and N. R. R. Co. v. Garside 175a Atchison, etc. R. R. Co. v. Holt 365 Atchison, etc. R. R. Co. v. Moore 365 Atchison T. and S. F. R. R. €o. V. Denver and N. O. R. R. Co. 162, 309 Atchison T. and S. F. R. R. Co. 0. Fletcher 381, 534 Atheneum Society, In re, Ex parte Eagle Co. 251 Atkins V. Albree 800 V. Petersburg R. R. Co. 822 V. Marietta, etc. R. R., Co. 125, 155 Atkinson v. Marietta, etc. R. R. Co. 451 V. St. Croix M'f'g Co. 193 Atlantic and Gulf R. R. Co. v. Allen 488, 490 SECTIOW Atlantic and G. R. R. Co. v. Jacksonville, etc. R. R. Co. 395 Atlantic and Pac. R. R. Co. v. St. Louis 166, 168, 204 Atlantic and Pac. R. R. Co. v. Reisner 193 Atlantic and Pac. Tel. Co. v. Union Pac. R. R. Co. 309, 314 Atlantic Cotton Mills v. Abbott 518 Atlantic, etc. R'y Co. v. Dunn 377 Atlantic Delaine Co. v. Mason 545, 574 Atlantic State Bank v. Savery 161 Atlantic, Tenn., etc. R. R. v. Johnston 809 Atlas Nat. Bank v. Savery 293, 302 Attleborough Nat. Bank v. Ro- gers 293, 302 Attorney- Gen' 1 v. Bank of Nia- gara 459 V. Chicago, etc. R. R. Co. 460 V. Great Eastern R'y Co. 308 V. Guardian Mut. Ins. Co. 143, 395, 542, 758 V. Jamaica Pond Aqueduct 457 V. Metropolitan R. R. Co. 175 V. North America Life Ins. Co. 451 V. Petersburg, etc. R. R. Co. 460 V. Railroad Com- panies 4765 V. Utica Ins. Co. 156, 457, 458 Auerbach v. Le Seuer Mill Co. 125, 127, 286 Augur Steel Axle, etc. Co. v. Whittier 157 Augusta Bank v. Hamblet 234 Augusta M'fg Co. V. Vertrees 449 Aultman's Appeal 393,715,749 Aurora Agricult. Soc. u. Paddock 125 Aurora City v. West 326 Aurora, etc. R. R. Co. v. Law- renceburg 147 Aurora, etc. Turnpike Co. v. Holthouse 453 Austin V. Daniels 615, 616, 618 Austin's Case 614 Australian, etc. Co. v. Mounsey 125 Ayrault v. Pacific Bank 161 Ayres, In re 462 749 TABLE OF CASES. B. SECTION Babcock v. Bemati 752 Bach V. Pac. Mail S. S. Co. 554 Bachman, In re 601, 748 Backus V. Lebanon 470 Bacon v. Coliea 437 V. Irwin 140 I'. Michigan Central R. R. Co 342 V. Mississippi Ins. Co 125, 206 V. Robertson 264, 460 Badger o. American Popular Ins. Co. 253 Bagnall v. Carlton 82 Bagshaw, Ex parte 608 Bahia, etc. R'y Co., In re 593 Ballet). Educational Society 621,544 Bailey v. Bancker 733, 784 V. Birkenhead, etc. R'y Co. 554 V. Citizens' Gas Light Co. 536, 788 V. Maguire 489 V. Macaulay 77 V. Pittsburgh, etc. Gas Coal Co. 521, 546, 779 V. Railroad Co. 564 V. Sawyer 727 Bailey's Appeal 788 Bailey's Case 110 Baird v. Bank of Washington 189 V. Calvert 713 V. Midyale Steel Works 695 V. Morford 376 V. Petitt 365 V. Ross . 98 Baker v._ Atlas Bank 721, 736 V. Backus 611, 716 V. Louisiana Portable R. R. Co. 611 V. Marshall 596, 599 V. Neff 146' V. Wassen 594 V. Woolston 210 Baker's Appeal 227, 577, 449 Balch II, Hallet 799 V. Wilson 810, 813 Baldwin v. Canfield 187, 258 V. U. S. Tel. Co. 357 Bale V. Cleland 696 Balliott V. Brown 229 Baltimore v. Baltimore Railroad 674 Baltimore and Ohio R. R. Co. V. Brady 359 Baltimore and Ohio R. R. Co. V. Noell's Adm'r. 412 750 Baltimore and Ohio R. R. Co. V. Pumphrey 360, 361 Baltimore and Ohio R. R. Co. V. Pittsburgh, W. and K. R. R. Co. 163, 163a Baltimore and Ohio R. R. Co. V. Sherman 137 Baltimore and Ohio R. R. Co. V. Schwindling 371 Baltimore and Ohio R. R. Co. V. State 374 Baltimore and Ohio R. R. Co. V. Wheeling 554, 558 Baltimore and Ohio R. R. Co. V. Whittington 376 Baltimore and Ohio R. R. Co. V. Wilkins 201 Baltimore and Ohio R. R. Co. V. AVightman's Adm'r 412 Baltimore and P. R. Co. v. Fifth Baptist Church 169 Baltimore and Potomac R. R. Co. V. Reaney 173, 177 Baltimore and Pototnac R. R. Co. V. State 372 Baltimore, etc. R. R. Co. v. Musselman 666 Baltimore, etc. R. R. Co. v. Nesbit 496 Baltimore, etc. Ry. Co. v. Sew- ell 599 Baltimore, etc. Steamboat Co. v. Brown 362, 363 Baltimore, etc. Turnpike Co. v. ■ Boone 377 Baltimore, etc. Turnpike Co. v. Cassell ^ 169 Baltimore, etc. T. Co. v. Union Ry. Co. 163rt Baltimore, P. and C. R. R. Co. V. Lansing 178 Baltzen v. Nicolay 789 Banet v. Alton, etc. R. R. Co. 2'27 Bancroft v. Wilmington Oonf. Acad. 248 Bangor and P. R. R. Co. v. Mc- Comb 178 Bangor, etc. R. R. Co. v. Smith 449 Banister v. Pennsylvania Co. 344 Bank v. City of Charlotte 531 V. Flour Co. 114, 127, 193 V. Lanier 594, 602 V. McLeod 819 V. Railroad Co. 1 25 V. Statesville 328 V. Tennessee ' 489 V. Zent 161 TABLE OP CASES. SECTION Bank Commissioners v. Bank of Brest 225, 230 D. Bank of Buftalo 224, 233, 457 V. James Bank 457 V. St. Law- rence Bank 273 Bank of America v. McNeil 606 Bank of Attica v. Manufacturers' Bank 599, 601 Bank of Augusta v. Earle 380, 381, 382, 384 Bank of Australasia v. Breillat 125 Bank of Batavia v. N. Y. etc. K. R. Co. 204 Bank of Bethel v. Pahquioque Bank 432, 669 Bank of British Columbia v. Page 401 Bank of Chattanooga v. Bank of Memphis 272 Bank of Chillicothe v. Dodge 195 V. Swayne 298 Bank of Columbia v. Patterson 248 Bank of Commerce v. McGrowan 488 V. New York City 482 Bank of Genesee v. Patchin Bank 244 Bank of Georgia v. Savannah 477a Bank of Greenboro' u. Clapp 342 Bank of Hamilton v. Dudley's Lessee , 468 Bank of Hindostan, In re 586 Bank of Holly Springs v. Pinson 601 Bank of Kentucky «. Adams Exp. Co. 352, 354 V. Schuylkill Bank 224, 263 V. Wister 462 Bank of Louisiana v. Wilson 435 Bank of Madison, In re 672 Bank of Metropolis v. Guttsch- liek 248 V. Jones 236, 241 V. New Eng- land Bank 673 Bank of Middlebury v. Rutland, etc. R. R. Co. 259 Bank, of Mississippi v. Wren 435 Bank of Mutual Redemption v. Hill 756 Bank of New Hanover v. Kenan 161, 346 SECTION Bank of New London v. Ketchum 259 Bank of Ohio v. Knoop 453 Bank of Omaha v. Douglass County 410 Bank of Pennsylvania v. Reed 239 Bank of Poughkeepsie v. Ibbot- son 725 Bank of Republic v. County of Hamilton 495 Bank of Saline v. Alvord 298 Bank of South Australia v. Abra- hams 225 Bank of South Carolina v. Ham- mond 257 Bank of St. Mary's v. St. John 658, 757 Bank of Tennessee v. Cummings 293 Bank of U. S. v. Dallam 724 V. Dandridge 188, 204,217,219, 449, 248, 250, 257, 263 V. Davis 210 V. Deveaux 21, 410 V. Dunn 224, 236, 241 V. Owens 298 V. Waggener 298 Bank of Utica v. Smalley 589 Bank of Vergennes o. Warren 241 Bank of Washtenaw v. Mont- gomery 384 Bank Tax Case 482 Banks, The v. Poiteaux 303 Bansemer v. Toledo, etc. R. R. Co. , 360 Barclay v. Culver 794 V. Quicksilver M'g Co 657' t'. Wainwright 800 Bard v. Poole 384, 386, 389 Bardstown And L. R. R. Co. v. Metcalfe 305 Bargate v. Shortridge 224, 232, 589 Banngs v. Dabney 507 Barker, Ex parte 578 Barker v. Cairo, etc. R. R. Co. 661 Barksdale v. Finney 342 Barnard v. Vermont, etc. R. R. Co. 563 Barnes v. Brown 580 V. District of Columbia 315 V. Ontario Bank 240, 253 V. Suddard 303 V. Trenton Gas Light Co. 210 Barnett v. Chicago, etc. R. R. Co. 399 Barnett' s Case 731 751 TABLE OF CAS^S. SECTION Barney v. Oyster Bay Steamboat Co. 350 Barr v. Bartram, etc. M'f g Co. 663 V. King 402 u. New York, L. E. and W. R. R. Co. 140, 141 Barrett v. County Court 325 V. Maiden, etc. R. R. Co. 347 Barrick u. Austin 241 Barron v. Burnside 400 V. Eldredge 360 Barrow v. Nashville, etc. T. C. 303 Barrows v. National Rubber Co. 606 Barry v. Merchants' Exchange Co. 127, 129, 561 V. N. Y. Cent, and H. R. R. R. Co. 371 V. Screw men's Ass'n 249 Barstow v. City R. R. Co. 646 V. Savage M'g Co. 795 Barter v. Wheeler 364 • Bartemeyer v. Iowa 476 Bartlett v. Drew 655, 705, 708 V. Kinsley 187 V. Western Union Tele- graph Co. 357 Bartlette v. Norwich and Wor- cester R. R. Co. 308 Barton v. Port Ja6kson, etc. Plank Road Co. 135, 298 Bass V. City of Columbus 325 Bassett v. St. Alban's Hotel Co. 770, 775 V. Monte Christo M. Co. 381, 633, 759 Basshor v. Dressell 157, 460 V. Forbes 735 Batard v. Hawes 81 Batchelor v. Planters' Nat. Bank 249, 625 Bates V. Androscoggin R. R. Co. 563, 564, 572 V. Bank of Alabama 257 V. Mackniley 799 Bates County v. Winters, 320, 324 Bath V. Caton 755 Bavington v. Pittsburgh, etc. R. R. Co. 519 Bawknight v. Liverpool, etc. Ins. Co. 396 Baxter v. Moses 756 V. Roberts 365 Bayless v. Orne 611 Beach v. Fulton Bank 276, 342 Beale v. Mouls 77 V. Railway Co. 377 752 Beard v. The Union, etc. Pub. Co. 400 Beattie v. Ebury 754 Beatty v. IVJarine Ins. Co. 195, 253, 262 V. Bartholomew County Agric'l Soc. 146 Beaty v. Knowler's Lessee 224 Beauregard v. New Orleans 468 Beck V. Kantorowicz 82 Becker v. Western Un. Tel. Co. 357 Becket u. Houston 511 Beckwith v. Burrough 796 Bedford v. Hannibal and St. Jo. R. R. Co. 368 Bedford and Cambridge R'y Co. V. Stanley 90 Bedford R. R. Co. v. Bowser 229, 517, 549, 780 Bee V. San Francisco, etc. R'y Co. 647 Beecher v. Marquette, etc. Ins. Co 282 V. Marquette and Pac. Rolling Mill Co. 300 Beekman v. Saratoga, etc. R. R. Co. 163, 476 Beene v. Cahawba, etc. R. R. Co. 513, 54.6 Beer Co. v. Massachusetts 476 Beers v. Arkansas 462 V. Bridgeport Spring Co. 563, 568 V. Phoenix Glass Co. 1 93 V. Waterbury 733 Beeson v. Lang 417, 418 Belfast, etc. R. R. Co. v. Belfast 563, 564, 565 , V. Coffrell 518 V. Moore 513 Belger v. Dinsmore 359 Belknap v. Boston and M. R. R. Co. 377 Bell V. Indianapolis, etc. R. R. Co. 417, 432 V. Railroad Co. 319 Bellows V, Hallowell and Au- gusta Bank 667 V. Todd 381 Bell's Gap R. R, Co. v. Christy 86 Belmont v. Erie R'y Co. 611 Bend u. Susquehanna Bridge Co. 587 Benedict v. Lansing _ 201 Bengley v. Wheeler ' 686 Bennett v, Maryland Fire Ins. Co. 216 V. Railroad Co. 371 TABLE OF CASES. SECTION I Bennett v. S. A. R. E. B. and L. Ass'n 249 V. St. Louis Car Roofing Co. 628, 647 Bennett's Case 747 Benninghoff v. Agriculture Ins. Co. 212, 214 Bensinger v. Wren 51 Benson, Ex parte 309, 822 Bent V. Priest 629, 630 Benton u. C. R. I. and P. R. R. Co. 372 Ben wood Iron Works v. Hutch- inson 396 Berg V. Atchison, etc. R. R. Co. 363 Berg V. Marietta, etc. Ry. Co. 523 Bergman v. St. Paul Mut. B'l'd'g Ass'n 546, 583 Berks Turnpike Road v. Myers 159, 251, 254 Bernard's Township v. Stebbins ,254, 318, 328 Berrison v. Chicago R. R Co. 173 Berryman v. Cincinnati Southern R. R. Co. 162 Besel.o. N. Y. C. and H. R. R. R. Co. 365 Bestor V. Wathen 162 Bezan v. Pike 214 Biddle's Appeal 799, 800 Bidwell V. Pittsburgh, etc. Ry. Co. 187 Bigelow V. Gregory 451, 739 Bill V. Western Union Telegraph Co. 642 Billings V. Robinson 542, 586 V. Trask 764 Binghamton Bridge, The 450, 453, 461, 468 Bird V. Bird Patent, etc. Co. 268 V. Chicago, etc. R. R. Co. 592 V. Hayden 764 Birney v. N. Y., etc. Telegraph Co. 357 Bish !). Bradford 738 V. Johnson 535, 536 Bishop V. Brainerd 408, 420, 536, 663 V. Globe Co. 210, 392, 603 Bissell w. Farmers', etc. Bank 790 V. Jeffersonville 331 V. Michigan Southern, etc. R-^B. Co. 264, 275, 280, 287, 290, 338 V. N. Y. C. R. R. Co. 353 48 , SECTION Bissell V. Spring Valley Town- ship 332 Bisset V. Kentucky River Nav. Co. 733, 737 Black V. Burlington, etc. R. R. Co. 374 V. Delaware and Raritan Canal Co. 229, 305, 384, 420, 557 V. Goodrich Trans. Co. 353 ^v. Huggins 687, 690 V. Wabash, etc. Ry. Co. 356 V. Wpmar 737 V. Zacharie 79'6 Black & Co.'s Case 731 Blackburn v. Selma M. and M. R. R. Co. 146 Blackman v. Central R. R. Co. 138 V. Leyman 326 Black River, etc. R. R. Co. v. Barnard 1 78 Black River, etc. R. R. Co. v. Clarke . 537 Black River Improvement Co. v. La Crosse Booming, 6tc. Co. 1 74 Black Run Improvement Co. v. La Crosse Booming, etc. Co, 174 Blackstock v. N. Y. and Erie R. R. Co. 361 Blackwell, The 137 Blair v. Cumming County 319 V. Erie R'y Co. 353 V. Gray 722 V. Perpetual Ins. Co. 381 Blair Town Lot Co. v. Walker 628 Blaisdell v. Bohr 593 Blake u. Griswold 263 V. Hinkle 432, 703 V. Holly 204 V. Maine Central R. R. Co. 366 V. Portsmouth, etc. R. R. Co. ■ 436 V. Rich 162 a V. Winona, etc. R. R. Co. 476 a Blakeman v. Benton 735 Blanehard v. Dedham Gas Light Co. 796 V. Hillard 195 Blatchford v. Ross 227, 646 Blen V. Bear River, etc. Co. 214, 236 Bliss V. Anderson 688 V. Kaweah Co. 204, 236 Block V. Commissioners 329 Blood V. Marcuse 201 753 TABLE OF CASES. SECTION Bloodgood V. MoliKwk, etc. R. R. Co. 163, 476 Bloomfield v. Charter Oak B'k 334 Blossom V. Dodd 3.'i8 V. Railroad Co. 682 Blouin V. l/iquidators of Hart 796 Blount V. Wiiidley 493 Bloxam v. Metropolitan R'y Co. 565 Blumenthal v. Brainerd 360, 417 Blundell v. Winsor 719 Blunt V. Walker 249 Board, etc. Tippecanoe County V. Lafayette, etc. R. R. Co. 229, 268, 305, 556 Board of Liquidation v. McComb 462 Board of Public Works v. Gaunt 462 Board of Trade Tel. Co. );. Barnett 175 Boardman v. Lake Shore, etc. R'y Co. 474 c, 563, 664, 786, 798 Bockhover v. Life Ass'n 390, 495 Bodlev V. Goodrich 668 Bohm'er v. City Bank 264, 606 Bohn V. Brown 734 Boise City Canal Co. v. Pinkham 146 Boisgerard u. New York Bank- ing Co. 159 Bommer v. American Spiral Hinge M'f 'g Co. 90 Bonaparte v. Appeal Tax Court 4 79 Bond V. Appleton 720 t. Central Bank 257 V. Morse 775 Bonelli's Electric Tel. Co., In re 258 Bonewitz v. Van Wert County Bank 727 Bonham v. Needles 330 Bonham's Case 456 Bonnell v. Griswold 764, 769, 770, 774 Bonner v. City of New Orleans 127 Booe V. Junction R. R. Co. 531 Boogher v. Life Association 342 Booker v. Young 260 Boom Co. V. Patterson 178, 473 Boot and Shoe Co. v. Hoit 109 Booth V. Boston and Albany R. R. Co. 365, 366 V. Bunce 657 V. Campbell 735 V. Farmers and Mechan- ics' Bank 236 V. Robinson 125, 642, 687, 688, 693, 694 Borchardt v. Wausau Boom Co. 167 Borough of Easton v. Lehigh Water Co. 455 Borry v. Cooper 363 754 BECTIOS Boseowitz V. Adams Exp. Co. 353, 359 Bostock V. North Staffordshire Ry. 128 Boston and Albany R. R. Co., Matter of " 163 a Boston and Albany R. R. Co. v. Greenbush 163 a Boston and Albany R. R. Co. v. Pearson 56 Boston and Albany R. R. Co. v. Richardson 597 Boston and Albany R. R. Co. v. Shanley ' 369 Boston, & Co. V. Chesapeake, etc. R. R. Co. 823 Boston and L. R. R. Co. v. Com- monwealth 477 a Boston and L. R. R. Co. v. Nashua, etc. R. R. Co. 137 Boston and L. R. R. Co. v. Salem, etc. R. R. Co. 162, 470 Boston and M. R. R. Co. v. Lowell, etc. R. R. Co. 163 a Boston and Providence R. R. Co. V. New York and N. E. R. R. Co. 608 Boston and W. R. R. Co. v. Old Colony R. R. Co. ' 174 Boston, Barre, etc. R. R. Co. v. Wellington 96 Boston, Concord, etc. R. R. Co. V. Gilmore 676 Boston Glass Manufactory v. Langdon 429, 432, 433 Boston Water Power Co. v. Boston and W.R. R. Co. 163, 163 o Botsford V. New Haven, etc. R. R. Co. 818 Bostwick V. Baltimore, etc. R. R. Co. 359 Bostwick V. Van Voorhis 249, 257 Boswell V. Hudson River R. R. Co. 353, 359 Bouch, In re 799, 800 Boudcn V. Farmers', etc. Bank 741 V. Johnson 749 V. Santos 749 Boughton V. Otis 768 Boutdier v. Morgan, etc. R. R. Co. 173 Bowditch V. New England Life Ins. Co. 301 Bower v. B. and S. W. Ry. Co. 170 Boyce v. St. Louis 387 Boyd V. Chesapeake and Ohio Canal Co. 210 V. Hall 728 / TABLE OP CASES. Boyd V. Peach Bottom R'y Co. 516 V. Rockport Steam Cotton Mills 796 Boyden v. Bank of Cape Fear 672 Beyer v. Beyer 483 Boylen v. Huguet 794 Boynton v. Andrews 723 V. Hatch 545, 702, 723 Brabbits v. Chicago and N. W. R'y Co. 365 Brackett v. Griswbld 771 Braddock v. Philadelphia, etc. R. R. Co. 97, 517 Bradford Banking Co. v. Brings 603 Bradlee v. Boston Glass M'f'y 753 Bradley v. Ballard 125, 280 V. Farwell 759 V. New York and N. H. R. R. Co. 175 a V. People 484 V. Richardson 138, 642 Bradstreet v. Bank of Royalton 269 Brainard u. Clapp 162 a V. Missiquoi B. R. Co. 175 a BrainerdK. New York, etc. B. R. Co. 679 V. Peck 676 Brampton, etc. R'y Co., In re 86 Branch v. Atlantic, etc. R. R. Co. 818 V. Dawson 672 V. Jesop 131, 270, 305, 565 V. Roberts 756 Branson v. City of Phila. 163 o V. Trump Machine Co. 398 Brant v. Ehlen • 702 Brassell M. N. Y. C. and H. R. R. R. Co. 374 Bra use v. New England Fire Ins. Co. 392 Braw V. Farwell 57 Bray v. Seligman 741 Brayton v. Fall River 473 Breed v. Mitchell 361 Breese v. U. S. Tel. Co. 357 Breitung v. Lindauer 764 Brent v. Bank of Washington, 605, 601 Brewer v. Boston Theatre Co. 560, 688, 689, 690 V. Michigan Salt Asso- ciation 750 Brewster v. Hartley 136, 677, 578 V. Hough 488 V. Sime 797 V. Stratman 627 Bridenbecker v. Lowell 240 SECTION Bridge Co. v. Hoboken Land, etc. Co. 461 V. United States 497 Bridge Proprietors v. Hoboken Co. 461, 468 Bridgeport Old Brewery Co., In re 574 Bridgeport Savings Bank v. Eld- rige 236 Briggs V. Cape Cod Ship Canal Co. 460 V. Easterly 772 V. Penniman 731 Briggs' s Case 110 Brigham v. Agricultural Branch R. R. Co. 162 a, 164' Bright V. Lord , 798 u. Metaire Cemetery Ass'n 236 Brinham v. Wellersburg Coal Co. .561, 663, 725, 783 BrinkershofiF v. Bostwick 689, 690, 693 Brinley v. Grow 800 Brintnall v. Saratoga, etc. R. R. Co. 363 Brisbane v. Delaware, etc. R. R. Co. 593 V. St. Paul and S. C. R. R. Co. 174 Bristol V. Sanford 721 Bristol Milling, etc. Co. v. Pro- basco 760, 811 British American Land Co. v. Ames, 384 British, etc. Assurance Society, In re 699 British Provident, etc. Ass. Soc, In re, Lane's Case 211 Britton v. Atlantic, etc. R'y Co. 347, 348 V. D. N. O. and S. R. Co. 179 Broadway Bank v. McElrath 796 Brockett v. Ohio, etc. R. R. Co. 408 Brockway v. Allen 159, 753 V. Inness 734 Brodie v. McCabe 333 Brokaw V. New Jersey R. R. Co. 335, 338 Bronson v. Insurance Co. 704 V. Kinzie 450 V. La Crosse, etc. R. R. Co. 138, 813 V. Railroad Co. 819 Brooklyn Central R. R. Co. v. Brooklyn City R. R. Co. 164 755 TABLE OF CASES. SECTION- Brooklyn Steam Transit Co. v. Brooklyn 150, 432, 458, 460 Brooklyn W., etc. R. R. Co., Matter of 155, 432, 458, 460 Brooklyn v. Insurance Co. 329 Brookman v. Metcalf 125 Brooks V. Ball 93 V. Davenport and S. P. E. Co. 178, 179 V. Martin 313 V. Railway Co 817 Broughton v. Pensacola 316, 667 Brown v. Adams Exp. Co. 353 V. Beatty 179 V. Colorado 468 V. Eastern E. R. Co. 359 V. Fairmount Gold M'g Co. 227, 530 V. Hannibal, etc. R. R. Co. 369 V. Hitchcock 718, 719, 791 V. Houston 474 c V. Maryland 474 a, 480 V. Monmouthshire R'y Co. 563, 565 V. Mortgage Co. 146, 276 V. Pacific Mail St. Ship Co. 577, 579, 581 V. Vandyke 687, 688 V. Wennissimet Co. 121 Brown, Administrator, Petition of 801 Brown's Case 614 Brownell v. Troy, etc. R. R. Co. 412 Bruce V. Piatt 770 BrutTu. Mali 696, 755 Bruffett V. Great Western R. R. Co. 458, 665, 667 Brum V. Merchants' Mut. Ins. Co. 657 Brundage v. Brundage 798 V. Monumental Gold, etc. Co. 704 Brunswick, etc. R. R. Co. v. Gale 350 Brunswick, etc. R. R. Co. v. Hughes 675 Bryan v. Carter 601, 603 Bryant v. Goodnow 92 V. Rich 347 Bryson v. Warwick, etc. Canal Co. 314, 656 Buclianan v. Bartow Iron Co. 775 V. Litchfield 321 V Meisser 728, 732 Bucher v. Dillsburg, etc. R. R. Co. 521 756 SECTION Buchner v. Chicago, etc. R. R. Co. -175 a Buck V. Seymour 818 Buckingham «. McLean 298 Buckley v. Great Western Ry. Co. 360 Bucksport, etc. R. R. Co. v. Buck ' 517, 530 Budd V. Munroe 797 V. Street Ry. Co. 599 V. Walla Walla Printing Co. 261, 633 Budd's Case 749 Buell V. Buckingham 260 V. Warner 775 Buffalo and Jamestown R. R. Co. V. Clark 109 Buifalo and Jamestown R. R. Co. u. Gilford 108 Buffalo and N. Y. C. R. R. Co. V. Brainard 163 Buffalo, etc. R. R. Co. v. Cary 537 V. Dudley 533, 546 V. Hatch 530 V. Lamp- son 631 V. Pottle 530 Buffett V. Troy and Boston R. R. Co. 275, 308 Bufford V. Keokuk, etc. Packet Co. 608, 609, 779 Bulkley v. Big Muddy Iron Co. 688 V. Derby Fishing Co. 253 BuUard v. Bank 602 Buncombe Turnpite Co. v. Mc- Carson 1 55 Bundy v. Iron Co. 813 Bunn's Appeal 712, 703, 734 Bunnell v. Slemmons 634 0. St. Paul, etc. R'y Co. 365 Burbank v. Jefferson City Gas Light Co. 305 V. West Walker River Ditch Co. 561 Burbridge v. Morris 77 Burges and Stock's Case 811 Burgess v. Pue 263 «. Seligman 468, 741 Burgess's Case ' 523 Burke v. Louisville and N. E. E. Co. 368 V. Smith 229, 746 Burlington and M. E. E. Co. u. Boestler 51 8 Burlington and M. E. R. Co. i». Eeimpackle 175 a TABLE OF CASES. BGCTION Burnham v. Bowen 822 V. Webster 239 Burnside v. Dayrell 104 Burr u. McDonald 125 V. Wilcox 511, 723, 740, 742 Burrall v. Bushwick, etc. R. R. Co. 437, 567 Burrill v. Nahant Bank 219, 225, 233, 234 Burroughs v. Housatonic R. R. Co. 368 V. North Carolina R. R. Co. 798 V. Norwich, etc. R. R. Co. 193, 363 Burrows v. Smith 90, 97 Burt V. Batavia Paper M'f'g Co. 210 V. Farrar 92, 96 V. Rattle 565 Burton v. Schildbach 148 Busey v. Hooper 511 Bush 0. Peru Bridge Co. 453 Bushel V. Commonwealth Ins. Co. 392, 399 Bushnell v. Chautauqua County Nat. Bank 161 Batchers and Drovers' Bank v. McDonald 146 Butchers' Union Slaughter House, etc. Co. v. Crescent City Co. 474 Butler V. Railroad Co. 360 V. Smalley 767, 774 V. Thomson 642 V. Walking 338, 342 Butternuts, etc. Turnpike Co. v. North 97 Button D. Hoffman 187 V. Hudson River R. R. Co. 376 Butts V. Wood 628, 646, 689 C. B. and Q. R. Co. v. Lewis 204 C. B. U. P. R. Co. V. Smith 319 Cabot, etc. Bridge Co. v. Cha- pin 96 Cadle V. Muscatine W. R. R. Co. ' 175 a Cady V. Sandford 773 V. Smith 714 Cahall V. Citizens' Mut. B'l'd Ass'n 146 Cahill I). Kalamazoo Ins. Co. 260, 432 SECTIOW Cahn V. Mich. Cent. R. R. Co. 360 Cain V. C. R. I. and P. R. Co. 175 a Cairo and St. L. R. R. Co. v. City of Sparta 325 Caldwell v. National Mohawk Valley Bank 239 V. New Jersey Steam- boat Co. 378 V. Southern Express Co. 350 Caledonia, etc. R'y Co. v. Hel- ensburgh 87, 88 Caley v. Philadelphia, etc. R. R. Co. 517, 531 California Pac. R. R. Co. v. Armstrong 179 Califorjiia Sugar M'f'g Co. v. Schafer ' 109 Callahan v. Louisville, etc. R. Co. 412 Callisber's Case 731 Calvin's Case 756 Camanche, The 137 Camden and Amboy R. R. Co. V. Baldauf 353, 359 Camden and Amboy R. R. Co. V. Elkins 576 Camden and Amboy R. R. Co. V. Forsyth 364 Camden and Amboy R-. R. Co. V. May's Landing R. R. Co. 305 Camden Horse R R. Co. v. Citi- zens' Coach Co. 165 Camden Rolling Mill Co. v. Swede Iron Co. 396 Came v. Brigham ' 582 Cameron v. Seaman 769 V. Tome 816 a Cammeyer v. United German Churches 258 Camp V. Byne 382 V. Hartford, etc. Steam- boat Co. 351, 353 V. Western Un. Tel. Co. 357 Campbell v. Brunk 138 V. Campbell 472 I). City of Kenosha 325 V. Marietta, etc. R. R. Co. 416 V. Morgan 567 V. Portland Sugar Co. 752 Campbell's Case • 632 Canada Southern R. Co. v. Geb- hard 390, 816 a Canal Bridge u. Gordon 187 Canal Co. v. Sansom 587 V. Vallette 450 757 TABLE OF CASES. SECTION Candee vi West. Un. Tel. Co. 357 Canfieldu. Baltimore and O. Co. 353 Cannon v. New Orleans 480 V. Trask 560, 688 Cape Breton Co., In re 83 Cape's Ex'rs' Case 719,720 Capehart v. Seaboard, etc. R. R. Co. 356 Capital State Bank v. Lane 346 Carbon Iron Co. v. Carbon County 477 a Cardu. Garr 262 Carden v. General Cemetery Co. 86 Cardot V. Barney 417 Cardwell v. Bridge Co. 474 a Carlen v. Drury 554 Carley v. Hodges . 771 Carliu. Stillwater Street Ry. Co. 175 Carlisle v. C^hawba, etc. R. R. Co. 518 V. Saginaw Valley R. R. Co. 516 V. South Eastern R'y Co. 565 V. Terre Haute, etc. R. R. Co. 531 Carlton v. Southern Mut. Ins. Co. 570 Carnahan v. Western Un. Tel. Co. 393 Carolina Nat. Bank, Ex parte 824 Carpenter v. Black Hawk Min- ing Co. 125, 131, 678 Carpenter v. Danforth 698 V. N. Y. and N. H. R. R. Co. 565 Carr v. Chartier's Coal Co. 646 V. Le Fevre 679 Carridge Co-operative Supply Ass'n, In re • 615 Carriger v. East Tenn., etc. R. R. Co. 173 Carroll v. East St. Louis 388 V. Green 717, 736 w. MuUanphy Savings B'k 582, 601 Carroll County v. Smith 316, 327, 328, 332 Carrothers u. Newton Spring Co. 146 Carrugi v. Atlantic Fire Ins. Co. 255, 754 Carson v. Central R. R. Co. 175 Cartan v. Father Matthew Soc. 583 Carter u. Howe Machine Co. 342 V. Ford Plate Glass Co. 142, 688 Carton & Co. v. Illinois Central R. R. Co. 474 c 758 SECTION Case V. Bank " 240, 699 Casey v. Galli 727, 738 Cass V. Manchester Iron and Steel Co. 229 Cassaday v. American Ins. Co. 400 Casserly v. Manners 759 Castellan v. Hobson 791 Castle V. Belfast Foundry Co. 238 Castleberry u. State 187 Catlin u. Eagle Bank 225, 663, 668 Cauley u. Pittsburgh, etc. R. R. Co. 165, 371 Caulkins v. Gas Light Co, 592, 7-95 Cayuga Lake R. R. Co. v. Kyle 537 Cazeaux v. Mali 696, ,755 Cecil, Matter of 579 Cedar Rapids, etc. R'y Co. v. Spofford 162 Central Agricultural Ass'n v. Alabama Gold Life Ins. Co. 157, 738, 749 Central Branch U. P. R. R. Co. u. Andrews 175 a Central Branch U. P. R. R. Co. V. Atchison, T. and S. F. R. R. Co. ' 164, 470 Central Branch U. P. R. R. Co. V. Twine 175 a Central Branch U. P. R. R. Co. u. Western Union Tel. Co. 314 Central Bridge Co. v. Lowell 137, 470 Central City Savings Bank j;. Walker 751 Central, etc. Road Co. v. Peo- ple 460 Central Gold Mining Co. v. Piatt 125 Central Nat. Bank v., Levin 210 u. Williston 796 Central Pac. R. R. Co. v. State Board 480 Central R. R. Co. v, Collins 309, 556 V. Smith 308, 336 V. Ward 597, 599 Central R. R., etc. Co. v. Georgia 421, 491 V. Letcher 368 Central Union Telephone Co. «. Bradbury 357, 475 ChaflE'ee v. Boston and L. R. R. Co. ■ 874 V. Ludeling 418 V. Rutland R. R. Co. 565, 814 Chaffin u. Cummins 511 Challis u. Atchison, etc. R. R. Co. ■ 165 TABLE OP CASES. Chamberlain v. Pacific Wool- growinor Co. 628 V. Painesville, etc. R. R. Co. 190, 517 V. St. Paul, etc. R. R. Co. 507 Chamberlin v. Mammoth Mining Co. 238 Chambers v. Falkner 276 u. Lewis 768 V. Manchester, etc. R'y Co. 305 V. St. Louis 303 Chambers County v. Clews 328 Chandler v. Bacon 82 V. Brown 542, 780 V. Keith 707 Chapin v. Sullivan R. R. Co. 162 a Chapman v. Colby 121, 389 V. Oshkosh, etc. R. R. Co. 174, 179 V. Mad River, etc. R. R. Co. 532, 557 V. McCrea 346 Chapman's Case 614 Charitable Corporation v, Sutton 619, 620, 624, 803 Charles River Bridge Co. v. War- ren Bridge Co. 122, 147, 453, 464 Charleston Boot, etc. Co. v. Dansmore 617, 645 Charleston, etc. Turnpike Co. v. Willey 284, 390 Charleston Ins. Co. v. Sebring 690 Charlton v. New Castle and Car- lisle R'y Co. 309, 556 Charter Oak Ins. Co. i'. Sawyer 401 Chartiers R'y Co. H. Hodgens 531 Chase v. Curtis 764, 770, 773 V. Lord 717 V. Railroad Co. 613, 646 V. Sutton M'f g Co. 175 V. Sycamore, etc. R. R. Co. 518 V. Vanderbilt 666 Chatauqua County Bank v. Ris- ley ' 204 Chater v. San Francisco Sug^r Ref g Co. 108, 790 Chattahooche National Bank v. Schley 837, 346 Chatteroi R'y Co. v. Kinner 495 Chealb v. Kenward 789, 790 Cheeney v. Lafayette, etc. R'y Co. 647 Cheltenham, etc. R'y Co. v. Daniel 520, 589 SECTrON Chemical Nat. Bank v. Bailey 750 V. Kohner 202 Chenango County Mut. Ins. Co., Ex parte 577 Cheraw, etc. R. R. Co. v. Com- missioners 421 Cherokee Iron Co. v. Jones 556 Cherry v. Colonial Bank 754 V. Frost 794, 795 Chesapeake and Ohio Canal Co. V. Dulany 512 Chesapeake and Ohio Canal Co. V. Knapp 248 Chesapeake and O. R. R. Co. v. Miller 490 Chesapeake and O. R. R.Co. 0. Paine 796 Chesapeake, etc. R. R. • Co. v. Virginia 491 Cheshire County Telephone Co. V. State 477 a Chesley v. Pierce 511, 718 Chester Glass Co. v. Dewey 276, 411, 646 Chetlain v. Republic Life Ins. Co. 515, 529 Chew V. Ellingwood 249 Chicago and Alton R. R. Co. v. Becker 375 Chicago and Alton R. R. Co. v. Chicago, etc. Coal Co. 416 Chicago and A. R'y Co. v. Derkes 276 Chicago and A. R'y Co. v. Erickson 350 Chicago and Alton R. R. Co. v. People 475, 476a Chicago and Alton R. R. Co. v. Shea 366 Chicagb and Alton R. R. Co. v. Sullivan 365 Chicago and C. A. L. R. R. Co. II. McCool 360 Chicago and Eastern R. R. Co. V. Flexman 347 Chicago and M. R. R. Co. 0. Ross 365 Chicago and N. W. R'y Co. v. Auditor-General 406 Chicago and N. W. R'y Co. v. Bentley 360 Chicago and N. W. R'y Co. v. Crane 170 Chicago and N. W. R'y Co. v. Morand 365 . Chicago and N. W. R'y Co. v. Northern Line Packet Co. 642 759 TABLE OF CASES. SECTION Chicago and N. W. K'y Co. v. Ward 365 Chicago and N. W. R'y Co. v. - Williams 348 Chicago and R. I. R. R. Co. v. Whipple 170 Chicago and Vincennes.R. R. Co. V. Fosdick 682 Chicago and W. I. R. R. Co. v. Ay res 175 a Chicago and Western Ind. R. R. Co. V. Dunbar 163 Chicago, B. and Q. R. R. Co. v. Bryan ■ 348 Chicago, B. and Q. R. R. Co. v. Chamberlain 163 Chicago, B. and Q. R. R. Co v. George 350 Chicago, B. and Q. R. R. Co. v. Gregory 365 Chicago, B. and Q. R. R. Co. v. Griffin 348 Chicago, B. and Q. R. R. Co. v. Haggerty 474 Chicago, B. and Q. R. R. Co. v. Lewis 303 Chicago, B. and Q. R R. Co. v. Siders 477 Chicago, B. and Q. R. R. Co. v. Stumps 368 Chicago, B. and Q. R. R. Co. v. Wilson 163, 164 Chicago Build'g Soc. v. Crowell 212 Chicago City Ry. Co. v. People 460 Chicago, Danville, etc. R. R. Co. V. Loewenthal 669, 819 Chicago, Danville, etc. R. R. Co. V. Smith 319 Chicago, etc. R. R. Co. v. Ackley 476a V. Iowa 474 e, 476 a V. James 215, 236 V. Moffit 425 V. People 454 V. United States 450, 467 Chicago Life Ins. Co. v. Audi- , tor 495 Chicago Life Ins. Co. v. Needles 457, 474 Chicago, Pekin, etc. R. R. Co. V. Marseilles 136 Chicago, R. I. and P. R. R. Co. V. Town of Lake 163, 163 a Chicago R. R. Co. v. Jarrett 377 760 SECTION Chicago R. R. Co. v. Jones 374 V. Scurr 377 Chicago, St. L. and N. O. R. R. Co. V. Abels 356 Chicago V. Hall 825 Chickaming v. Carpenter 324 Chicora Co. v. Crews 149 Child V. Boston, etc. Iron Works 773 V. Coffin 720 V. Hudson's Bay Co. 601 Childs V. Bank of Missouri 342 0. New Haven and N. Co. 179 Chincleclamouehe Lumber Co. v. Commonwealth 454, 457, 498 Chinnock's Case . 586, 749 Chippendale, Ex parte 645, 698 Chisholra Bros. v. J''orney 701 Chouquette v. Barada 204 Chouteau v. Allen 256, 679 V. Dean 645 Chouteau Ins. Co. v. Floyd 517, 521, 549 V. Holmes 184, 261, 540 Chouteau Spring v. Harris 601 Christ Church v. County of Phi- ladelphia 489 Christensen v. Eno 702 Christenson v. American Exp. Co. 353 Christian's Appeal 760 Christian Union v. Yount 384, 388 Chy Lung v. Freeman 474 b Chubb V. Upton 147, 537 Cincinnati and S. G. Ave. Ry. Co. V. Cumminsville 175, 176 Cincinnati and S. Ry. Co. v. Long- worth . 178, 179 Cincinnati, etc. Air Line R. R. Co. V. McCool 360 Cincinnati, etc. R. R. Co. v. Clarkson 647 Cincinnati, etc. R. R. Co. v. Cole 449 Cincinnati, etc. R. R. Co. v. Pontius 353, 354, 359, 363 Cincinnati H. and D. R. R. Co. V. Spratt 364 Cincinnati H. and D. R. R. Co. V. Sullivan 475 Cincinnati, Lafayette, etc. R. R. Co. V. Danville, etc. R'y Co. 151 Cincinnati Mut. Ass. Co. v. Ro- senthal 401 Citizens' Building Ass. v. Coriell 616, 617, 620 TABLE OF CASES. Citizens' Ins. Co. v. Sortwell 184, 573, 575 Citizens' Loan Assoc, v. Lyon 616 Citizens' Nat. Bank v. Elliott 646, 647 Citizens' St'gs B'kj). Blakesley 342 City V. Lamson 680 City Bank D. Bruce 135, 136 V. Bartlett 523 V. Cutter 195 V. Perkins 239 City Fire Ins. Co. v. Carrugi 195, 286, 392, 396 City Ins. Co. V. Commercial Bank . 432, 435 City National Bank v. Paducah 484 V. Phelps 416 City of Bridgeport v. N. Y. and N. H. R. R. Co. 490 City of Buffalo, In re 163 a ' City of Carthage v. First Nat. Bank 483 City of Chicago v. Cameron 142 City of Covington v. Covington, etc. Bridge Co. 571 City of Georgetown v. Alexan- dria Canal Co. 167, 171 Citv of Jacksonville v. Jackson- ville R'y Co. 171 City of Kansas v. Hannibal and St. Jo. R. R. Co. 753 City of Lexington v. Butler 326, 328, 329 City of London ;;. Wood 456, 503 City of Lynchburg v. Slaughter 319 City of Madison u. Smith 319 City of Menasha v. Milwaukee, etc. R. R. Co. 415 City of Mt. Vernon v. Hovey 326 City of Natchez v. Mallery 303 City of New York v. Miln 474 h City of Ottawa v. Carey 3-1 9, 32Q, 322 City of Quincy v. Chicago B. and Q R. R. Co. 676 City of Savannah v. Kelly 322 City of St. Louis v. Shields 146 Claflin V. Farmers', etc. Bank 636 Claibourne County v. Brooks 318, 319 Clapp V. Peterson 135, 136, 748 Claremont Bridge Co. v. Royee 384 Clark V. Barnard 407, 462 V. Bever 702 t). City of Rochester 319 V. Edgar 752 V. Farrington 121, 123 V. Faxton 351 V. German Security Bank 796 V. Iowa City 326, 680 SECTION Clark V. Monongahela Nav. Co. 530 );. Myers 733, 734 V. Port of Mobile 480 V. St. Louis, etc. R'y Co. 353 V. Titcomb 125, 236 V. Trust Co. 642 V. Turner 541 Clarke Nat. Bank v. Bank of Al- bion 244 Clarke v. Brooklyn Bank 515 V. Uicksou 755 V. Lincoln Lumber Co. 541 V. Needles 360 V. Thomas 541 Clarkson v. Clarkson 799 Clearwater u: Meredith 419, 421, 510 Cleghorn v. New York Central R. R. Co. ' 378 Clegg V. Crawford 374 V. Hamilton, etc. Grange Co. 739 Clements v. Todd 104 Cleveland C. and C. R. R. Co. v. Keary 365 Cleveland C. C. and I. R. R. Co. V. Coburn 162 Cleveland, etc. R. R. Co. v. Robbins 594 Cleveland, etc. R. R. Co. v. Rowan 376 Cleveland, etc. R. R. Co. v. Speer 408 Cleveland, Painesville, etc. R. R. Co. V. Curran 353 Cleveland v. Burnham 720 Clews V. Bank of New York 245 Clinch v. Financial Co. 608 Clinkscales v. Pendleton M'f g Co. 813 Clinton Bridge, The 171 Close 0. Glenwood Cemetry Co. 146, 498, 499 Clyde V. Hubbard 363 Coates c. Missouri K. and T. Ry. Co. 368 Coates u. Nottingham, etc. R. R. Co. 565 Coates V. United States Exp. Co. 364 Coats V. Donnell 240, 668 Cobb V. 111. Cent. R. R. Co. 361 Cooheco Nat. Bank v. Haskell 241 Cochran v. Arnold 157 Cochran v. Ocean Dry Dock Co. 750 Cockburn v. Union Bank 585 Coe V. Columbus, etc. R. R. Co. 125, 131, 676, 820 761 TABLE OF CASES. SECTION Coe V. Errol 485 V. Knox County Bank 820 V. Peacock 820 Coffey V. National Bank 416, 667 Coffin !>. Ransdell 545, 702 V. Rich 501 Coggin c. Central R. R. Co. 425 Coggs V. Bernard 619 Cogswell V. Bull 555, 688 V. New York, etc. R. R. Co. 167 V. Rockingham Ten Cents S'v'g B'k. 672 Cogwin V. Town of Hancock 330 Cohen v. Southern Exp. Co. 363 Coit V. Gold Amalgamating Co. 701, 702 Cole V. Butler 723, 825 V. Dyer 577 V. Goodwin 351, 359 V. Knickerbocker Life Ins. Co. 664 V. Lagrange 319 V. Ryan 747 Coleman v. Cassidy 696 V. Columbia Oil Co. 135 V. Oil Co. 236 V. San Rafael Turnpike Co. 128, 303 V. Second Ave. R. R. Co. 628 V. White 725 Coles V. Whiteman 790 Colfax Hotel Co. v. Lyon 263, 511 Collingswood V. Berkley 77 Collins V. Collins 567 V. Hammock 137 V. Sherman 453 Colman v. Eastern Counties R'y Co. 556 Colorado Merchants' Dispatch Trans. Co. v. Comforth 353 Colquhoun v. Courtney 790 Colt V. Ives 796 V. Woolaston 104 Colton V. Mississippi, etc. Boom Co. 451 Columbia County v. King 318, 333 Columbia Nat. Bank's Appeal 133, 541 Columbus, etc. R'y Co. v. Pow- ell 666 Columbus, etc. R'y Co. u. Skid- more . 425, 666 ^Columbus P. and I. R. R. Co. V. Indianapolis and B. R. R. Co. 308 Colvin V. Williams 789 762 SECTIOH Commercial Bank of Natchez v. State 459 Commercial Bank v. Hughes 672 V. Loekwood 437 V. Nolan 298 «. St. Croix M'f'g Co. 205 V. State of Mis- sissippi 459 V. Ten Eyck 618 Commercial, etc. B'k v. Slocomb 410 Commercial, etc. Nat. Bank v. First Nat. Bank 672 Commercial Mut. Assurance Co. b. Scammon 388 Commissioners, etc. v. BoUes 329 V. Holyoke Water Pow- er Co. 502 V. Thayer 814 Commissioners of Craven v. At- lantic, etc. R. R. Co. 125 Commissioners of Johnson Coun- ty «. January 325, 331 Commissioners of Marion County u. Clark 326 Commissioners of Tippecanoe County V. Reynolds 698 Commonwealth v. Arrison 459 V. Boston and A. R. R. Co. 136 V. Boston and N. R. R. Co. 171 V. Bringhurst 579 V. Chesapeake, etc. R. R. Co. 479 V. Cochituate Bank • 500, 501 V. Commercial Bank 459 • V. CuUen 227, 432 449, 453, 530, 573 V. Eastern R. R. Co. 475 V. Erie and N. E. R. R. Co. 120 V. Erie Trans. Co. 489 V. EssexCo. 163 a, 502 V. Evans 476 V. Fayette Coun- ty R. R. 489 V. Fitchburg R. R. Co. 454 V. Gloucester Fen-y Co. 479, 480, 485 TABLE OF CASES. SECTION Commonwealth v. Hamilton M'f'gCo.474,477a V. Lancaster S'v'gs B'k 488 V. Lowell Gas Liprht Co. 477 a V. Milton 383 V. New Bedford Bridge 450, 503 V. Owensboro, etc. R. R. Co. 462 V. Pittsburgh 530 V. Pittsburgh and Connellsville R. R. Co. 459, 503, 801 V. Phosnix Iron Co. 585 V. Pottsville "Water Co. 489 V. Power 371 V. Reading Sav- ings Bank 210, 233, 263, 342 V. Smith 125, 305, 813 v] Standard Oil Co. 400, 477, 479 V. Texas, etc. R. R. Co. 403, 480 V. Union Fire, etc. Ins. Co. 459 I'. Vermont, etc. R. R. Co. 350, 353 V. Woelper 576 V. Woodward 578 Comp w. Carlisle Deposit Bank 161 Comstock, In re 401 Conant v. Van Schaiok 734 Conard v. Atlantic Ins. Co. 137 Concord v. Robinson 320 Concordia Savings Ass'n v. Reed 137 Concord R. R. Co^ v. Clough 618 ' V. Greely 163, 464 Consregatiohal Soc'y v. Sperry 575 Conkey v. Hart 493 Conklin v. Second Nat. Bank 594, 602 Connecticut and P. Rivers R. R. Co. V. Bailey 97, 521, 529, 779 Connecticut and P. Rivers R. R. Co. V. Cooper 382 Connecticut Mut. Ins. Co. v. Cushman 450, 498 Connecticut Mut. L. Ins. Co. V. Cleveland, etc. R. R. Co. 251, 681 SECTION Connecticut River S'v'gs B'k v. Fiske 286 Connecticut Ry. Co. u. Union Ry. Co. 454 Conover v. Mut. Ins. Co. 262 Conrad v. Trustees of Ithaca 169 Conro V. Gray 432, 658 V. Port Henry Iron Co. 181 Consolidated Channel Co. v. Central Pac. R. R. Co. 163 Consolidated Gregory Co. v. Ra- ber 202 Const V. Harris 112, 556 Continental Improvement Co. v. Phelps 369 Continental Improvement Co. v. Stead 368, 374 Contoocock Valley R. R. Co. v. Barker 518 Contra Costa Coal Mines R. R. Co. V. Moss 163, 163 a Converse v. Norwich, etc. Trans. Co. 363 Conway v. Taylor's Executor 474 6 Cook V. Berlin Woolen Mill Co. 630 V. City of Burlington 483 V. Detroit, etc. R'y Co. 415, 663 V. Kuhn 248 V. Pearce 767 V. Pennsylvania 485 Cooke V. State Nat. Bank 244 Cooley V. Board of Wardens 474 b Coon V. Syracuse, etc. R. R. Co. 366 Cooper V. Corbin 424 V. Curtis • 189 V. Frederick 135, 745 V. MuUins 365 ■V. Oriental S'v'gs Ass'n 435, 436 Cooper M'f 'g Co. v. Ferguson 400 Coosa River Steamboat Co. v. Barclay 325 Copes V. Charleston 325 Copley V. Grover & Baker Sew- ing Machine Co. 342 Copp V. Lamb 382 Coppin V. Greenless & Co. 134 Corbett V. Woodward 574, 769 Cordell v. N. Y. C. and H. R. R. R. Co. 374 Cork, etc. R'y Co., In re 311 Cork, etc. R'y Co. v. Cazenove 515 Corn Exchange Bank u. Nassau Bank 246 Cornell v. Roach 7 72 Cornell and Michler's Appeal 701, 706 Corniok v. Richards 796 763 TABLE OF CASES. SECTION Corning v. McCuUough , 501, 717, 762 Cornwall v. Eastham 774, 775 Costello'3 Case 586, 747, 749 County Court v. Griswold 163 County Life Ass. Co., In re 189, 195 County of Allegheny v. Cleve- land, etc. R. R. Co. 406, 412 County of Bates v. Winters 322 County of Blue Earth v. St. Paul, etc. R. R. Co. 171 County of Cass v. Gillett 324, 327 V. Johnston 328 V. Morrison 467 County of Clay v. Society for Savings 330 County of Davies v. Huidekoper 322 County of Green v. Daniell 333 County of Henry w. Nicolay 324 County of Jasper v. Ballou 325 County of Macon v. Shores 327 County of Mobile v. Kimball 469 a, 474 6 County of Morgan v. Allen 655 County of Moultrie v. Savings Bank 322 County of Ouachita v. "Wolcott 326 County of Ralls v. Douglass 330 County of Randolph «. Post 322 County of Schuyler v. Thomas 324 County of Scotland u. Thomas 324 County of Tipton v. Locomotive Works. 324 'County of Warren v. Marcy 327, 329 County Palatine Loan, etc. Co., In re, Cartwell's Case 234 Court Grange M'g Co., In re 645 Courtwright v. Deeds 511, 520 Covert V. Rogers 260 Covey V. Pittsburgh, etc. R. R. Co. - 817 Covington Bridge Co. v. Mayer , 406, 409 V. Sargent 572 Covington Drawbridge Co. v. Shepherd 413, 663 Covington v. Covington, etc. Bridge Co. 571 Cowdrey v. Galveston, etc. R. R. Co, 822 Cowell V. Springs Co. 286, 884, 888, 460 Cowles tj. Cromwell 586, 587 Cox V. Louisville, etc. R. R. Co. 175 a Cox's Case 742 Cozart V. Georgia R. R., etc. Co. 556 764 SECTION Cragie u. Hadley, 210,842,672 Craig V. Cumberland Valley State Normal School 519 Craig V. First Presbyt'n Church 579 a. Gregg 690 V. Town of Andes 332 Craig's Appeal 759 Craker v. Chicago and N. W. R'y Co. 33.5, 347, 377 Cram v. Bangor House Proprie- tary 2§0, 263 Crandall v. Lincoln 135, 552 V. State of Nevada 485 Craven v. Atlantic and N. C. R. R. Co. 298 Crawford v. Branch Bank of Mobile 494 V. Cincinnati, etc. R. R. Co. 348 V. Longstreet 128, 248 V. Rohrer 702, 703, 705 V. Southern R. R. Ass. 363 V. West Side Bank 672 Crawfordsville, etc. T. P. Co. v. State 459 Crease v. Babcock 726, 727, 741 Credit Co. v. Howe Machine Co. 205 Creed v. Pennsylvania R. R. Co. 350 Crenver, etc. M'g Co., In re 622 Crescent Cit^ Slaughter House Co. V. New Orleans 474 presswell v. Oberly 739 Creswell «. Lanagan 193 Crisw ell's Appeal 661 Crocker v. Crane 91, 234 V. Old Colony R. R. Co. 59-2 V. Whitney 302 Crolley v. Minneapolis and St. L. Ry. Co. 166 Cromwell v. County of Sao 826, 680 Cropper, Ex parte 312, 645 *'*» Cross V. B. and S. W. R. Co. 567 V. Pinckneyville Mill Co. 108 V. St. Louis, etc. R. R. Co. 175a Crow V. Oxford 332 Crown V. Brainerd 763 Cram's Appeal i 211, 237 Crumlish v. Railroad Co. 140 Crump V. U. S. iMining Co. 236 Cruse V. Paine 791 Culbreth v. Phila. W. and B. R. R. Co. 860 Cullen 0. Thomson 755 Culver V. Reno Real Estate Co. 209 V. Third Nat. Bank 713, 722, 725 Cumberland Coal Co. v. Parish 62 7 TABLE OF CASES. Cumberland Valley R. R. Co.'s Appeal 309, 556 Cummings v. National Bank 484 V. Webster 196 Cunningham v. Alabama X Ins. Co. 601 Cunningham v. Edgefield, etc. R. R. Co. 521, 523, 529 Cunningham v. Macon and B. R. R. Co. 462 Cunningham v. Pacific R. R. Co. 166 Cunningham v. Pell 690 Cunningham's Appeal 569 Curran v. State of Arkansas 437, 501, 507, 656, 664 Currier v. Lebanon Slate Co. 135, 747 Curry v. Supervisors of Decatur County 238 Curry v. Woodward 709 Curtis V. Delaware, etc. R. R. Co. 364 Curtis «. Harlow 719, 720 Curtis V. Leavitt 123, 125, 295, 299, 572, 631, 663 Curtis V. Rochester, etc. R. R. Co. 349 V. St. Paul, etc. Rv. Co. 1 7-8 V. Whitney ' 450 Cushman v. Thayer M'f'g Co. 594, 599, 790 Custar V. Titusville Gas Co. 105 Cutting V. Damerel 542, 588, 748 V. Grand Trunk Ry. Co. 361 V. Marlor 342 Cuvkendall v. Miles 714 D. D. R. Martin, The 350 Dabney v. Bank of South Caro- hna 704 Dabney v. Stevens 195, 196 Deland v. Williams 800 Daley v. Norwich, etc. R. R. Co. 372 Dallas V. Atlantic and O. R. R. Co. 395 Dallas County v. McKenzie 321, 330 Dalton, etc. R. R. Co. v. Mc- Daniel 661 Dana v. Bank of St. Paul 253, 254 V. Bank of U. S. 181, 219, 224, 225, 253 Danbury and Norwalk R. R. Co. V. Wilson 91, 738 Dane v. Young 748 Danforth v. Philadelphia, etc. R. R. Co. 790 Daniell, Ex parte 545 Daniell's Case 586, 747 Daniels v. Clegg 375, 376 V. Hart 125, 305 V. St. Louis, etc. R. R. Co. 416 Dannmeyer v. Coleman 140, 688 Danolds v. State of New York 448 Danville, etc. Plankroad Co. v. State 460 Danville, etc. R. R. Co. v. Com- monwealth 171 Danville, etc. R. R. Co. v. Gear- hart 178 D'Arcy V. Tamar, etc. R'y Co. 258 Darling v. Boston and Worces- ter R. R Co. 363, 364 Darling v. Mayor, etc. of Balti- more 334 Darlington v. United States 470 Darrington v. Bank of Alabama 507 Darst V. Gale 212, 280, 282 Dartmouth College v. Woodward 21, 450, 453, 472 Dauchy v. Brown 717, 749 Davenport v. County of Dodge 333 V. Dows 505, 690 Davey v. Jones 161 Davidson v. Bridgeport 263 V. County Commis- sioners • ?319 V. Lanier 293 V. New Orleans 492 V. Rankin 718, 736 V. TuUoch 696 V. West Chester Gas Light Co. 1 25 Daviess County v. Dickinson 321 Davis V. Bank of River Raisin 298 u. C. and N. W. R. Co. 175 a V. Dumont 523 V. Ehgland 753 u. Flagstaff" Silver M'g Co. 195, 225 V. Gray 450, 460, 462, 542 V. Old Colony R. R. Co. 195, 264, 267, 286 V. Proprietors 572 V. Railroad Co. 140 V. Rock Creek L. F. and M. Co. 628 V. Smith 672 V. State 464 V. Stewart 747 V. Tuscumbria R. R. Co. 163 765 TABLE OF CASES. SECTION Davis's Case 123 Davis Improved Wrought Iron Wagon Wheel Co. v. Davis, etc. Co. 210 Davoue v. Fanning 630 Dawes y. North River Ins. Co. 236, 262 Dawson v. Morrison 77 Day V. Essex County Bank 137 V. Postal Tel. Co. 384 V. Savage 456 V. Spiral Spring Buggy Co. 276 Dayton v. Borst " i513, 707 Dayton, etc. K. K. Co. v. Hatch 181, 227 Dayton Nat. Bank v. Merchants' Nat. Bank 599 Deaderick v. Wilson 154, 227, 449, 685, 688, 695, 698 Dean & Son's Appeal 813 Dean u. Mace 724 De Bemer v. Drew 394 De Bost V. Albert Palmer Co. 196 De Camp v. Alward 432 De Comeau v. Guild Farm Oil Co. 599 Dedham Bank v.. Chickering 235 De Grair v. Thompson 820 De Grof v. American Linen Thread Co. 204 Deitrichs v. Lincoln, etc. E. Co. 164 De Kay a. Hackensaek Water Co. 641 De |La Grange v. Southwestern Tel. Co. 357 De Lancey v. Insurance Co. 122 Delano v. Butler 541 Delaplane v. Chicago, etc. R. R. Co. 174 Delaware, etc. Canal Co. v. Pennsylvania Coal Co. 189 Delaware, etc. Nav. Co. v. San- som 546 Delaware, etc. R. R. Co. v. Irick 109 Delaware, etc. R. E. Co. v. Oxford Iron Co. 602 Delaware, etc. R. E. Co. v. Thorp 464 Delaware, etc. Tow Boat Co. v. Starrs 353 Delaware Railroad Tax 470 a, 485, 489, 491, 505 Del Valle v. Steamboat Rich- mond 355 Doming v. Bull 725 V. Grand Trunk E. E. Co. 361 766 Deming v. Puleston 769 Den V. Fillings 574 Denham & Co., In re 625 Denike v. New York, etc. Lime Co. 610 Denniston v. Chicago, etc. R. E. Co. 824 Denny v. Manhattan Co. 696 Densmore Oil Co. v. Densmore 83 Dent's Case 545, 614 Denver and E. G. R'y v. Har- ris 335 Denver and Swansea R'y Co. v. Denver City R'y Co. 153, 166 Denver Fire Ins. Co. b. McClel- land 283 Denver, 8. P. and P. E. E. Co. V. Conway ^ 366 De Pass's Case 101, 586, 749 De Peyster v. Am. Fire Ins. Co. 566 Derosia v. Winona, etc. E. E. Co. 360 Derrick v. Lamar Ins. Co. 342 Derrickson v. Smith 764 Derringer v. Derringer 389 Derringer's Ad. v. Derringer's Ad. 384 Derry v. Lowry 348 De Euvigne's Case 614 Descombes v. Wood 230, 668 Desdoity, Ex parte 578 Despatch Line v. Bellamy M'f g Co. 89, 188, 248, 258, 260 Desper v. Continental Water Meter Co. 392 Detroit v. Dean 140, 141, 142 V. Detroit, etc. Plank Eoad Co. '" 502 V. Mutual Gas Co. 418 Detroit Fire, etc. Ins. Co. v. Judge of Saginaw Co. 121 Detroit Savings Bank v. Bur- rows 672 Detroit Schuetzen Bund v. De- troit Agitations Verein 149 Devereaux v. Buckley 361 Dewey v. St. Albans Trust Co. 513, 701 Dewing v. Perdicaries 789 De Witt V. Hastings 145, 770 Dexter, etc. Plank Eoad Co. v. Millard 513 Dey V. Jersey City 258 Diamond Match Co. v. Powers 389 Dickinson v. Central Nat. Bank 595 Dietrich v. Baltimore, etc. E'y Co. 210 TABLE OF CASES. Diligent Fire Ins. Co. v. Com- monwealth 120 Dill V. Wabash Valley R. R. Co. lOS, 542 Dillard v. L. and N. R. R. Co. 353, 359 Dillon V. Barnard 675 Dimpfell v. Ohio and Miss. R. Co. 140, 555, 556 Dinsmore v. Louisville, C. and L. R'y Co. 809 V. Racine, etc. R. R. Co. 676 Directors v. Kisch 524, 745 Ditchett V. Spuyten Duyvil, etc. R. R. Co. 170 Diven v. Duncan 587, 741 V. Phelps 810 Diversey v. Smith 714 Dixon's Case 550, 780 Dixon County v. Field 332 Dobbin v. Richmond, etc. R. R. Co. 365 Dobbins v. Walton 603 Dobson V. Simonton 435, 813 Dockery v. Miller 204 Dodge V. City of Council Bluffs 381, 884 V. Pyrolusite Manganese Co. ■ 394 V. Woolsey 139, 140, 141, 488, 556 Dolan V. Del. and Hud. Canal Co. 368 Donnell v. Lewis County S'v'gs Bank 161, 240 Donnelly v. Mulhall 825 Donohoe v. Mariposa Land, etc. Co. 224 Donovan v. Halsey Fire Engine Co. 197 Donworth v. Coolbaugh 504, 737 Dooley v. Cheshire Glass Co. 146 Doolittle V. Marsh 734 Dorr V. New Jersey Steam Nav. Co. 351, 859 Dorris v. French 83 Dorsey Harvester Rake Co. v. Marsh 114, 120 Doud V. Wisconsin, etc. R. Co. 687 Dougherty v. Hunter 237 Doughty V. Somerville, etc. "R. R. Co. 163 Douglas V. Ireland 723 Douglass V. Cline 822 V. County of Pike 318, 468 Dousman v. Wisconsin, etc. M'g Co. 569 8£CTio:r Dovey's Appeal 795 Dowd V. Chicopee 375 Downes v. Phoenix B'k 392 Downie v. White 521 Downing v. Mt. Washington Road Co. ' 267 u. Potts 578 Doyle V. Continental Ins. Co. 383, 400 V. Misner 150, 260 Draper v. Springport 328 V. Stone 790 Dreher v. I. S. W. R. Co. 178 DrisooU V. West Bradley, etc. M'f g Co. 599, 600, 601 Droitwioh Patent Salt Co. u. Cur- ron 133 Drummond's Case 545 Drummond Tobacco Co. v. Ran- dle 158 Drury v. Cross 760, 815 V. Midland R. R. Co. 174, 179 Dryden u. Kellogg 715, 734 Drymala v. Thompson 365 Dublin, etc. R'y Co. v. Black 515 Ducat V. Chicago 383, 480 Duckworth V. Roach 770 Dudley v. Kentucky High School 553, 683 Dugas V. Town of Donaldson- ville 326 Duke V. Andrews 99 V. Cahawba Nav. Co. 263, 460, 589 V. Dire 99 Dukes V. Love 734 Du Laurens v. First Div. St. P. and P. R. R. 248, 348 Duncan v. Mobile, etc. R. R. Co. 822 Duncomb v. New York H. and N. R. R. Co. ■■ 225, 301, 630, 633, 759 Duncuft V. Albrecht 789, 790 Dunham v. Isett 820 V. Railway Co. 818 Dunkerson, In re 583 Dunlap V. International Steam- boat Co. 355 V. Toledo, A. A. etc. R'y Co. 172 Dunn V. Commercial Bank 598 V. Grand Trunk R'y Co. 350 V. Kyle 694 Dunston v. Imperial Gas Light Co. 629 Dupee V. Boston Water Power Co. 135 767 TABLE OF CASES. SECTION Durant v. Palmer 376 Durfee v. Old Colony, etc. R. R. Co. 534, 553, 556, 562 Durham v. Monumental Silver M'g Co. 599 Dutch West India Co. v. Van Moses 158 Dutcher v. Importers, etc. Bank 668 V. Maine Nat. Bank 721 Dutchess Cotton M'f'g Co. v. Davis 276, 546 Dutchess, etc. R. R. Co. v. Mab- bett 516 Dyer v. Erie R'y Co. 368 B. Eagle, etc. M'f'g Co. v. Brov?n 647 Eakright v. Logansport, etc. R. R. Co. 529 Eames v. Doris 725, 726 Earp's Appeal 799 East Alabama R'y Co. v. Doe 671 East and West R. R. Co. v. East Tennessee, etc. R. R. Co.* 155, 163 East Anglian R'y Co. v. Eastern Counties R'y Co. 291, 305 East Boston R. R. Co. v. Eastern R. R. Co. 125 East Hartford v. Hartford Bridge Co. " 316 East Line, etc. R. R. Co. v. Gar- rett 258 East N. Y., etc. R. R. Co. v. Elmore 618 East Penn R. R. Co. v. Hotten- stein 1 78 East River Bank v. Hoyt 210 East River National Bank v. Gove 193 East St. Louis v. Zebley 333 East Tenn., etc. R. R. Co. v. Evans 665 East Tenn., etc. R. R. Co. v. Gammon 515 East Tenn., etc. R. R. Co. v. Rogers 363 Eastern Counties R'y Co. v. Hawkes 204, 232, 286 Eastern Plank Road Co. u. Vaughan 91, 92, 93, 108, 109, 451, 547 Eastern R. R. Co. v. Boston and Maine R. R. Co. 163 a, 227 Eaton V. Aspinwall 537, 738 V. Boston, etc. R. R. Co. 173 768 SECTtON Eaton V. Pacific Nat. B'k 569 V. St. Louis, etc. M'g Co. 412 Eaton, etc. R. R. Co. v. Hunt 409, 665 Elay V. Northern Pacific R. R. Co. 404 Ecker v. First Nat. Bank 241 Eckert v. Long Island K. R. Co. 375 Edelman v. St. Louis Transfer Co. 378 Edgerly v. Emerson 258, 260 Edgerton v. New York, etc. R. R. Co. 350 Edgewood R. R. Co.'s Appeal 476 Edgington v. Fitzmaurice 752 Edinboro Academy v. Robinson 92 Edwards v. Fairbanks 276, 303 V. Grand Junction R'y Co. 88 V. Kearsey 493 V. London and N. W. R'y Co. 339, 344 «. People 324, 536 Ehrgott V. Bridge Manufactory 209 Ehrman v. Union Central Life Ins. Co. 264, 282 Kidman v. Bowman 228, 569 Eisenlord v. Oriental Ins. Co. 745 Eisfeld V. Kenworth 148, 739 Elder )'. New Zealand Land Im- provement Co. 96, 518 Eldridge v. Smith 131, 132, 676, 814 Elevator Co. v. Memphis, etc. R. R. Co. 267, 562, 565 Eley V. Positive Assurance Co. 87 Elizabethtown, etc. R. R. Co. v. Combs 175 a Elizabethtown, etc. R. R. Co. v. Helm 179 Elkins V. Camden and Atlantic R. R. Co. 224, 308, 309, 577, 644, 684, 688 Elliott Nat. Bank v. Western, etc. R. R. Co. 193 Ellis i'. American Tel. Co. 357 V. Boston, etc. R. R. Co. 629 V. Colman 754 V. Little 542 V. Marshall 449 V. Pacific R. R. Co. 166 Ellison V. Schneider 589 Ellsworth V. St. Louis, etc. R. R. Co. 285, 390 Ellsworth V. Tartt 364 Elmendorf H. Taylor 468 Elmore c. Naugatuck R. R. Co. 363 Elston V. Piggott 884, 400 TABLE OF CASES. Ely V. Spra^ue 561 Embury v. Conner 400 Emerson v. Slater 715 Emerson, Talcott & Co. v. Mc- Cormick Harvesting Machine Co. 392 Emery v. Boston Marine Ins. Co. 197 Emmert v. Smith 731, 732 Empire Ass. Co., In re 608 Empire City Bank, Matter of, 589, 731, 732 Empire M'f g Co. v. Stuart 146 Empire Trans. Co. v. Wamsutta Oil Co. 353 Emporium Beal Estate Co. v. Erarie 647 Enfield V. Jordan 327 Enfield Toll Bridge Co. u. Hart- ford, etc. K. R. Co. 470 England v. Dearborn 187, 236 English V. New Haven and Northampton Co. 502 Eppes V. Miss., Gainesville, etc. R. R. Co. 147, 530, 738 Eppright V. Nickerson 225, 543 Equitable Life Ass. Soc. v. Vogel's Executrix 392 Era Assurance Soc, In re, Ex paWe Williams 227 Erickson v. Nesmith 393, 704, 783 Erie and N. E. R. R. Co. v. Casey 503 Erie and N. Y. City R. R. Co. V. Owen 91, 96 Erie and Western Trans. Co. v. Dater 350 Erie City Iron Works v. Barber 342 Erie, etc. Plank Road Co. v. Brown 519 Erie R'y Co. v. Del., Lack, and W. R. R. Co. ' 152 Erie R'v Co. v. Pennsylvania 479, 489, Erie R. Co. v. State 383, 485 Erie Ry. Co. v. Wilcox 863 Ernest v. Croysdill 314, 656 V. NichoUs • 195; 311 V. Peck 745 Erskine v. Louvenstein 741 Ervin v. Oregon, etc. R'y Co. 392, 558, 608, 610 Escanaba Co. v. Chicago 474 c, 475 Eslava v. Ames Plow Co. 384 Esmond v. BuUard 770 Espy V. Bank of Cincinnati 245, 246 Essex Turnpike Co. v. Collins 92, 615 49 SECTION Estabrook, Ex parte 205 Etna Ins. Co., In re, Ex parte Shields 523 Eureka Basin, etc. Co., In re 163 Eureka Co. i'. Bailey Co. 248 European, etc. R. R. Co. u. Poor 628, 629 Evans v. Bailey 263 V. Brandon 688, 690 V. Coventry 134, 622, 659 V. Lee 204 V. Memphis, etc. R. R. Co. 348 V. Osgood 575 V. Smallcombe 217, 780 V. Wood 791 Evansich v. G. C. and S. F. R'y Co. 371 Evansville Bank v. Britton 484 Evansville, etc. R. R. Co. a. Dick 173 Evansville, etc. R. R. Co. v. Duncan 350 Evansville R. R. Co. v. Evans- ville 572 Evansville, etc. R. R. Co. v. Hyatt 376 Evansville, etc. R. R. Co. v. Posey 521 Evansville, etc. R. R. Co. v. Shearer 517 Evansville, etc. R. R. Co. v. Young 353 Evarts v. Killingsworth M'f'g Co. 432 Everett v. Union Pac. R. Co. 178 Everhart v. Phila. etc. R. R. Co. 530, 572, 577 Ewell V. Daggs 450 Ewingu. Toledo S'v'gsBk. 298,380, 388 Excelsior Fire Ins. Co., Matter of 227 Excelsior Grain Binder Co. v. Stayner 516 Excelsior Petroleum Co. v. La- cey 620, 622 Exchange B'k v. Sibley 752 Exchange Nat. B'k v. Third Nat. B'k 161 Express Cases 350 Express Co. v. Caldwell 356 V. KountzCiBros. 352,413 V. Railroad Co. 284, 384 V. Reagan 353 Express Companies v. Railway Companies 309 769 TABLE OF CASES. Eyerman u. Kriekhans Eyre's Case SECTION 702 586, 747 Factors, etc. Ins. Co. v. New Harbor Protection Co. 145 Fagan v. Boyle Ice Machine Co. 137 Fairchild v. Masonic Hall Asso- ciation 430 Fairfax's Devisee v. Hunter's Lessee 303 Fairfield Savings Bank v. Chase 210 Fallon V. Railroad Co. 790 Fall Kiver Iron Works Co. v. Old Colony, etc. R. R. Co. 162, 162a Fall River Union Bank v. Stur- tevant 240 Family Endowment Soc, In re 665 Faneuil Hall Bank v. Bank of Brighton 298 Fanning v. Gregoire 453 V. Insurance Co. 511 V. Osborn 304 Fargo V. Michigan 485 Farlow v. Kelly 874 Farmers' Bank v. McKee 237 Farmers', etc. Bank u. Butchers' , etc. Bank 203, 208, 244 V. Champlain Trans. Co. 353 V. Colby 753 V. Detroit, etc. R. R. Co. 281 u. Downey 629, 693 V. Harrison 298 V. Jenks 738 j>. Little 435 V. Wasson 600, 601 Farmers^, ■etc. Nat. Bank v. iDearing 483 Farmers' L. and T. Co. v. Clowes 204 Farmers' L. and T. Co. v. Cur- tis 204 Farmers' L. and T. Co. v. Mc- Kinney 384 Farmers' L. and T. Co. v. Min- neapolis, etc. Works 814 Farmers' L. and T. Co. v. Mis- souri Ry. Co. 822 Farmers' L. and T. Co. v. Perry 204 770 SEGTZOir Farmers' Mutual Ins. Co. v. Chase 233, 234 Farmers' Nat. Bank v. Wilson 796 Farraington Savings Bank v. Fall 301 Farnham v. Camden and Amboy R. R. Co. 359 V. Delaware and Hud- son Canal Co. 155 Farnsworth v. Dewey 721 V. Minn, and Pac. R. R. Co. 458 Farnum v. Ballard Vale Machine Shop 737 V. Blackstone Canal Co. 406 V. Patch 739 Farrar v. Walker 523 Farrell v. Union Trust Co. 417 Farrell Foundry v. Dart 210 Farrington v. Tennessee 477 a, 488 Farwell v. Boston and W. R. R. Co. 366 Farwell v. Houghton Copper Works 260, 261 Fasnacht v. German Literary Ass'n 650 Faulds V. Yates 580, 788, 790 Faust V. Passenger R'y Co. 175 Fawcett v. Laurie 565 V. New Haven Organ ' Co. 200 V. Whitehouse 82 Fay V. Noble 100, 148, 196, 198, 201 V. Minneapolis, etc. R'y Co. 365 Featlierstonhaugh v. Lee Moor Porcelain Clay Co. 130 Fee V. New Orleans Gae Light Co. 421 Feital v. Middlesex R. R. Co. 170 Fenner v. Buffalo, etc. R. R. Co. 360 Fenton v. Wilson Sewing Ma- chine Co. 842 Fero V. Buffalo, etc. R. R. Co. 368 Ferris v. Thaw 148, 739 Fertilizing Co. v. Hyde Park 122, 476 Fibel V. Livingston 359 Fidelity Ins. Co.'s Appeal 816 a Field V. Chicago and R. I. R. R. Co. 359, 363 V. N. Y. C. R. R. Co. 368 Fifth Ward Savings Bank v. First Nat. Bk. 125, 202, 236 Fillebrown v. Grand Trunk R. Co. 850 TABLE OF CASES; SECTION Financial Corporation, Holines's Case, In re 133 Finley Shoe and Leather Co. v. Kurtz 228 Fire Department v. Noble 383 Fireman's Ins. Co., fe^arte 599 First Nat. Bank v. Almy 148, 739 V. Anderson 818 V. Barnum Iron Works 670 V. Christopher 258 V. County Com- missioners 680 V. Drake 628, 647 V. Prioke 211 V. GiflFord 587, 628 V. Graham 161 V. Green 709 V. Hendrie 162 V. Hoeh 161, 236 V. Hogan 201 V. Kimberlands 236 V. Loyhed 210 V. Mason 672 V. Nat. Exchange Bank 135, 137, 161, 223 V. Ocean Nat. Bank 161, 200, 241 V. Pierson 302 V. Price 764 V. Eeed 616, 618, 627 V. Rex 161 V. St. Josephs 483 V. Tisdale 236 V. Waters 484 V. Williams 342 First Nat. Ins. Co. v. Salisbury 682 First Parish v. Cole 137 First Presbyterian Church, In re 158 riser V. Mississippi, etc. R. R. Co. 516 Fisher v. Bush 580 V. Chicago and Springfield R. R. Co. 164 V. Essex Bank 796 V. New York Cent., etc. R. R. Co. 424 V. Seligman 741 Fishkill Savings Inst. v. Nat. Bank 335 Fisk V. Chicago, etc. R. R. Co. 409 V. Union Pacific R. R. Co. 435, 668, 664 Fister v. La Rue 89 SECTION Fitch V. Constantine Hydraulic Co. , ■ 238 V. New Haven, etc. R. R. Co. 308, 453 V. Pac. R. R. Co. 368 Fitchburg, etc. R. R Co. v. Grand Junction R. R. Co. 475, 502 Fitchburg R. R. Co. u. Boston andM. R. R. Co. 174 Fitchburg R. R. Co. v. Gage 309 Fitts V. Cream City R. R. Co. 371 Fitzgerald v. St. Paul, etc. R'y Co. 875 Flagg V. Manhattan R'y Co. 224, 563 Flaggstaff" Silver M'g Co. v. Pat- rick 195, 225 Flash V. Conn 384, 393, 714, 724, 725, 741 Pleckner v. Bank of U. S. 211, 233, 248 Fleming v. Chicago, D. and M. R. Co. 178 Fletcher v. N. Y. Life Ins. Co. 193 V. Peck 453, 456 Flike V. Boston and A. R. R. Co. 365 Flinn v. Phila. W. and B. R. R. Co. 353 Flint V. Board of Aldermen 483 V. Clinton Co. 204 V. Norwich and N. Y. Trans. Co. 347 Flint and P. ;M. Ry. Co. v. Dewey 627 Flint, etc. Plank Road Co. v. WoodhuU 438, 458, 503 Flvnn V. San Francisco, etc. R. R. Co. 373 Folger V. Chase 436 Foil's Appeal 788, 790 Forbes v. Boston and Lowell R. R. Co. 360 Ford V. Fitchburg R. R. Co. 365 V. Santa Cruz R. R. Co. 344 Foreman v. Bigelow 545, 702 Forstall v. Consolidated Ass'n 495, 507 Forster v. Mullanphy Planing Mill Co. 759 Fort Edward, etc. Plank Road Co. V. Payne 97 Fortier v. New Orleans Nat. B'k 302 Fosdick V. Car Co. 822 V. Shall 507, 821 V. Sturges 541, 792 Foss V. Harbottle 142, 554, 555, 686 . 771 TABLE OF CASES. SECTION Foster v. Essex Bank 161, 240, 337 V. Master of New Orleans 474 J V. Moulton 739 V. Oxford, Worcester, etc. K. R. Co. 642 V. Seymour 612 Fouche V. Brown 130 Foulke V. San Diego, etc. R. Co. 249, 313 Fountain v. Carmarthen R'y Co. 195 Fountain Ferry T. R. Co. v. Jewell 517, 611 Four Mile Valley R. R. Co. v. Bailey 527 Fourth Nat. B'k v. Franklyn 724 Fowle u. Common Council of Alexandria 315 Fowler v. Baltimore and Ohio R. R. Co. 376 V. Ludwig 748 Fowler's Case r 614 Fox V. AUensville, etc. T. P. Co. 263 V. Clifton 96 ' u. Horah 437 V. Seal 813, 817 fox's Appeal 477 Francis w. Dubuque, etc. R. R. Co. 360 Franco-Texan Land Co. v. Laigle 381, 382 Frank w. Chemical Nat. Bank 672 V. Lanier 246 V. Morrison 582 Frank's Oil Co. v. McCleary 587 Frankford, etc. Turnpike Co. v. Churchhill 97 Frankford, etc. Turnpike Co. v. Phila. and Reading R. R. Co. 368 Frankfort Bank v. Johnson 338 Frankfurt and P. Pass'r Ry. Co. V. Philadelphia 489 Franklin Ave. German Savings Ins. V. Board of Education 276 Franklin Bank v. Commercial Bank 298 Franklin Branch Bank v. Ohio 488 Franklin Bridge Co. v. Wood 12 Franklin Co. v. Lewiston Insti- tution for Savings 267 Franklin Glass Co. v. Alexander 546 Franklin Ins. Co. v. Jenkins 626 Franz V. Teutonia Building Ass'n 146 Eraser v. Ritchie 185 Freeh v. Phila. W. and B. R. R. Co. 876 Freedle v. North Car. R. R. Co. 179 772 SECTION Freehold, etc. Ass'n v. Brown 504 Freeland v. Pennsylvania Cen- tral Ins. Co. 147, 153, 537 Freeman v. Alderson 394 V. Machias Water Power Co. 382 II. Minneapolis and St. Louis R'y Co. 170 V. Stine 702 V. Winchester 546 Fremont and R'y Co. v. Whalen 179 French v. Dpnohue 180, 146 V. Teschemacher 735 Freon V. Carriage Co. 599 Fridley v. Bowen 302 Friedlander v. Slaughter House Co. 595 Frink v. Potter _ 375 Frost V. Domestic Sewing Ma- chine Co. 202 V. Prosburg Coal Co. 146 Frothingham v. Barney 608 Fry's Ex'rs v. Lexington, etc. R. R. Co. 613, 530, 531, 532 Frye v. Tucker 125 Fulgam V. Macon, etc. R. R. Co. 520 Fuller V. Dame 162 V. Jewett 865 Fulton Bank v. N. Y. and Sha- ron Canal Co. 236 Furman v. Nichol 507 Fusz V. Spaunhorst 756 Fyfe's Case 569, 748 G. G. C. and S. F. R'y Co. v. Dona- hoo 173 G. C. and S. P. R'y Co. v. Ed- dins 175 a Gadsden v. Woodward 764 Gaff V. Flesher 703, 749 Gaffney v. ColvilJe Gaines v. Union Trans. Co. Gains v. Coates Galbraith ik Building Ass'n Galena, etc. R. R. Co. v. Ennor 690 359 122 599 97, 521 376 V. Fay V. Loomis 475 V. Rae 361 Gallery v. National Exchange Bank 640 Galpin v. Chicago and N. W. R'y Co. 369 TABLE OF CASES. SECTION ' Galvanized Iron Co. v. Westoby 110 Galveston City Co. v. Sibley 595 Galveston, etc. R'y Co. v. Allison 854 Galveston R. R. Co. v. Cowdrey 285, 380, 381, 676, 815, 818 Gandy v. Chicago and N . W. R'y Co. 368 Gano V. Chicago, etc. R'y Co. 204 Garden Gully Mining Co. v. Mc- Lister 190, 547 Gardiner v. Butler 646, 647 V. Hamilton Mut. Ins. Co. 536 V. London, Chatham, etc. R'y Co. 308 V. Pollard 690 Garling v. Baechtel 738 Garnett v. Richardson 100, 148, 739 Garrett v. Burlington Plow Co. 205, 759 V. Chicago and N. W. R'y Co. 368 V. Dillsburg, etc. R. R. Co. 516, 517 Garrison v. City of New York 473 V. Howe 725, 728 Garwood v. Ede 104 Gashwiler v. Willis 181, 258 Gaskell u. Chambers 629,631 Gaslight Improvement Co. v. Terrell 750 Gass V. Citizens' Building Ass'n 249 V. Hampton 795 V. New York, etc. R. R. Co. ( 364 Gaston v. American Exch. Nat. Bank 797 Gasway v. Atlantic, etc. R'y Co. 377 Gates V. Boston, etc. R. R. Co. 454 Gauch V. Harrison 728 Gaylord v. Fort Wayne, etc. R. R. Co. 664 Gear v. C. C. and D. R. Co. 178 V. Dubuque and S. C. R. R. Co. 162 a Gelpke v. Blake 746 j;. City of Dubuque 318,325,, 326, 328, 468 General Exchange Bank v. Ear- ner 626, 629 Gennessee S'v'gs B'k v. Michi- gan Barge Co. 285, 636 Gent V. Insurance Co. 86, 87 George v. St. Louis, etc. R'y Co. 349 Georgia Co. v. Castleberry 667 Georgia Ice Co. v. Porter 146 SECTION Georgia R. R. Co. v. Gann 353 V. Smith 476 ft Georgia Southern R. R. Co. v. Bigelow 395 Gerhard v. Bates 103 German, etc. Building Ass'n v. Lindmeyer 598, 599 German Evangelical Congrega- tion V. Pressler 258 German Ins. Co. ri. Strahl 146 German Reformed Church v. Van Puechelstein 137 German Security Bank v. JefFer- son ■ 605 Germania Fire Ins. Co. v. M. and C. R. R. Co. 359 Germantown, etc. R. R. Co. v. Fitler 547, 661 Germantown Farmers' Mut. Ins. Co. V. Dhein ' 276, 286 Germantown Pass'r R'y Co. v. Brophy 374 Getty V. Devlin 82, 105 Geyser v. Ins. Co. 601 Gibbons o. Mahon 801 V. Ogden 469 ft, 474 a Gibbs V. Queens Ins. Co. 392, 397, 398 Gibson v. American Merchants' Un. Exp. Co. 354 V. Erie R'y Co. 366 V. Goldthwaite 225 Giesey v. Cincinnati W. and C. R. R. Co. 163, 179 Gifford V. New Jersey R. R. Co. 553, 555,, 547 V. Thompson 799 Gilbert's Case 586 Gilbert v. Savannah, etc. R. R. Co. 167 Gilbert v. Washington City, etc. R. R. Co. 680 Giles V. Hutt 546 GilfiUan v. Union Canal Co. 816 a Gill V. Balis 228, 745, 780 Gillenwater v. Madison, etc. B. R. Co. 350 Gillett V. Bank of Missouri 342 V. Missouri "Valley R. R. Co. 342 Gillis V. Bailey 233 Gill's Adm'ji v. Kentucky, etc. Gold M'g Co. 383, 513 Gilraan, etc. R. R. Co. v. Kelley 214, 638. Gilman, etc. R. R. Co. v. Spencer 369 Gilman v. City of Sheboygan 477 773 TABLE OF CASES. SECTION Oilman v. Illinois, etc. Tel. Co. 820 V. Philadelphia 474 c V. Sheboygan, etc. R. E. Co. 415 Gilpin V. Howell 794 Gilson V. Jackson County Horse R'y do. .SSO Ginrieh v. Patrons' Mill Co. 540 Gleason v. Goodrich Trans. Co. 355 Gleaves v. Brick Church Turn- pike Co. 108 Glen V. Saxton 709 V. Williams 661, 737 Glen Iron Works, In re 701, 703 Glenn v. Orr, 263 Glens Falls Paper Co. v. White 769 Gloucester Ferry Co. v. Pennsyl- vania 474 J Godbold w. Branch Bank of Mobile 620 Goddard v. Grand Trunk Rail- way 347, 378 Goddard v. Merchants' Exchange 583 Godfrey v. Terry 736 Goff V. Great Northern R'y Co. 344 V. Hawkeye Pump Co. 701 Gold Mining Co. v. National . Bank 216, 301 Golden Gate M'g Co. v. Superior Court 143 Golden Rule v. People 457 Goldey v. Pennsylvania R. R. Co. 353 Goldsmith v. Swift 800 Gooch V. McGee 165 Goodin V. Cincinnati, etc. Canal Co. 276, 559, 613, 627, 640, 644 V. Evans 276 Goodlett V. Louisville, etc. R. R. 409 Goodnow V. Oakley 204, 288 Goodrich v. Reynolds 146, 163 V. Thompson 363 Goodspeed v. East Haddam Bank 338, 342 Goodwin v. Colorado Mortgage Co. 401 V. Hardy 561 V. McGehee 656, 701 V. Union Screw Co. 249 Goodyear Dental Vulcanite Co. V. Caduo 616 Goold V. Chapin 360 Gordon v. Lea Fire Ins. Co. 205 V. Manchester, etc. R. R. 361 V. Muchler 196, 583 V. Preston 260 V. Richmond, etc. R. R. Co. 562, 565, 571 774 SECTION Gordon V. Swan 187 V. Tax Court 488 V. Winchester Building Ass'n 461 Gorman ?'. Guardian S'v'gs Bank 546 u. Pacific Railroad 475 Goshen, etc. Turnpike Co. v. Hurtin 516, 546 Gottfried v. Miller 567 Gottschalk V. C. B. and Q. R. R. Co. 175 a Gould V. Town of Oneonta 519 Goulding V. Clark 575, 667 Gouldie v. Northampton Water Co. 276, 303 Cover's Case 83 Gowen Marble Co. v. Tarrant 249 Gowen V. Penobscot R. R. Co. 495 Gower's Case 548 Grace v. Adams 351, 359 Gradin v. St. Paul etc. R'y Co. 372 Grafif V. Pittsburgh and Steuben- ville R R. Co. 101, 521, 587, 779 Grafton and G. R. Co. w.- Fore- men 179 Graham v. Birkenhead R'y Co. 556 V. Boston, etc. R. Co. 405, 409, 630, 678 V. National Bank 302 V. Railroad Co. 651 Grand Chute v. Winegar 328 Grand Gulf Bank v. Archer 298 Grand Gulf R. R. Co. v. State of Mississippi 503 Grand Rapids Booming Co. v. Jarvis 173 Grand Rapids Bridge v.^ Prange 156 Grand Rapids, etc. R. R. Co. v. Cameron 374 Grand Rapids, etc. R. R. Co. v. Heisel 171, 175 o Grand Rapids Savings B'k v. Warren 501, 715 Grand Tower M'f 'g, etc. Co. v. Ullman 170, 360 Grand Trunk R'y Co. v. Cum- mings 366 Granger v. Grubb 184, 573 V. Original Empire Mill Co. 261 Grangers' Ins. Co. v. Turner 523 Grangers' Life, etc. Co. v. Kam- fer 133, 541 Grant v. Attrill 697 V. Henry Clay Coal Co. 280, 303 Grape Sugar M'f 'g Co. v. Small 90, 214 TABLE Ot CASES. SECTION Gratz V. Redd 757 Gravenstine's Appeal 553 Graves v. Hartford, etc. Steam- boat Co. 360 Graves v. Lake Shore, etc. R. R. Co. 356 Gray v. Chaplin 556 V. Coffin 501, 764, 783 V. Jackson 363 V. Lewis 142, 436 V. National Steamship Co. 657 V. Portland Bank 569 Grayville and Mattoon R. R. Co. v'. Burns 258 Great Luxembourg R'y Co. v, Magnay ' 631 Great Northern R'y Co. v. Ken- nedy 546 Great Western R'y Co. v. Miller 19.3 Great Western Tel. Co., iie, 193 Greaves v. Gough 688, 690 Greeley v. Nashua S'v'gs B'k 161 Greely v. Smith 435 Green v. Biddle 500 V. Kemp 300 V. London Omnibus Co. 338 V. Neal's Lessee 468 V. St. Alban's Trust Co. 460 V. Sprague M'f'g Co. 189 V. Walkill Nat. Bank 432 Green Bay and Minn. R. Co. v. Union Steamboat Co. 120, 308 Green County v. Conness 318, 424 Greenfield Savings Bank v. Si- mons 629, 630, 631 Green Mountain, etc. Turnpike Co. V. Bulla 599 Greenpoint Sugar Co. v. Whitin 185, 300 Greensburgh, etc. Co. v. McCor- mick 238 Greenleaf v. Norfolk Southern R. R. Co. 211 Greenwood v. Freight Co. 504, 505 Greer v. Chartier's R'y Co. 551 Gregory v. German Bank 764 V. Lamb 201 Grenada County Supervisors v. Brogden 325, 329 Gresham Life Assurance Soc, In re 589 Grew V. Breed 714, 724, 726^ Gridley v. Lafayette, etc. R'y Co. 647 Griffin V. Kentucky Ins. Co 464 Griffith V. Mangam 706 Grindlev. Stone 713 BECTrOK Grinnell v. Western Un. Tel. Co. 357 Grisewood & Smith's Case 720 Grissell's Case 731 Griswold v. Haven 208 V. Peoria University 108 V. Seligman 720, 741 Gross V. United States M't'ge Co. 325, 450 Grosse Isle Hotel Co. v. I' An- son 517 Grosvenor v. N. Y. C. R. R. Co. 360 Grubb V. Mahoning Nav. Co. 511 Gruber v. R. R. Co. 338 Grund V. Tucker 725, 737 Guaga Iron Co. v. Dawson 384 Gue V. Tide Water Canal Co. 671 Guernsey v. Good, 580, 788 Gulf, etc. Ry. Co. v. Morris " 304 Guild V. Parker 628 Guinn V. Iowa Cent. R'y Co. 412 Gunn V. Barry 493 V. Central Railroad 130 V. London, etc. Fire Ins. Co. 87 Guy V. Baltimore 474 a, 474 J, 480, 485 H. Hacheny v. Leary 400 Hackensack Water Co. v. De Kay 153, 189, 251,253, 815 Hackett v. Ottawa 329 Hackney v. Allegheny County Mut. Ins. Co. 201 Hacock V. Sherman 734 Hadd V. U. S. and Canada Exp. Co. 363 Haddock v. Citizens' Nat. Bank 195 Haden v. Farmers', etc. Fire Ass'n 264 Hadly v. Freeman's Savings Co. 813 V. Russell 704, 783 Hagar v. Reclamation Dist, 469 a, 492 a V. Union Nat. Bank 602 Haserman v. Empire Slate Co. 402 Hahnemannian Life Ins. Co. v. Beebe 137 Haish V. Brooks 93 'Haldeman v. Ainslie 701 Haleu. Frost 822 V. Republican River Bridge Co. 692 V. Sanborn 518 775 TABLE OF CASES. SECTION Hale V. Walker 741 Hall V. Auburn Turnpike Co. 209, 231 V. Cheney 353 V. DeCuir 474 c V. Mayor, etc. of Swansea 311 v. Mobile, etc. R'y Co. 263, 818 V. Paris 672 V. Rose Hill, etc. Co. 589 V. Selma, etc. R. R. Co. 522, 529 V. U. S. Ins. Co. 587 V. Vermont, etc. R R. Co. 86, 647 V. Wisconsin 450 Hall's Case 105, 134, 549 Hall & Co. V. Klinck 725 Hall M'fg Co. V. American, etc. Supply Co. 276 Hallam v. Indianola Hotel Co. 634 Halliday v. St. Louis, etc. R'y Co. 364 Halsey v. McLean 764 Halstead v. Dodge 248 V. Mayor, etc. of New York 295 Ham V. Wisconsin, L and N. R'y Co. 178 Hamilton v. Annapolis, etc. R. R. Co. 163, 164 V. Grangers' Life, etc. Ins. Co. 523 V. Keith 453 V. New Castle, etc. R. R. Co. 125 V. Vicksburg S. and P. R. R. Co. 162 a, 167, 174 Hamilton Co. v. Massachusetts 482 Hamilton, etc. Plank Road Co. V. Rice 91 Hamilton Mut. Ins. Co. v. Ho- bart 536 Hamlin v. European, etc. R. R. Co. ( 817 V. Jerrard 427, 676, 817 Hammett v. Little Rook, etc. R. R. Co. 529 Hammond v. Port Royal, etc. R. R. Co. 415 K. Straus 738 Hampson v. Price's Patent Can- dle Co. 229 Hancock v. Chicot County 319 V. Holbrook 130, 182, 609 Hand V. Savannah, etc. R. R. Co. 818, 825 Hand Gold M'g Co. v. Parker 163 776 SECTION Handy u. Draper 723,724,736 Hanlin v. Chicago, etc. R'y Co. 173 Hanna v. Cincinnati, etc. R. R. Co. 536 d. International Pet. Co. 384 Hannibal and St. Jo. R. R. Co. V. Marion Co. 325 Hannibal and St. Jo. R. R. Co. V. Martin 210 Hannibal and St. Jo. R. R. Co. V. Muder 163 Hannibal, etc. Plank Road Co. V. Menefee 529 Hannibal R. R. Co. v. Swift 350 Hanover Junction, etc. R. R. Co. V. Haldeman 529 Hanson v. Donkersley 715 V. European, etc. R. Co. 347 V. Vernon 3 1 9 Hardenburgh v. Farmers', etc. Bank 574 Harding v. Chicago, etc. R. R. Co. 395 Hardon u. Newton 610 Hardy v. Boom Co. 237* . V. Chesapeake Bank 672 V. Merriweather 125 «. Metropolitan Land Co. 314, 656 V. Norfolk M'f'g Co. 729 Hare v. London and N. W. R. R. Co. 308, 597 Harger v. McCullough 715 Hargroves v. Chambers 765 Harman v. Page 703, 709 Harpending J). Munson 633 Harper v. Indianapolis, etc. R. R. Co. 365 V. Union M'f g Co. 713, 725 Harrington v. St. Paul, etc. R. R. Co. 175 a Harris v. First Parish 721 V. McGregor 451 V. Mississippi Valley, etc. R. R. Co. 432, 459 V. Muskingum M'f'g Co. 187 V. North Devon R'y Co. 692 V. Roberts 162 V. Runnels 297 Harris's Case 234 Harrison v. Mexican R'y Co. 572 V. Missouri Pac. R. R. Co. 193 V. Timmins 58 Harrison's Case 101, 586, 749 Harshman v. Bates County 323, 324 Hart V. Boston, etc. R. R. Co. 409 TABLE OF CASES. Hart V. Direct U. S. Cable Co. 373 V. Frontino, etc. Mining Co. 597 V. Missouri State Ins. Co. 204 V. Pennsylvania R. R. Co. 356 V. Rensselear, etc. R. R. Co. 364 V. St. Charles St. R. R. Co. 569 V. Western Un. Tel. Co. 357 Hart's Appeal 750 Harter v. Kernochan 324 Hartford and N. H. R. R. Co. V. Boorman 586, 587, 719, 747 Hartford and N. H. R. R. Co. V. Croswell 531, 782 Hartford and N. H. R. R. Co. V. New York and N. H. R. R. Co. 308, 309 Hartford Bank v. Barry 239 V. Hart 187 Hartford Bridge Co. v. Union Ferry Co. 453 Hartman v. Insurance Co. 787 Hartridge^u. Rockwell 135 Harts V. Brown 632, 634 Hartshorne v. B. C. R. and N. R. Co. 178 Harvey v. Terre Haute, etc. R. R. Co. 356 u. Thomas 163 V. Lackawanna R. R. Co. 178 Harward's Case 614 Hasenritter v. Kirchhoffer 146 HaskeU v. Oak 701 V. Sells 94, 97 Haslet V. Wortherspoon 703 Hasselman v. United States M'f g Co. 813 Hastings?;. Drew 737 Hastings and G. I. R. R. Co. v. Ingalls 175 a Hatch u. Burroughs 713, 715 V. Coddington 192 V. Dana 703, 705, 706 V. Vermont Central R'y Co. 178 V. Western Union Tel. Co. 568 Hatcherw. Toledo, etc. R.R. Co. 415 Hathaway v. Toledo, etc. R. R. Co.. 376 Hauley u. Upton 511,587 Hauser v. Tate 755 Havemeyer v. Havemeyer 580 V. Iowa County 318, 325, 468 Haven v. Grand Junction R. B. Co. 679 Hawes v. Anglo-Saxon Pet. Co. 146 V. Oakland 139, 140, 141, 554 Hawken v. Bourne 311 Hawkins v. Furnace Co. 736 V. Hoffman 355 V. Maltby 791 Hawley v. Fairbanks 333 Hawtayne v. Bourne 312 Hawthorne v. Calef 450, 501, 665, 714, 762 Haxtun v. Bishop 668 Hayden u. Davis ' 298 V. Middlesex Turnpike Co. 187, 249 Hayner v. American Popular Life Ins. Co 236 Haynes v. Brown 511 V. Covington 286 Hays V. Commonwealth 577 V. Holly Springs 320 V. Houston, etc. R. R. Co. 378 V. Michigan Cent. R. R. Co. 475 V. Miller 374 V. Ottawa, etc. R. R. Co. 179, 529 Hayward v. Davison 128 V. Rogers 794 Haywood v. Lincoln Lumber Co. 756, 759 Haywood, etc. Plank Road Co. V. Bryan 516 Hazard v. Durant 629, 688, 693 Hazen v. Boston and Maine R. R. Co. 162 a, 344 Hazlehurst v. Savannah, etc. R. R. Co. 214, 309, 571, 572 Head v. Providence Ins. Co. 114, 253 Head Money Cases 474 6 Healey v. Story 753 Heard v. Eldridge 799, 800 V. Sibley 737 Heath v. Barmore 436, 437 V. Erie R'y Co. 560, 688 V. Missouri, etc. R. R. Co. 170, 432 V. Silverthorn Lead M'g Co. 189 Hebdy's Case 720 Hedges v. Hudson River R. R. Co. 360 V. Paquett 687 V. Superior Court 143 777 TABLE OF CASES. SECTION Heffner v. Brownell 752 Heinig v. Adams, etc. M'f g Co. 146 Helfrich v. Williams 336 Helm V. Swiggett 589, 599 HelwegeK.Hibernia Nat. Bank 245 Heman v. Britton 437 Hendee v. Pinkerton 225 Henderson, Ex parte 586, 747 Henderson o. Major of New York ' 474 a, 474 & V. Railroad Co. 342, 523 Henderson, etc. R. R. Co. v. Dickerson 178, 179 Hendricks v. Sixth Ave. R. R. Co. 347 Hendrix v. Academy of Music 518, 521 Henkle v. Salem M'f g Co. 741 Henning v. United States Ins. Co. 253 Henry v. Dubuque and P. R. R. Co. 178 V. Elder 138 V. Great Northern R'y Co. 564 V. Jackson 619 V. Lake Shore, etc. R'y Co. 366 V. Northern Bank 210, 236 V. Rutland, etc. R. R. Co. 647 Henshaw v. Bank of Bellows Falls 676 Hepburn v. Griswold 476 V. School Directors 484 Hereford Wagon Co., In re 88 Herring v. N. Y., etc. R. R. Co. 430, 815 Herron v. "Vance 436 Hersey u. Veazie 655, 615 Hestonville, etc. R. R. Co. v. Philadelphia 162 a Hewett V. Swift 344, 752 Hewett's Case 614 Heuen v. Baltimore, etc. R. R. Co. 407 Hibbard v. N. Y. and Erie R. R. Co. 348 V. West. Un. Tel. Co. 357 Hibernia Fire Engine v. Harri- son ' 583 Hibernia Ins. Co. v. St. Louis, etc. Trans. Co. 657 Hickens v. Congreve 82 Hickllng V. Wilson 701, 704, 738 Hicks V. Hinde 753 V. International, etc. R. R. Co. 170 778 Higgins V. Hannibal and St. Jo. R. R. Co. 349 V. Hopkins 76 V. Jeffersonville, etc. R. R. Co. 376 K. New Orleans, etc. R. R. Co. 353 V. Three Hundred Casks of Lime 480, 485 Hightower v. Mustian 668 V. Thornton 437, 703 Hill, Ex parte 628 Hillu. Beach 148 V. Frazier 627, 775 V. Newichawaniok Co. 798 V. Nisbet 130, 629, 632 V. Pine River Bank 606 V. Rockingham Bank 599 V. Syracuse, etc. R. R. Co. 359 Hill's Case 310, 716 Hiller v. Burlington, etc. R. R. Co. 398 Hilles V. Parish 381, 581 Hilliard v. Goold 204, 216 Hillier v. Allegheny Mut. Ins. Co. 731 Hill M'f g Co. V. Boston and L. R. R. Co. 363 Hills V. Exchange Bank 484 V. Parrish 688 Hillyer v. Overman Silver M'g Co. 258 Hinchman v. Paterson Horse R'y Co. , 175 Hinckley v. Cape Cod R. R. Co. 376 f. Chicago, etc. R'y Co. 377, 378 Hincks V. Converse 145 Hinds V. Barton 368 Hines v. Wilmington, etc. R. R. Co. 387 Hirschfieldj;., Central Pac. R. R. Co. 360 Hitchcock's Heirs v. U. S. Bank 298, 387, 388 Kitchens v. Kilkenny R'y Co. 86, 724 Hitte V. Republican Valley R. R. Co. 170 Hoadley v. Northern Trans. Co. 351 Hoag V. Lamont 210, 248, 770 Hoagland v. Bell 737, 740 V. Cincinnati, etc. R. R. Co. 512 V. Hannibal and St. Jo. R. R. Co. 308 Hoard v. Wilcox 717 TABLE OP CASES. SBOTIOH Hoare's Case 645 Hobart V. Dovell 625 V. Milwaukee City R. K. Co. 175 Hoboken Building Ass' n v. Mar- tin 159 Hockett V. State 357, 475 Hodge V. First Nat. Bank 236, 241 Hodges V. Baltimore Passenger R'y Co. 175 V. New England Screw Co. 623, 690, 691 V. Rutland, etc. R. R. Co. 236, 647 V. Silver Hill M'g Co. 722 Hodges Distillery Co.,"i»i re 787 Hodgkinson v. Kelly 791 V. Nat. Live Stock Ins. Co. 622 Hodgson V. Cheever 714 Hoey V. Henderson » 531 Hoff u. Jasper Co. 821, 332 V. West Jersey R. R. Co. 366 Hoffman v. Hancock Mut. Life Ins. Co. 201 Hoffman Steam Coal Co. v. Cum- berland Coal Co. 210 Hoge V. Railroad Co. 489 Holbert v. St. L. K. C. and N. R. Co. 386 Holbrook V. Fauquier, etc. Turn- pike Co. 253, 589 V. New Jersey Zinc Co. 598, 795 Holcomb's Ex'r v. Managers N. H.D. B. Co. 260 Holden v. Fitchburg R. R. Co. 366 V. Hoyt 263 Holder v. Lafayette, etc. R'y Co. 647 HoUaday v. Kennard 350, 351 V. Patterson 162, 309 Holland v. Heyman 759 V. Lewistown Falls Bank 647 Hollingshead v. Woodward 541 HoUister v. HoUister Bank 708 V. Nowlen 351, 359 HoUister Bank, Matter of 727 Holly V. Atlanta Street R. R. Co. 347 Holman w. State 459,518 Holmes, Ex parte. 135, 136, 578 Holmes v. Board of Trade 202 V. Carolina Cent. R. R. Co. 377 V. Higgins ' 81 V. Holmes M'f'g Co. 137, 158 V. Sherwood 703, 704 SEOTIOU Holmes v. Wakefield 344 Holsapple v. Rome, etc. R. R. Co. 353 Holt V. Bacon 241 Holyoke Bank v. Burnham 589, 719, 741 V. Goodman Pa- per Co. 737, 740 Holyoke Co. v. Lyman 502 Home Ins. Co. v. City Council' 489 V. Davis 383, 400 Home of the Friendless v. Rouse 488 Home Stock Ins. Co. v. Sher- wood 516, 537 Homes v. Dana 92 Hood V. New York and N. H. R. R. Co. 338, 362 Hooper v. Rossiter 800 V. Savannah, etc. R. R. Co. 178 Hopcroft V. Parker 76 Hope V. International Financial Society 134, 608 Hope V. Valley City Salt Co. 633 Hope Mut. Fire Ins. Co. v. Beck- man 227, 55T Hope Mut. Life Ins. Co. v. Per- kins 125 Hopkin V. Buffum 578 Hopkins v. Atlantic, etc. R. R. Co. 377 V. Gallatin Turnpike Co. 668 V. Mehaffy 753 V. Taylor 417 V. Western Pac. R. R. Co. 344 Hopkins and Johnson's Appeal 759 Hopkins's Trusts, In re 800 Hopper V. Covington 329 Hoppin V. Buffum 578 Hopson V. ^tna Axle, etc. Co. 225 Horn V. Chicago, etc. R. R. Co. 475 Hornblower v. Crandall 103 Hornor a. Henning 775 Hornstein v. Atlantic, etc. R. R. Co. 178, 179 Hosher v. Kansas City, St. Jo., etc. R. R. Co. 179 Hotchkiss V. Artisans' Bank 193 Hotel Co. V. Wade 815 Hotham v. East India Co. 97 Hot Springs R. R. v. Tripp 364 Hough V. Railway Co. 865, 366 Houldsworth v. City of Glasgow Bank 523, 524 V. Evans 780 779 TABLE OF CASES. SECTION Housatonic R. R. Co. v. Lee 163 a Houston and T. C. R. R. Co. u. Odurn 175 a Houston, etc. R'y Co. v. Bremond 606 V. Burte 356 V. Rust 309 V. Shirley 425 413, 427,665, 666 V. Smith 373 V. Van Al- styne 597 Howbreach Coal Co. v. Teague 190, 540, 574 Howe V. Boston Carpet Co. 130 V. Deuel 611 V. Freeman 676 V. Robinson 664 Howell V. Chicago, etc. R. R. Co. 133, 394, 561, 568 V. Western R. R. Co. 677, 678, 682 Howe Machine Co. v. Souder 342 Howland v. Milwaukee, etc. Ry. Co. 366 Hoyle V. Plattsburgh and Mon- treal R. R. Co. 676 Hoyt V. Sheldon 389, 663 V. Thompson 236, 389 V. Thompson's Ex'r 195, 219, 223, 233, 234, 389 Hubbard «. United States M't'ge Co. 402 Hubbell V. Drexel 790, 794 Huddersfield Canal Co. v. Buck- ley 587, 747 Hudleston v. Gouldsbury 567 Hudson V. Green Hill Seminary 145, 146 Hudson V. Inhabitants of Wins- low 251 Hudson and Del. Canal Co. v. New York and Erie R. R. Co. 164 Hugh V. McRae ' 432 Hughes V. Bank of Somerset 738 V. Macfie 372 V. M'f'g Co. 96, 109, 513, 518, 547, 549 V. Vermont Copper M'g Co. 599 Huguenot Nat. Bank v. Stud- well 770 Huidekoperu. Locomotive Works 822 Hull M. Burtis 725 Humble v. Langston 791 Humboldt Township v. Long 821, 326, 329 780 SECTION Hume V. Commercial Bank 755 Humes v. Missouri Pac. Ry. Co. 475 Humphrey v. Jones 754 V. Patrons' Mercantile Ass. 146, 286, 311, 632 V. Pegues 488, 490 Humphreys v. Allen 824 V. Mooney 148, 739 Hunu. Cary 615, 617, 620 Hunt V. Bullock 676 V. Kansas, etc. Bridge Co. 537 Hunter v. Hudson River Iron Co. 342 V. Sun Mutual Ins. Co. 649 Huntington v. Densmore 359 Huntington, etc. R. R. Co. v. Decker 210, 365 Hurlburt v. Marshal 756 V. Taylor 719 Hurst V. Salisbury 76 Hurtado v. California 492 a Huss V. Central R. R., etc. Co. 402 Hutchins v. New England Coal M'g Co. 380, 381 Hutchinson v. Green 230, 668 V. Surrey Consumers' Gas Light Ass'n 87 V. Western and At- lantic R. R. Co. 338 Hutt V. Giles 96 Hutton V. Scarborough Cliff Ho- tel Co. 572 Hutzler v. Lord 791 Huyett V. Phila. and Reading R. R. Co. 368 Hyam's Case 586, 749 Hyatt V. Allen 798 Hyslop V. Finch 166 Ibbotson's Case 459 Illinois and M. Canal v. Chicago and R. 1. R. R. Co. 454 Illinois Cent. R. R. Co. v. Adams 353 V. Ash- mead 361 V, Cobb 350, 861 V. Downey 344 V. Friend 360 «. Frank- enberg 863 W.Godfrey 371 TABLE OP CASES. SECTION Illinois Cent. R. R. Co. v. Johnson 363 V. Kanouse 362 u. McClel- lan 350, 366 V. Morri- son 353 V. People 476 a 476 6 V. Phelps 369 u.'Reed 353 Illinois G. T. R. R. Co. v. Cook 536 Illinois Linen Co. v. Hough 646 Illinois River R. R. Co. v. Zim- mer 227, 449, 516, 536 Imboden v. Etowah, etc. M'g Co. 146, 189 Imlay v. Union Branch R. R. Co. 175 a Imperial Hydropathic Hotel Co. V. Hampson 650 Imperial Land Co., In re 627, 633, 752 Imperial Merc. Credit Ass'n v. Coleman 628 Importing and Exporting Co. v. Locke ' 149 Independent Insurance Co., Re 436 India and London L. Ass. Co., In re 665 Indianapolis, B. and W. R, Co. V. Beaver 350 Indianapolis B. and W. R. R. Co. V. Smith 173, 175 a Indianapolis B. W. and R. R. ■ Co. u. Hartley 175 a Indianapolis, etc. R. R. Co. v. Allen 353 Indianapolis, etc. R. R. Co. v. Can- 375 Indianapolis, etc. R. R. Co. v. Horst 350, 376 Indianapolis, etc. R. R. Co. v. Jones 666 Indianapolis, etc. R. R. Co. v. Passmore 368 Indianapolis, etc. R. R. Co. 'v. Pugh 178 Indianapolis, etc. R. R. Co. v. Ray 417, 432 Indianapolis, etc. R. R. Co. v. Renard 348 Indianapolis, etc. R. R. Co. v. Stout 874 Indianapolis Furnace, etc. Co. v. Herkimer 99, 538 Indianapolis P. and C. R. R. Co. V. Anthony 347 SEOTIOH Indianapolis Rolling Mills v. St. Louis, etc. R. R. Co. 212, 214, 238 Indianola v. Gulf, W. T. and P. R'y 120 Indianola R. R. Co. v. Fryer 425, 427, 665 Ingalls V. Cole 825 Ingledew v. Northern R. R. 361 Inglehart v. Thousand Islands Hotel Co. 633 Ingraham v. Terry 435 Ingrarau. C. D.andM.R. R. Co. 171 Inhabitants of Springfield v. Connecticut River R, R. Co. 163 a Inman Steamship Co. v. Tinker 480 Innes v. Lansing '62, 658 Insane Hospital v. Higgins 1 38 Instone v. Frankfort Bridge Co. 546 Insurance Co. v. Bruce 330 V. Colt 193, 254 V. Francis 412, 413 V. McCain 189, 193, 198 V. Morse 400 V. Railroad Co. 363, 364 Insurance Oil Tank Co. v. Scott 120 International, etc. R. R. Co. v. Breraond 536, 620, 695 International, etc. R. R. Co. v. Graves^ 374 International, etc. R. R. Co. v. Kindred 365 International, etc. Ry. Co. v. Townsend 368 International Life Ass. Soc, In re 125 Iowa and Union R. R. Co. v. Perkins 518 Iowa Lumber Co. v. Foster 135 Ireland v. Palestine Co. 501 Irish V. Milwaukee, etc. R'y Co. 360, 363 Iron City Bank v. Pittsburgh 477 a Iron R. R. Co. v. Fink 599 'v. Ironton 163 a V. Mowery 349 Irons V. Manufacturers' Nat. Bank 658, 668 Irvine v. Lowry 411 V. McKeon 764, 774 Isaacs V. Third Ave. R. R. Co. 847 Isaacson v. N. Y. C. and H. R. R. R. Co. 193, 368 Isabel V. Hannibal and St. Jo. R. R. Co. 165 Isham V. Bennington Iron Co. 187 V. Buckingham 586', 589 781 TABLE OF CASES. BECTION Island City S'v'gs B'k v. Sach- tleben 415 Isom V. Miss. Central R. R. Co. 179 Jackson v. Brown 125 V. Campbell 197 V. Hampden 260 V. Indianapolis, etc. R. R. Co. 376 V. Ludeling 760, 815 V. New York Central R. R. Co. 647 V. Stockbridge 523 V. Traer 545, 702 Jackson's Adm'rs v. Newark Plank Road Co. 788 Jackson Ins. Co. v. Cross 195, 346 Jackson Marine Ins. Co., Matter of 432 Jackson M'g Co. v. Auditor General 485 Jacksonville and S. E. R. R. Co. V. Walsh ' 178 Jacksonville, etc. R. R. Co. v. Town of Virden 328, 329 Jacobus V. Allen 721 V. St. Paul and Chic. R'y Co. _ 352, 353 Jagger Iron Co. v. Walker ' 715 James v. Milwaukee 322 u. Railroad Co. 760 V. Rogers 125 Jarrolt v. Moberly 321 Jaycox, In re 298 Jeff'eris v. Phila., etc. R. R. Co. 368 Jefferson Branch Bank v. Skel- ley 468, 488 Jeffersonville M. and I. R. R. Co. V. Esterle 175 a Jeffersonville R. R. Co. v. Cleve- land 360 Jeffersonville R. R. Co. u. Rogers 347, 348 Jefferys v. York 75, 754 Jellett 0. St. Paul, etc. R'y Co. 360 Jemison v. Planters', etc. Bank 453 Jenkins v. Union Turnpike Co. 91, 516 Jenner's Case 614 Jenneson v. Railroad Co. 363 Jermain v. Lake Shore, etc. R'y Co. 798, 799 Jerman v. Benton 732, 735 782 Jersey City and Bergen R. R. Co. V. Jersey City and Hobo- ken R. R. Co. 165 Jessopp's Case 101, 586, 749 Jessup V. Bridge 820 u. Loucks 162 a Jewell V. Rock River Pajer Co. 701 Jewett V. Valley R. R. Co. 779 Johnson v. Boston, etc. R. R. Co. 371 V. Brooks ' 790 V. Bush 263 V. Churchwell 775 V. Corser 739 V. Fisher 725 V. Hudson River R. R. Co. 376 • u. Johnson 800 V. Laflin 780 V. LuUman 702, 745 V. Lyttle's Iron Agency 547 V. Pensacola, etc. R. R. Co. 309 V. Philadelphia 489 V. Shrewsbury, etc. R'y Co. 308 V. Somerville Dyeing Co. 719 V. St. Louis Despatch Co. * 342 V. Underbill 300, 589 Johnston v. Charlottesville Nat. Bank 267 V. Elizabeth B'ld'g Ass'n 210 V. Ewing Female Uni- versity 109 V. Jones 573, 578 V. Trade Ins. Co. 392 Joint'Stock Discount Co. v. Brown 622, 626 Jones V. Arkansas Mechanical Co. 656 V. Avery 734 V. Bank of Tennessee 146 V. Barlow 765 V. BoUes 188 V. Cincinnati Type Foun- dry Co. 146 V. Dunn 748 V. Fales 195 V. Guaranty and Indem- nity Co. 125 V. Harrison 104 V. Jarman 703, 725 V. Johnson 688 V. Kokomo Building As- sociation 146 TABLE OF CASES. SECTION Jones V. Milton, etc. Turnpike Co. 574 V. Morrison 133, 135, 229, 558, 569, 646 V. Planters' Bank 293 u. Terra Haute, etc. R. K. Co. 788 V. Trustees Florence Uni- versity 263 V. Wills Valley E. E. Co. 179 V. Wiltberger 728, 825 Jonesboro City v. Cairo, etc. E. E. Co. 320 Jordan w. Alabama G. N. E'y Co. 342 V. Nat. Shoe and Leather Bank 672 Jordy V. Hebrard 577 Joslyn V. Pacific Mail S. S. Co. 553 Joy «. Jackson, etc. Plank Eoad Co. 227 Judson II. Eossie Galena Co. 718 V. Western E. E. Co. 359, 360 Juke-«. Commonwealth 576 Junction E. E. Co. v. Eeeve 258 K. Kahn v. Bank of St. Joseph 604 Kaiser v. Lawrence Savings Bank 148, 739 Kalamazoo Novelty M'fg Co. v. McAlister 210 Kanawha Coal Co. u. Kanawha and Ohio Coal Co. 157,460 Kansas and E. E. E. Cons. Co. V. Topeka, etc. E. E. Co 392 Kansas City Hotel Co. v. Harris 541 V. Hunt 541 V. Sauer 432, 435 Kansas City L. and S. E. E. Co. V. Phillibert 376 Kansas City, St. Jo., etc. E. E. Co. o. Alderman 520 Kansas City, St. Jo., etc. E. E. Co. V. Campbell 166 Kansas City, St. Jo., etc. E. R. Co. V. Simpson 869 Kansas Lumber Co. v. Central Bank 842 Kansas Fac. E. E. Co. v. Atchison T. and S. V. E. E. Co. 23, 413 Kansas Pac. E. R. Co. v. Butts 368 V. Miller 350 V. Mower 475 Kansas Pac. R. R. Co. v. Peavey 365, 866, 373 V. Reynolds 351, 353 Kansas Pac. E'y Co. v. Pointer 376 Karnes v. Eochester, etc. E. E. Co. 561 Karuth's Case 614 Katama Land Co. v. Jernegan 518 Katzenberger v. Aberdeen 325 Kayser v. Trustees of Bremen 147 Kean v. Johnson 268, 608 Kearney v. Buttles • 269 Kearns v. Leaf 659 Keegan v. Western E. E. Co. 365, 366 Keen v. Van Reuth 146, 153 Keffe V. Milwaukee, etc. E. E. Co. 371, 372 Keith V. Globe Ins. Co. 210 Keithsbura v. Frick 325 Kelley v. Newburyport Horse E. E. Co. 146, 270, 630 Kelley v. Norcross 366 V. Peoples' Transportation Co. 276, 303 Kellinger v. Forty-second Street, etc. E. E. Co. 175 Kellogg Bridge Co. w. Hamilton 249 Kelly V. Alabama and Cincinnati E. E. Co. 125, 264 u. Board of Public Works 248 V. Mariposa Land, etc. Co. 667 V. Pittsburgh 492 Kellner v. Baxter 76, 87 Kelsey u. National Bank 211 V. Northern Light Oil Co. 520 V. Sargent 647, 689 Kempson v. Saunders 102 Kenicott v. Supervisors 319, 328, 329 Kennebec Co. "• Augusta Ins. Co. 384 Kennebec, etc. E. E. Co. v. Jarvis 515 Kennebec, etc. E. E. Co. v. kendall 513 Kennebec, etc. E. E. Co. v. Palmer 92, 108 Kennebec, etc. R. R. Co. v. Portland, etc. R. R. Co. 125 Kennedy v. Gibson 140, 727 V. Panama, etc. Mail Co. 103 Kenosha, etc. R. R. Co. v. Marsh 530 Kent V. Freehold Land Co. 103 V. Jackson 98 783 TABLE or CASES. BECTIOK Kent V. Quicksilver Mining Co. 125, 126, 269, 288, 572, 583, 584 Kent Benefit Building Soe., In re 312 Kenton County Court v. Bank Lick Turnpike Co. 164, 454 Kentucky Central E. JJ. Co. v. Thomas 350 Kentucky R. K. Tax Cases 492 Kerchner v. Gettys 381 Kersey Oil Co. t-. Oil Creek, etc. R. R. Co. 229, 260, 261, 637, 641 Ketcham v. Madison, etc. R. R. Co. 664, 666 Ketchum v. Amer. Merchants' Union Exp. Co. 353 V. Duncan 680 u. Pacific R. R. Co. 675 V. St. Louis 817 Key City, The 665 Keyserti. Ilitz 223, 567, 738 Keystone Bridge v. Barstow 701 V. McCluney 702 Kidwelly Canal Co. v. Baby 91, 98 KieflTer v. Ehler 327 Kilbreth v. Bates 298 Kilgore v. Bulkeley 253 Kilpatrick v. Penrose Ferry Bridge Co. 647 Kimball v. Goodburn 432 V. Norton 199 Kincaid v. Dwindle 144, 432, 724 Kinealy u. St. Louis, K. C. and C. R. R. Co. 162, 174 King V. Bank of England 599 v. Bedford Level 188 V. Housatonic R. R. Co. 820, 822 V. Howell 459 V. National M. and E. Co. 402 V. Paterson, etc. R. R. Co. 568 V. Theodorick 573 King's Case 586, 749 Kingsley v. First Nat. B'k 668, 759 V. New England Ins. Co. 196 Kinney v. Central R. R. Co. 353 Kinsley v. Rice 775 Kinsman St. Ry. Co. v. Broad- way R. R. Co. 163 a Kintrea, Ex parte 586, 749 Kirk V. Bell 234, 2^2 Kirkbride v. Lafayette County 319 Kirkland v. Dinsmore_ 358 V. Kille " 770 784 Kirkpatrick v. N. Y. C. and H. R. R. R. Co. 365 Kirtland w. Hotchkiss 469 Kishacoquillas, etc. Turnpike Co. V. McConaby 147 Kitchen v. Cape Girardeau, etc. R. R. Co 114,233 v. St. Louis, K. C.,ete. R'y Co 627, 693, 812 Klaus, In re 583 Klein v. Alton, etc. R. R. Co. 548 D. Jewett 417 Kline v. Central Pac. R. R. Co. 373 Knapp V. Grant 325 Knecht v. United States S'v'gs Inst. 672 Knell V. U. S. and Brazil S. S. Co. 353, 359 Knickerbocker Life Ins. Co. v. Ecclesine 137 Knight V. Corporation de Wells 158, 188 V. Flatrock, etc. Turn- pike Co. 538 V. Long 197 V. New Orleans, etc. R. R. Co. 369 Knight's Case 547 Knowlton v. Ackley 432 V. Congress Spring Co. 133 Knox V. Baldwin 772 Knox Co. V. Aspinwall 329, 330, 331 Knox County Court u. United States 333 Kpoxville V. Knoxville, etc. R. R. Co. 265 Koehler v. Black River Falls Iron Co. 236, 693 Koelmel v. New Orleans, etc. R. R. Co. 175 a Kohl V. United States 470 Koons V. St. Louis, etc. R. R. Co. 372 V. West. Un. Tel. Co. 357 Kortright v. Buffalo Commercial Bank 698, 699 Koshkonong w. Burton 326 Kraft V. Freeman Printing Asso- ciation 203 Krizer v. Woodson 764 Krutz V. Paola Town. Co. 150 Kucheman u. C. C. & D. Ry. Co. 176 a Kuhn V. McAllister 789 Kyle V. Laurens R. R. Co. 362, 368 TABLE OF CASES. SECTION L. L. & G. R. R. Co. V. Maris 360 Labette County Com'rs v. Moul- ton 333 Lackawanna Iron, etc. Co. v. County of Luzerne 477 a La Fayette Bank v. St. Louis Stoneware Co. 205 Lafayette, etc. R'y Co. v. Chee- ney 646 Lafayette Ins. Co. v. French 383, 397, 398, 400, 413 Lafayette Plankroad Co. v. New Albany, etc. R. R. Co. 163 a, 453 Laflin, etc. Powder Co. v. Sins- heimer 739 La Grange, etc. Plankroad Co. u. Mays 521 La Grange, etc. R. R. Co. v. Rainey 153, 432, 433 Lahr o. Metropolitan Elevated R. Co. 176 Lake Erie and W. Ry. Co. v. Griffin 415 Lake Ontario, etc. R. R. Co. v. Mason 511, 513, 516 Lake Ontario Shore R. R. Co. v. Curtiss 109, 515 Lake Shore and M. S. Ry. Co. V. Chicago and W. I. R. R. Co. 168 a Lake Shore and M. S. Ry. Co. V. Cincinnati, S. and C. Ry. Co. ■ 163 a Lake Shore, etc. R. R. Co. v. Miller 374, 376 Lake Shore, etc. R. R. Co. v. U. S. 467 Lake Superior Iron Co. v. Drexel 723 Lake v. Argyl 77 V. Virginia, etc. R. R. Co. 453 Lake View v. Rose Hill Cem- etery Co. 474, 476 Lakin v. Railroad Co. 1 70 Lallande v. Ingram 794 Lamar Ins. Co. v. Hildreth 707 Lamb v. Camden and Amboy R. R. Co. 351 V. Cecil 241, 668 V. Lamb 401 Lambert v. Staten Island R. R. Co. 374 Lamm v. Port Deposit Home- stead Ass'n 342 Lancaster County Nat. Bank v. Smith 337, 353 50 SECTION Land Credit Co. v. Fermoy 626 Land Grant R'y Co. v. Commis- sioners 384 Landman v. Entwistle 76 Lane v. Brainerd 261 V. Boston and A. R. R. Co. 210 V. Harris 724 V. Morris 721, 724 V. Nickerson 707 V. Railroad Co. 348 Lane's Appeal 655, 703, 704 Lane's Case 699 Langan v. Iowa, etc. Construc- tion Co. 338, 342 Langdon v. Railroad Co. 823 V. Vermont, etc. R. R. Co. 824 Langley v. Boston and Maine R. R. Co. 170 Langton v. Waite 794 Lanier v. Gayoso Sav. Inst. 670, 810, 813 Laning v. N. Y. Cent. R. R. Co. 365 Larrabee v. Baldwin 718, 733, 734 V. Sewall 375 Larson v. Dayton 783 Larwell v. Hanover Savings Fund Society 29'8- Lassiter v. West. Un. Tel. Co. 357 Lathrop v. Commercial Bank 384- V. Union Pacific R'y Co. 395 Latimer v. Union Pacific R'y Co. 396, 399 Lauman v. Lebanon Valley 'R. R. Co. 536, 608, 610 Lawler v. Androscoggin R. R. Co. 365 Lawless v. Anglo- Egyptian Co. 342 Lawrence v. Gebhard 225 V. Nelson 729, 731 V. New York, etc. R. R. Co. 363 V. Winona, etc. R. R. Co. 363 Lawrence's Case 110 Lazure v. Graniteville M'f 'g Co. 365 Lea u. American, etc. Canal Co. 432 Leach v. Forbes 790 Leasure v. Union Mut. Life Ass'n 384 Leavenworth County v. Miller 319' Leavenworth, etc. R. R. Co. v. Douglass Co. 319 Leavitt v. Fisher 598 u. Oxford and M. Co. 219, 234, 260, 261 786 TABLE OP CASES. Leavitt v. Palmer 298 V. Pell 276 V. Stanton 672 Leazure w. Hillegas 276, 303 Lebanon Savings Bank v. Hol- lenbeck 384 Leber u. Minneapolis, etc. R'y Co. 178 Le Blanc, Matter of 568, 750 Le Blanch v. London, etc. K'y Co. 361 Lee County v. Rodgers 325 Lee V. Imbrie 619, 655, 701 V. Marsh 353, 359 V. Pittsburgh Coal Co. 193, 238 V. Smith 241 Leed's Blacking Co., In re, How- ard's Case 234 Leeke's Case 614 Leekins v. The Nordyke, etc. Co. 248 Legal Tender Cases 476 Leggett V. Bank of Sing Sing 604 Lehigh Bridge Co. v. Lehigh Coal Co. 137,432 Lehigh Valley Coal Co. v. Agri- cultural Works 125, 284 Lehman v. Warner 740 Leitch V. Wells 327, 587, 795 Leland v. Hayden 800 Lennox v. Roberts 437 Leo V. Union Pac. Ry. Co. 555 Leominster Canal Co. v. Shrews- bury, etc. R. Co. 88 Leonard v. American Ins. Co. 253, 264 V. Burlington Mut. Loan Ass'n 263 V. N. Y., etc. Tel. Co. 357 Le Roy V. Globe Ins. Co. 750 Lester v. Howard Bank 299, 301, , 338, 622, 634 .V. Webb 193, 212 Levisee v.. Shreveport City Ry. , Co. 647 Leweys Island, etc. Co. v. Bol- ton 518, 547 Lewis V. Albermarle, etc. R. R. iCo. 212 V. Brainerd 585 V. City of Shreveport 320, 321 v. Commissioners 330, 332 t). .Jeffries 185 .V. Meier 342 .». St. vCharles County 723 V. St. Louis, etc. R. Co. 366 7.K6 Lewis V. Tilton 148 Lexington, etc. R. R. Co. v. Chandler 546 Lexington, etc. R. R. Co. u. Staples 647 Lexington Life, etc. Ins. Co. v. Page 566, 708 Lexington R. R. Co. v. Bridges 757 Libby v. Hodgson 892, 396 Liberty Female College Ass'n t). Watkins 721 License Tax Cases 289, 456, 461 Liebke v. Knapp 545 Life and Fire Ins. Co. v. Me- chanic Fire Ins. Co. 236, 299, 338 Life Ass'n v. Levy 384, 561 Life Ass'n of America «. Passett 436, 437 Life Ins. Co. v. Overholt 884 Lightner v. Boston, etc. R. R. Co. 424 Limburger v. Broadway S'v'gs Bank 542, 668 V. Rouse 484 V. Westcott 359 Lincoln, etc. Bank v. Page 195 Lindell v. Benton 435 Lindsay v. Hyatt 736 V. Winona, etc. R. R. Co. 368, 374 Lippett V. American Wood Pa- per Co. 599 Litchfield Bank v. Church 105 Litchfield Iron Co. v. Bennett 188 Little V. Boston and Maine R. R. Co. 356 Little u. Dusenbury 417 Little Miami R. R. Co. v. Naylor 162 a Little Miami R. R. Co. v. Stevens 365 Little Miami R. R. Co. v. United States 565 « « Little Rock v. National Bank 326 Little Rock and Fort Smith R. R. Co. V. Perry 90 Little Rock and N. R. R. Co. V. Little Rock, etc. R. Co. 210 Little Rock, etc. R'y Co. v. Chapman 173 Little Rock, etc. R'y Co. v. Glidewell 360 Little Rock, etc. R'y Co. v. Page 630, 676 Little Rock, etc, R'y Co. v. Talbot 851, 363 Littleton M'f 'g Co. v. Parker 518 Liverpool Ins. Co. v. Massachu- setts 58, 383 TABLE OP CASES. Lloyd V. West Branch Bank SECTION 161, 239 Loan Ass'n v. Stonemetz 646 V. Topeka 319, 456, 477 Lockhardt v. Van Alstyne 572, 773 Lockwood V. Mechanics' Nat. Bank 260, 601 V. Thunder Bay River Boom Co. 258 Lodges. Phila., Wilm. andBalto. R. R. Co. 163 Logan V. Vernon, etc. R. R. Co. l.'iS, 168 V. Western Un. Tel. Co. 361 Lohnian i\ New York and Erie R. R. Co. 569 London, Brighton, etc. R. R. Co. V. London and S. W. R'y Co. ■ 305 London, etc. Ass. Co., In re 586 London, etc. Ass. Soo. v. Red- grave 110 London India Rubber Co., In re 786 Long V. Bank of Yanceyville 736 Long Island R. R. Co., Matter of 546, 547, 574, 576, 577 Longley v. Little 501, 719, 736 Lord V. Yonkors Fuel Gas Co. 125 Lorenz v. Jacob 163 Loring v. Brodie 210, 240, 797 V. Salisbury Mills 693 Losee.u, BuUard 770 Lothrop V. Stedman 140, 436, 658, 662, 665' Loudenslager I'. Benton 817 Lou. Cin. and Lex. R. R. Co. v. Commonwealth 167 Louis V. Brown Township 327, 333 Louisiana Nat. Bankw. Citizens' Nat. Bank 245 Louisiana Savings B'k, In re 151 Louisiana v. Jumel 462, 467 V. New Orleans 333,493, 498 V. Pillsbury 469 a V. Wood 321 Louisville and N. R. R. Co. v. Brownlee 359 Louisville and N. R. R. Co. v. Palmes 490 Louisville and N. R. R. Co. v. State 163 a Louisville and P. R. R. Co. v. City R. R. Co. 162 Louisville City R'y Co. v. Weams 350 Louisville, etc. R. R. Co. v. Brownlee 363, 359 BECTIOW Louisville, etc. R. R. Co. v. Campbell 360 Louisville, etc. R. R. Co. v. Letson 21, 411 Louisville, etc. R. R. Co. v. Ma- han 360 Louisville, etc. R. R. Co. v. McVay 193 Louisville, etc. R. R. Co. v, Orr 365 Louisville, etc. R. R. Co. v. Shanks 377 Louisville, etc. R. R. Co. v. Weaver 363 Louisville, etc. Turnpike Co. v. Ballard 495 Louisville Gas Co. v. Citizens Gas Co. 474 Lovell V. St. Louis Mutual Ins. Co. 210 Lovett V. Steam Saw Mill Ass'n 204 Low V. Buchahan 775 V. California Pac. R. R. Co. 127 V. Connecticut and P. R. R. Co. 86, 309, 467 Lowe V. E. and K. R. R. Co. 615, 551 Lower v. C. B. and Q. R. R. Co. 163 Lowry u. Commercial Bank 592, 598 V. Inman 393, 714 V. Parsons 737 Lucas V. Pitney 125 u. White Line Transfer Co. 266, 267 Lum V. Robertson 437, 750 Lumbard v. Aldrich 384 Lumsden's Case 95 Lungrell v. Pennell 83 Lupe V. Atlantic, etc. R. R. Co. 353 Luse V. Isthmus Transit Co. 238 Lusk's Appeal 632 Lycoming Fire Ins. Co. v. Lang- ley 384 Lycoming Gas and Water Co. v. Mayer 174, 178 Lyde v. Eastern Bengal R'y Co. 268, 656 Lyman v. Bonney 766 Lynch v. Metropolitan Elevated R. R. Co. 342, 348 V. Nurdin 372 Lynde v. The County 319, 331 Lyndeborough Glass Co. v. Mas- sachusetts Glass Co. 211, 212 Lynn v. Polk 464 Lyons v. Orange, etc." R. R. Co. 449 787 TABLE OF CASES. M. SECTION Maas V. Missouri K. and T. R'y Co. 204, 679 Mabey v. Adams 694, 696 Macdongall u. Jersey Imperial Hotel Co. 565 Machine Co. v. Gage 485 Machinists' National Bank v. Field 598 Mackall V. Chesapeake, etc. Ca- nal Co. 153 Mackay u. Commercial Bank 342 V. Western Union Tel. Co. 361 Macnaughton ». Osgood 686 •Macon, etc. R. R. Co. v. Mayes 362 V. Vason 263, 517, 529 Madan v. Sherard 358, 359 Maddick v. Marshall 77 Madison and Indianapolis R. R. Co. V. Norwich Sav'gs Soc. 203, 205 Madison Avenue Baptist Church V. Oliver St. Baptist Church 303, 314 Madison, etc. Plank Road Co. V. Waterto-wn, etc. Plank Road Co. 123 Madrid Bank, In re, Wilkinson's Case 523 Madrid Bank v. Pelly 629, 631 Maghee v. Camden, etc. R. R. Co. 364 Magnin v. Dinsmore 353, 356, 359 Magruder v. Colson 741, 749 Maguire v. Board of Revenue 483 Magwood 0. Railroad Bank 592 Mahady v. Bushwiok R. R. Co. 17$ Mahaska County R. R. Co. v. Des Moines Valley R. R. Co. 162 a Mahew's Case 719 Mahony v. East Holyford Mining Co. 251 Mahony Mining Co. v. Bennett 637 Mahony v. Spring Valley Water Co. 166 Main v. Casserly 280, 284 Maisch v. Saving Fund 758 Malecek v. Tower Grove R. R. Co. 210, 377 Mallett ». Simpson 128, 303 Mallory v. Tioga R. R. Co. 362, 402 Malone v. Boston, etc. R. R. Co. 859 V. Hawley 365 Maltz V. American Express Co. 412 788 BECTIOK Manchester and Lawrence R. R. Co. V. Fisk 233 Manchester and London L. Ass. Co., In re 665 Mangan v. Atterton 372 Manhattan Co. v. Lydig 199 Manhattan Oil Co. v. Camden and Amboy R. R. Co. 364 Manheim, etc. Turnpike Co. v. Ariidt 531 Mann v. Birchard 853 V. Cooke 546, 549, 745 V. Currie 586, 719 V. Pentz 707, 725 V. Williams 789 Manneyu. High Shoals M'fg Co. 138 Manning v. Quicksilver M'g Co. 799 Mansfield, etc. R. R. Co. v. Brown 513, 517, 636, 539 Mansfield, etc. R. R. Co. v. Drinker 150, 154, 539 Mansfield, etc. R. R. Co. v. Stout , 536, 539. Mansfield, etc. R. R. Co. v. Swan 413 Manufacturing Co. v. Bradley 713, 722, 737 Manville v. Belden M'g Co. 310 V. Karst 728 V. Western Un. Tel Co. 357 Manx Ferry Gravel Road Co. u. Branegan 646 Mapes V. Second Nat. Bank 240, 241 V. Scott 161, 303 March v. Eastern R. R. Co. 229, 556, 798 Marchand v. Loan, etc. Co. 85, 86 Marcy !). Clark 101,586,720,749 0. Township of Oswego 321, 329, 332 Marietta, etc. R. R. Co. v. Elliott 53 1 Marine Bank v. Clements 236 V. Ogden 130 Marine Nat. B'k v. Nat. City Bank 245 Marine Ins. Co. v. Young _ 248 Mariners' Bank v. Sewall 436 Marion v. C. R. I. and P. R. R. Co. 844 Market St. R'y Co. v. Central R'y Co. 152 Marlborough M'f g Co. v. Smith 227, 580 Marquette H. and O. R. R. Co. V. Langton 426 Marr v. Bank of West Tennessee 500, 656, 668, 705, 749, 813 TABLE OP CASES, Marseilles Extension R'v, etc. Co., In re 134, 232, 641 Marsh V. Burrows 703, 705 V. Fairbury, etc. K. R. Co. 162 V. Fulton Co. 323 V. Oneida Central Bank 672 V. Railroad 556 Marshall v. Baltimore and Ohio R. R. Co. 293, 412, 413 V. Harris 148, 739 V. Western N. C. R. R. Co. 507 Martin v. Continental Pass. R'y Co. 229 V. Fewell 739 V. Mobile, etc. R. R. Co. 384 V. Nashville Building Ass. 582, 583 V. Pensacola, etc. R. R. Co. 97, 521 V. Webb 215, 216, 241 Martindale v. Kansas City, St. Jo., and C. B. R. R. Co. 162 Marvin v. Universal Life Ins. Co. 198 Marvine v. Hymers 225 Maryland v. Baltimore and Ohio R. R. Co. 507 Maslin v. Bait, and Ohio R. R. Co. 353 Mason u. Alexander 718 V. Brooklyn City, etc. R. R. Co. 164 V. Frick 679 V. Haile 493 V. Missouri Pac. R'y Co. 371 V. Pewabic M'g Co. 608 Master's Case 586, 749 Masters v. Eclectic L. Ins. Co. 610 V. Rossie Lead Mining Co. 783 Mathez v. Neidig 725, 732 Mathis V. Morgan 429 Matthews v. Albert 731, 783 V. Mass. Nat. Bank 240 V. Trustees 383 Maupin v. Virginia Lead M'g Co. 202 Maxwell's Case 742 May V. Memphis Branch R. R. Co. 519 V. State Bank 435 Maynard v. Firemen's Fund Ins. , Co. 219, 342 Mayor, etc. of Atlanta v. Central R'y Co. 179 - - BUUTIUXI Mayor, etc. of Baltimore v. B. and O. R. R. Co. 554 Mayor, etc. of Colchester v. Sea- ber 667 Mayor, etc. of Worcester u. Nor- wich, etc. R. R. Co. 166, 502 Mayor, etc. of Worcester v. Rail- road Com'rs 162 Mayor of Baltimore v. Pittsburgh, etc. R. R. Co. 503 Mayor of Griffin v. Inman 642 Mayor of Lynn v. Turner 169 McAllen v. Woodcock 6.27 McAllister v. Plant 125 McAlpin V. Powell 372 McAndrew v. Electric Tel. Co.' 357 McAuley v. Columbus, Chicasjo, etc. R'y Co. 155, 420 McCall V. Byram M'fg Co. 381 McCartee u. Orphan Asylum 127 McCarthy v. Lavashe 5.^7, 538, 738 McCellan v. Detroit File Works 206 McClellan v. Scott 342 McClelland v. Whitely 515 McCleod u. Ginther ' 210 McCluer v. Manchester, etc. R. R. Co. 170 McClure v. Livermore 753 V. Phila,, etc. R. R. Co. 201 V. Township of Oxford 320 McCormick v. Kansas City, etc. R. R. Co. 173 McCoy V. Briant 319 V. Farmer 437 McCracken v. Hayward 450, 493 V. Mclntire 545 McCray v. Junction R. R. Co. 531, 536 McCready v. Railroad Co. 368 V. Rumsey 603 McCulIoch V. Maryland 481, 483 V. Norwood 435 McCuUough V. Moss 181, 205, 718 V. Talladega Ins. Co. 146, 263 McCully V. Pittsburgh, etc. R. R. Co. 517 MeCummons v. Chicago and N. W. R'y Co. 368 McCurdy v. Mevers 608 McCurdy's Appeal 225 McDanielv. Chicago and W. R'y Co. 364 McDaniels v. Flower Brook M. Co. 574 McDermott v. Evening Journal 342 McDonough v. Bank of Houston 86 789 TABLE OF CASES. MacDougal v. Central R. R. Co. 376 V. Gardner 687 V. Jersey Imperial Hotel Co. 96,518 McElhenny's Appeal 84 McElroy v. Nashua and Lowell R. R. Co. 350 MoFarlan v. Triton Ins. Co. 738 MeGowan v. Wilmington, etc. R. R. Co. _ 475 McGregor, qui tarn v. Erie R'y Co. 407 McGregor v. Dover and Deal R'yCo. 305, 387 V. Home Ins. Co. 786 V. Kilgore 361 McHenry v. Jewett 578, 794 McHose V. Wheeler 537, 738, 740 Melntire v. Preston 137, 205 McKeag v. Collins 236 McKee v. Grand Rapids, etc. R'y Co. 636 McKeen v. Northampton County 479 McKelvey v. Crockett 703 McKiernan v. Lenzen 202 McKim V. Glenn 512, 741 McKinney v. Jewett 360 McLaren v. Franciscus 720, 749 McLaughlin v. Detroit, etc. R. R. Co. ' 510, 572 McLean v. Eastman 708 McLellon v. Detroit File Works 4 1 5, 665 McLendon v. Commissioners 326 McMahon v. Macy 737, 741 V. Morrison 421 McMannusu. Phila. etc. R. R. Co. 578 McMillen v. Boyles 325 V. Judge of Lee County 325 V. Micliigan Southern R. K. Co. 170, 359 McNeely v. Woodruff' 575, 577, 578 McNeil V. Tenth Nat. Bank 67S, 795 McNichol V. United States, etc. Agency 395, 472 McQueen v. Middletown M'f g Co. 396 McQuilken v. Cent. Pac. R. R. Co. ' 376 McRae v. Wilmington, etc. R. RCo. " 348 McReynolds v. Burlington and O. R'y Co. 178 Meacham v. Fitchburg R. R. Co. 179 Mead v. Keeler 637 j;. N Y. Housatonic, etc. R. R. Co. 409, 424 790 SEOTIOH Meads v. Merchants' Bank 244 V. Walker 515 Means's Appeal 713 Mechanics' Banking Ass. v. White Lead Co. 205, 244 Mechanics' Bank v. Bank of Co' lumbia 254 V. Heard 433 V. N. Y. and N. H. R. R. Co. 572, 599 V. Seton 210 Mechanics' Building Ass'n v. Stevens 529 Mechanics', etc. Bank v. Debolt 453, 483 V. Smith 196, 197 Mechanics' Foundry, etc. Co. v. Hall 513 Mechanics' Nat. Bank v. Burnet ' M'f'gCo 188, 189, 581 Medbury v. New York and Erie R R. Co. 252 Medomak Bank v. Curtis 214 Medway Cotton M'f'g Co. v. Adams 159 Meeker v. Winthrop Iron Co. 608 Meier v. Pennsylvania R. R. Co. 349, 350 Meints V. East St. Louis, etc. Mill Co. 660 Melhado v. Hamilton 572 V. Porto AUegre R. Co. , 87 Melledge v. Boston Iron Co. 159 Melvin v. Lamar Ins. Co. 779 V. Lisenby .^ 25S Memphis and L. R. E. Co. V. Dow 815, 816 a Memphis and L. R. R. Co. V. Railroad Commissioners 131, 132, 489, 490 Memphis Branch R. R. Co. v. Sullivan ' 518 Memphis City v. Dean 139, 140 Memphis, etc. R. R. Co. v. Ala- bama 412 Memphis, etc. R. R. Co. v. Par- son's Town Co. • 642 Memphis, etc. R. R. Co. v. United States 477 Memphis Gas Co. v. Shelby County 488, 489 Memphis Ga! Co. v. Williamson 140 Memphis Water Co. v. Magens 415 Menier v. Hooper's Telegraph Co. 558, 788 TABLE OF CASES. SECTION Mercantile B'k v. New York 484 Mercantile Ins. Co. v. Jaynes 144 Mercer Co. v. Racket 326, 330, 331 Mercer Co. Ins. Co. v. Strana- han 233 Merchants and Planters' Line v. Waganer 146, 560, 610, 689 Merchants' Bank v. Bergen County 329 Merchants' Bank v. State Bank 1 93, 204, 243, 335, 337 Merchants' Bank v. Stevenson 775 Merchants' Bank v. Shouse 600 Merchants' etc. Bank v. Stone 148, , 739 V. Trus- tees 663 Merchants' Despatch Trans. Co. V. BoUes 364 Merchants' Despatch Trans. Co. V. Joesting 359 Merchants' Despatch Trans. Co. V. Leysor 210, 359 Merchants' Despatch Trans. Co. Moore ' 363 Merchants' Despatch Trans. Co. V. Theilbar 357, 359 Merchants' Nat. Bank v. Bailey M'f g Co. 725 Merchants' Nat. B'k v. Hanson 302 Merchants' Nat. Bank v. Rich- ards 796 Merchants' Union Barb Wire Co. «. Rice 216 Mercier v. Canonge 210 Merrick v. Bank of the Metropo- lis 225, 233 V. Peru Coal Co. 627, 647 V. Reynolds Engine, etc. Co. 146 V. Santvoord 380, 381, 384 Merrill v. Grinnell 355 V. Reaver 529, 541 V. Shaw 737 V. SuflFolk Bank 435 Merrimack M'g Co. v. Bagley 587 Merritt v. Earle 350 V. l^ambert 195 V. Porchester 163 Merriwether v. Garrett 334 Mersey Docks «. Gibbs 169 Messenger v. Pennsylvania R. R. Co. 309 Messersmith v. Sharon Savings Bank 587 Methodist Episcopal Church r. Kendall 92, 93 Methodist E. Church v. BECTTOW Pickett 145, 148 Metropolitan City R'y Co. v. Chicago, etc. R'y Co. Metropolitan Elevated R. R. Co. V. Manhattan Elevated R. R. Co. _ 559; Metropolitan Omnibus Co. u. Hawkins Metropolitan R. R. Co. v. High- land St. R'y Co. 163 a Metropolitan Sv'gs B'k «. Balti- more Metropolitan Trust Co. v. Tona- wanda R. R. Co. ' Metz V. Buffalo, etc. R. R. Co. Mexican, etc. Co., Fn re Meyer v. City of Muscatine 328, 330 V. Hornby 817 V. Johnston 131, 421, 676, 822 Meyers v. C. R. I. and P. R. Co. 475 Miami Exporting Co. v. Clark V. Gano Miami Powder Co. v. Hotchkiss Michaels v. N. Y. Central R. R. Co. Michener v. Payson Michigan Central R. R Boyd Michigan Central R. R, Burrows Michigan Central R. R, Carrow Michigan Central R. Chicago, etc. R. R Michigan Central R. Coleman Michigan Central R. Hale Michigan Southern and N, R. Co. V. Caster Michigan Southern and N. J R. Co. V. Day Michigan Southern, etc. R. Co. V. Heaton Mickey v. Stratton Mickles v. Rochester City Bank Micou M. Tallassee Bridge Co. Middle Bridge Co. v. Marks 380 Middlebrook n. Merchants' Bank Middlesex Husbandmen Co. v. Davis Middlesex R. R. Co. v. Boston, etc. R. R. Co. Middlesex Turnpike Co, Co. ». Co. V. Co. V. 210, R. Co. V. . Co. R. Co. V. R. Co. V. J. R. R. R. 470 612 137 597 822 170 586 298 435 145 350 523 364 361 355 676 210 351 361 193 353 204 432 453 , 385 578 263 305 791 V. Locke 530, 531 V. Swan 530 TABLE OF CASES. SECTION Middleton v. McCartie 806 Middletown Bank v. Magill 720 Middletown Ferry Co. v. Mid- dletown 479 Midland, etc. R'y Co. v. Gordon 110 Midland R'y Co. v. Great West- tern R'y Co. 308 V. Taylor 693 Mihill's M'f g Co. v. Camp 210 Milburn v. City of CJedar Kapids 175 a V. Codd 784 Milford, etc. Turnpike Co. u. Brush 159 Miller v. Burlington, etc. R. R. Co. 336 V. English 574, 667 V. Ewer 380, 382. V. Great Republic, etc. Ins. Co. 749 V. Guerrard 799, 800 V. Hanover Junction, etc. R. R. Co. 521, 779, 780 V. Iowa Land Co. 629 V. Lancaster 424, 666 V. Porter 128 V. Prairie du Chien Ry. Co. 162 a u. Rutland, etc. R. R. Co. 385, 213, 675, 814, 816 a V. State 498 V. United States 479 V. White 737. 764, 770 «.. Wild Cat Gravel Road Co. 513 Miller's Case 614 Milliken v. Steiner 189 V. Whitehouse 737 Mills V. Central R. R. Co. 229, 556 V. Michigan Central R. R. Co. 360 u. Northern R'y Co. 565, 658 V. Scott 726 V. St. Clair County 453 \ V. Stewart 548 V. Western Bank 298 Milnor V. N. Y. and N. H. R. R. Co. 364, 385 Milroy v. Spur Mountain Iron M'gCo. ' 715 Miltenberger v. Logansport R'y 823, 824 Milwaukee v. N. Y. and N. H. R. R. Co. 383 Milwaukee, etc. R. R. Co. o. Arraes 377 Mims V. Macon, etc. R. R. Co. 163 Miners' Bank v. Iowa 410 792 SECTIOS Miners' Bank v.. United States - 503 Miners' Ditch Co. v. Zellerbach 264 Mining V. N. Y. C. & St. L. R. R. Co. 175a Mining Co. v. Anglo-California Bank 193 Minneapolis Harvester, etc. Co. V. Libby 544 Minnesota Co. v. St. Paul Co. 676, 819 Minor u. Mechanics' Bank 193, 231, 781 Minot V. Curtis 158 V. Paine 561, 800 Mississippi and M. R. R. Co. v. Cromwell 790 Mississippi and Tenn. R. R. Co. V. Devancy 164 Mississippi, etc. Boom Co. v. Prince 449 Mississippi Bridge Co. v. Ring 1 78 Mississippi Central R. R. Co. v. Caruth 173 Mississippi, etc. R. R. Co. v. Cross 97, 137, 521, 528, 529, 532 Mississippi, etc. R. R. Co. v. Gaster 225, 532 Mississippi R'y Co. u. McDonald 179, 495 Mississippi Valley Co. v. Chi- cago, etc. R. R. Co. 427, 676 Missouri Pac. R. R. Co. v. Lyde 365 Missouri Pac. Ry. Co. v. Hays 178 V. Humes 475 V. Stults 193 V. Tygard 518 V. Watts 170 Missouri River, etc. R. R. Co. v. Shirley 145 Missouri River R. R. Co. v. Ri- chards 647 Mitchell V. Beekman 51 1, 736 V. Deeds 234, 238 V. Hotehkiss 764, 771 V. Illinois and St. L. R. R. Co. 166 V. Rome R. R. Co. 204, 516 V. Vermont Mining Co. 547 Mobile and Girard R. R. Co. v. Copeland 363 Mobile and Montgomery R. R. Co. V. Steiner 852, 476 a Mobile and Ohio R. R. Co. v. Davis 822 Mobile and Ohio R. R. Co. v. Hopkins 353 TABLE OF CASES. Mobile and Ohio R. R. Co. v. Mosely 488 Mobile and Ohio R. R. Co. v. State 458, 475 Mobile and Ohio R. R. Co. v. Thomas 365 Mobile and Ohio R. R. Co. v. Weiner 353 M,obile and Ohio R. R. Co. v. Yandall 515 Mobile and S. H. R. R. Co. v. Kennedy 488 Mobile Mut. Ins. Co. v. CuUora 600 601, 604 Mobile R. R. Co. v. State 664 Mobile, etc. R. R. Co. v. Mc- Lelland 344 Mobile, etc. R. R. Co. v. Pre- witt ' 360 Mobley v. Breed 166 Mohr V. C. N. W. R. R. Co. 360 Mokelumne Hill Mining Co. v. Woodbury 451, 718 Monadnock R. R. v. Felt 518 Monell V. Northern Central R. R. Co. 364 Monroe ». Ft. Wayne, etc. R. R. Co. 263, 537 Monroe Savings Bank v. Roches- ter 477 a Monsseaux v. Urquhart 136, 578 Montclair v. Ramsdell 326 Montgomery v. Merrill 153 Montgomery County Agricultu- ral Soc. V. Francis 682 Montgomery, etc. R. R. Co., v. Boring 416 Montgomery, etc. R. R. Co. v. Branch 656, 657, 674 Montgomery, etc. R. R. Co. v. Moore 363 Montgomery Southern Ry. Co. V. Matthews 523 Montpelier, etc. R. R. Co. v. Langdon 537 Montrotier Asphalte Co., He 626 Monument Nat. Bank v. Globe Works 205 Moore v. Bank of Commerce 583, 601 V. Fitchburg R. R. Co. 347 V. Garwood 104 V. Hanover Junction R. R. Co. 630 V. Schoppert 432 V. Wayne Circuit Judge 895 Moores v. Citizens' Nat. Bank 598 Moorhead v. Little Miami R. R. Co. 163, 164 Moran v. Commiss'rs of Miami County 330 Moran v. New Orleans 485 Moreland v. State Bank 257 Morford v. Farmers' Bank 244 Morgan, Ex parte 780 Morgan County v. Thomas 415 Morgan v. Bank of North Ame- rica 600 V. Bank of the State of New York 672 V. Donovan 282 V. Louisiana 489, 490 V. New York and A. R. R. Co. 700 V. Railroad Co. 140 V. Skidd 696, 755 Morgan County v. Thomas 236 Morgan's Case 747 Morgan's Steamship Co. v. Louis- ana Board of Health 474 a Morrill v. Boston and Maine R. R. Co. 556 Morris v. Cheney 543, 123 V. Hall 389 Morris and Essex R. R. Co. v. Central R. R. Co. 163 a, 164, 166 Morris and Essex R. R. Co. v. Newark 175 a Morris and Essex R. R. Co. v. State 368 Morris and Essex R. R. Co. v. Sussex 204, 295 Morris Canal, etc. Co. v. Fisher 679 V. Nathans 618 V. Van Vorst 199, 240 Morris Run Coal Co. v. Barclay Coal Co. 309 Morrissey v. Easton R. R. Co. 372 Morrison v. Buckport, etc. R. R. R. Co. 173 V. Savage 45 Morrow b. Superior Court 722, 725 Morse v. Beale 204, 238 V. Minneapolis, etc. R'y Co. 366 Morse Arms M'Pg Co. v. United States 137 Morton v. New Orleans, etc. Ry. Co. 680 Morton Gravel Road Co. v. Wy- song 582 Moseby v. Burrow 432 Moses V. Oeoee Bank 719, 757 793 TABLE OF CASES. Moses V. Pittsbnrgh, F. W. and C. R. R. Co. 175 a Moshannon Land Co. v. Sloan 201 Mosher v. Southern Exp. Co. 363 Moss V. Averill 715 V. Oakley 718 V. Rossie Lead Mining Co. 204, 286 Moss's Appral 799 Mott V. Consumer's Ice Co. 339, 344 V. Hieks 159 V. Pennsylvania R. R. Co. 488 Moulin V. Insurance Co. 396 Mount Holly Paper Co.'s Appeal 603 Mount Holly Turnpike Co. v. Ferree 596 Mount Pleasant v. Beckwith 316 Mount Sterling Coal Co. v. Little 513 Mt. Washington Hotel Co. v. Marsh • 211 Mower v. Staples 557 Mowrey v. Indianapolis, etc. R. R. C"o. 536, 557 Moyer v. N. Y. C. and H. R. R. R. Co. 173 Mozley v. Alston 142, 554 Muds;ett v. Howell 740 MuUan v. Phila., etc. S. S. Co. 365 MuUarkey v. P. W. and B. R. R. Co. 363 Muller V. Dowes 408, 412, 413, 420 Mulligan V. 111. Cent. R. R. Co. 363 Mullins V. South and North R. R. Co. 449 a MuUoy V. Nashville and Decatur R. R. Co. 449 Mumford v. American L. Ins., etc. Co. 381 Mumma v. Harrisburg, etc. R. R. Co. 175 a V. Potomac Co. 435, 664 Munger v. Tonawanda R. R. Co. 369 Munhall V. Pennsylvania R. R. Co. 308, 309 Munn V. Illinois 450, 475, 476 a, 497 Munson v. Syracuse, etc. R. R. Co. 87, 630 Munt's Case 747 Murphy, Application of. Ex parte 796 Murphy v. Boston and A. R. R. R. Co. 365, 371 u. City of Louisville 312 V. C. R. I. and P. R. R. Co. 871 V. Deane 373, 376 V. Union Ry. Co. 348 Murray v. Lardner 679 794 Murray v. Nelson Lumber Co. 214 V. Vanderbilt 628 Murray's Lessee v. Hoboken Land Co. 471 Muscatine Turn Verein v. Funck 435, 436 Muschamp v. Lancaster R'y Co. 363 Musgrave v. Morrison 518 Mussey v. Eagle Bank 244 Mussina v. Goldthwaite 688 Mutual Benefit Life Ins. Co. v. Davis 276, 384 Mutual Fire Ins. Co. v. Stokes 449 Mutual Loan, etc. Ass'n v. Price 249 Mutual Savings Bank v. Meriden Agency Co. 267 Myer v. Car Company 818 V. Liverpool, etc. Ins. Co. 392 Mynard v. Syracuse, etc. R. R. Co. 353 Myrick v. Mich. Cent. R. R. Co. 363 N. Nabring v. Bank of Mobile 789, 794 Nagel V. Missouri Pac. Ry. Co. 371 Naglee U.Pacific Wharf Co. 588,796 Nashua Lock Co. v. Worcfester, etc. R. R. Co. 364 Nashville and C. R. R. Co. v. Cowardin 16S Nashville and C. R. R. Co. v. Jones , 518 Nashville and C. R. R. Co. v. Starnes 344 Na,shville Bank v. Petway 432 Nashville, etc. R. R. Co. v. Car- roll 362, 365 Nassau Bank v. Brown 764 , V. Jones 131, 161, 276 Nathan v. Whitlock 101, 586, 749, 780 National Albany Exchange Bank V. Wells 484 National Bank v. Case 587, 741, 747 V. Colby 435, 669 V. Commonwealth 482, 484 V. Graham 161, 337, 346 V. Insurance Co. 301, 432, 673 V. Kimball 492 V. Kirby 680 V. Lake Shore, etc. R. R. Co. 595 V. London 751 TABLE OF CASES. BECTIOW National Bank v. Matthews 161, 302, 303 V. Paige's Execu- tor 774 V. PhcEm'x Ware- housing Co. 149 V. United States [478 V. Watsontown Bank 240, 607 , V. Whitney 276, 302 V. Young 205, 285 National Bank of Commerce «. Nat. Mechanics' B'k'g Ass'n 245 National Build'gSoc'y, 7n re 645 National Condensed Milk Co. ». Brandenburg 396 National Docks R. R. Co. v. Central R. R. Co. 155, 163 National Exchange Co. v. Drew 232, 523 National Loan Ass'n v. Litchen- walner 715 National Patent Fuel Co., In re 645 National Pemberton Bank v. Porter 264, 293, 302 National Permanent B'l'd'g Soc, In re. Ex parte Williamson 265, 305, 311 National Security Bank v. Cush, man 210, 240 National Shoe and Leather Bank V. Mechanics' National Bank 495 National Trust Co. v. Miller 273 V. Murphy 384 Nation's Case 589, 748 Natoma Water M'g Co. v. Clar- kin 286 Natusch V. Irving 112, .268, 556 Naugatuck R. R. Co. v. Water- bury Button Co. 308 Nauvoo V. Ritter 829 Neal V. Moultrie 765 Neall V. Hill 611, 688 Neff V. Wolf River Boom Co. 415 Neiler v. Kelley 794 Neilson v. Chicago M. and N. R'yCo. 179 Neilson v. Crawford 737 Nelson v. Blakey 518 V. Eaton 125 V. St. Martin's Parish 333 V. Woodruff 351 Nesmith v. Washington Bank 601 Neustadt v. 111. Cent. R. R. Co. 488 New Albany v. Burke 746 New Albany, etc. R. R. Co. v. Fields . ' 521 SEOTIOS New Albany, etc. R. R. Co. v. Tilton 475 New Bedford R. R. Co. v. Old Colony R. R. Co. 415 New Buffalo v. Iron Co. 324 Newburg Petroleum Co. v. Weare 384 Newburger v. Howard & Co.'s , Express 359 Newbury v. Detroit, etc. M'f 'g Co. 588, 796 Newby v. Colt's Patent Fire Arms Co. 392 Newby v. Oregon Central R. Co. 137, 158, 662 Newcastle Marine Ins. Co., In re 586 Newell V. Great Western R'y Co. 396 V. Minneapolis, etc. R'y Co. 168 V. Smith 363, 417 V. Williston 796 New England Ex. Co. v. Maine Centrri R. R. Co. 309 New England F. Ins. Co. v. De Wolf 254 New England Fire Ins. Co. v. Robinson 249 New England Iron Co. v. Gil- bert EI. R. R. Co. 204 New England Mut. Ins. Co. v. Phillips 581 New England Mut. Life Ins. Co. V. Woodworth 395 Newhall V. Galena, etc. R. R. Co. 553 New Hampshire, etc. R. R. Co. V. Johnson 513, 614, 546 New Haven and Northampton Co. V. Hayden 162 a, 225, 305 New Haven, etc. R. R. Co. v. Chapman 530 New Haven Horse Nail Co. v. Linden Spring Co. 393 New Hope and Del. B'dge Co. v. Poughlfeepsie Silk Co. 299 New Hope, etc. Bridge Co. v. Phoenix Bank , 215, 240 New Jersey u. Yard 461 New Jersey Steam Nav'n Co. v. Merchants' Bank .'i51, 357 New Jersey Southern R. R. Co. V. Long Branch Commis- sioners 158 New Lindell Hotel Co. v. Smith 92 New Orleans v. Houston 477 a 795 TABLE OF CASES. SECTION New Orleans, etc. B. R. Co. v. Delaware 305 New Orleans, etc. R. R. Co. v. Jones 179 New Orleans, etc. R. R. Co. u. McDonald 319 New Orleans, etc. R. R. Co. v. Southern, etc. Tel. Co. 163, 163a New Orleans Gas Light Co. v. Louisiana Light, etc. Co. 154, 474 New Orleans J. and G. N. R. R. Co. V. Allbritton 349 New Orleans J. andG. N. R. R. Co. V. Jones 179 New Orleans J. and G. N. R. R. Co. V. Mitchell 374 New Orleans J. and G. N. R. R. Co. V. Moyl 179 New Orleans Nat. Bank v. Ray- mond 167 New Orleans, St. Louis, etc. R. R. Co. u. Burke 347, 378 New Orleans, St. Louis, etc. R. R. Co. V. Harris 553, 557 New Orleans M. and T. R'y Co. V. Mississippi 454 New Orleans Water Works Co. V. Rivers 474 Newport, and Cincinnati Bridge Co. ).. Woolley 407 Newport, etc. Bridge Co. v. Douglass 668, 822 Newry, etc. R'y Co. v. Coombe 515 V. Edmunds 511 New Sombrero Phosphate Co. ii. Erlanger 82 Newton V. Commissioners 316 Newton M'f'g Co. v. White 150, 189, 429 New York and Canada R. R. Co. V. Gunnison 163 'New York and Erie R. R. Co. V. Ketchum 86 New York and Erie R. R. Co. V. Shepard 412, 413 New York and Harlem R. R. Co. V. Kip 163 New York and N. E. R. R. Co. V. New York, etc. R. R. Co. 193, 210, 305, 420 New York andN. H. R. R. Co. V. Schuyler 133, 208, 329, 338, 342, 541, 590, 591 New York Cable Co. v. Mayor, etc. ofN. Y. 168 New York Central, etc. R. R. Co., Matter of 163 796 SECTION New York Central and H. R. R R. Co. V. Metropolitan Gas Light Co. 163 New York Dry Dock v. Hicks 384 New York Elevated R. R. Co., Matter of ' 460 New York Firemen's Ins. Co. v. Sturges _ 120, 204 New York Floating; Derrick Co. V. New Jersey Oil Co. 381 New York Guaranty, etc. Co. ■u. Memphis Water Co. 815 New York, H., and N. R. R. Co. V. Boston H. and E. R. R. Co. 162 New York, Housatonic, etc. R. R. Co. V. Boston, Hartford, and Erie R. R. Co. 163 a, 164, 166 New York Iron Mine v. First Nat. Bank 148, 201, 739 New York, L. and W. Ry. Co., In re 162 a, 166 New York, L. E. and W. Ry. Co. V. Haring 338 New York, L. E. and W. Ry. Co. u. Nickals 564 New York Marbled Iron Works V. Smith 432 New York State Loan and Trust Co. !'. Helmer 298 New Zealand Banking Co., In re, Sewell's Case 211 Niantio Savings Bank v. Town of Douglas 324 Nicholas v. N. Y. Cent, and H. R. R. R. Co. 353 Nichols V. Bridgeport 166 V. Mase 257 V. New Haven and N. Co. 490 Nichols's Case 110 Nicholson v. Npw York and N. H. R. R. Co. 179 Nickerson v. Wheeler 764, 805 NicoU V. N. Y. and E. R. R. Co. 128 Niemeyer v. Little Rock, etc. R. R,. Co. 155 Nieto V. Clark 347 Nimick w. Mingo Iron Works 393 Nimmons v. Tappan 432 Nippenoze M'f g Co. v. Stadon 521 Nitro-glycerine Case 369 Nixon V. Brownlow 110 j>. Green 720 Noble V. Callender 701 Nookles V. Crosby 104 TABLE OF CASES. SECTION Noesen v. Town of Port Wash- ington 319, 531 Nolton V. Western R. R. Co. 352 Norman v. Mitchell 110 N. O. J. & G. N. R. Co. V. Wallace 392 Norris v. Crocker 764 V. Johnson 725 V. Mayor, etc. of Smith- ville 433 V. Trustees of Abington Academy 453 V. Wrenshall 714 North V. Forrest ' 789 V. State 151 North American Building Ass'n V. Sutton ' 599 Northampton Bank v. Pepoon 233, 235 North Branch Pass'r Ry. Co. v. City Pass'r R'y Co. 163 a North Carolina, etc. R. R. Co. V. Carolina Central Ry. Co. 163, 163 a North Carolina R. R. Co. v. Commissioners 479 North Carolina R. R. Co. v. Leach 521 North East and S. W. Ala. R. R. Co., Ex parte 495 North Missouri R. R. Co. v. Akers 392, 396 North Missouri R. R. Co. v. Maguire 4 88 North Penn. R. R. Co. v. Reh- man 369 North River Ins. Co. v. Law- rence 276 North Shore, etc. Ferry Co., Re 578 North Stafford Steel, etc. Co. v. Ward 96 North State Copper, etc. Co. v. Field 392, 394 Northern Bank v. Porter Town- ship 332 Northern Central R. R. Co. v. Bastian ■ 238 Northern Central R. R. Co. v. Eslow 515 Northern Central R. R. Co. v. Mayor, etc. Baltimore 163 a Northern Central R. R. Co. v. State 372 Northern R. R. v. Concord and C. R. R. 163a Northern Transportation Co. v- Chicago 384 SECTION Northern Transportation Co. v. Derby Nat. B'k 241 Northern Transportation Co. v. McClary 361 Northrup v. Mississippi Valley Ins. Co. 210 Northwestern Distilling Co. v. Brant 159 Norton V. Norton 796 V. Shelby Co. 321 Norway Plains Co. v. Boston and M. R. R. Co. 360 Norwich, etc. Nav. Co. v. Theo- bald 96 Norwich Yarn Co., Re 645 Nottingham v. Baltimore and P. R. R. Co. 175 a Nourse v. Prime 794 Noyes v. Smith 365 V. Spaulding 792, 795 Nugent V. Supervisors 320, 324, 420, 530 Nulton V. Clayton 513 Nutter V. Lexington, etc. R. R. Co. 518 Nutting V. Conn. River R. R. Co. 363 V. Thomasin 797 O. Oakes v. Turquand 523 Oakland Bank v. Wilcox 616 Oakland R. R. Co. v. Oakland, Brooklyn, etc. R. R. Co. 458 Gates V. National Bank 318 O'Brian v. Knivan 188 O'Brien v. Cummings 748 Occidental Ins. Co. v. Ganzhorn 523, 537 Ocheltree v. Railroad Co. 735 O'Connell v. B. and O. R. R. Co. 365 O'Connor v. Chicago, etc. Ry. Co. 210 O'Connor v. Fond du Lac, etc. R'y Co. 173 O'Connor v. North Truckee Ditch Co. 561 Odd Fellows' Hall Co. I;. Glazier 613 Odell V. Odell 128 Ogden V. City of St. Joseph 477 a V. County of Daviess 320 Ogilvie V. Knox Ins. Co. 661, 705, 706, 744 Ogles. Knipe 567 797 TABLE OF CASES. SECTION OgIesby>j). Attrill 554 O'Hara v. Lexington and O. E. R. Co. 163 Ohio B. Frank 826, 680 Ohio and M. E. R. Co. v. Dick- erson 350 Ohio and M. E. K. Co. v. Dunbar 170 Ohio and M. R. R. Co. v. Indi- anapolis, etc. R. R. Co. 308 Ohio and M. R. E. Co. v. Mc- Clelland 475 Ohio and Mississippi E. R. Co. V. McPherson 381 Ohio and Mississippi E. E. Co. V. Eussell 170 Ohio and Mississippi E. E. Co. V. Selby 353 Ohio and Mississippi E. E. Co. V. Weber 479, 485 Ohio and Mississippi R. R. Co. w.' Wheeler 408, 412 Ohio, etc. R. R. Co. v. Yohe 350 Ohio Insurance Co. v. Munne- macker 21 Ohio Life Ins. Co. v. Merchants' Ins. Co. 391 Oil Creek, etc. R. R. Co. v. Penn. Transp. Co. 276, 280 Oloott V. Supervisors 319, 468 V. Tioga E. E. Co. 204, 308 Old Colony, etc. E. R. Co. v. Plymouth 163 a Oldham v. First National Bank 161, 302 Oldtown R. E. Co. v. Veazie 133, 499 Oler V. Baltimore, etc. E. R. 529, 541 Oliphant v. Woodburn Coal and M'g Co. 124, 690 Omaha, etc. R. R. Co. v. Mar- tin 371 Oneida Bank u. Ontario Bank 313,734 O'Neill V. New York C. and H. R. E. E. Co. 360 Opsahl V. Judd 372 Orange County Bank v. Brown 355 Orchard v. Hughes 293 Oregon v. Jennings 329 Oregon Central E. E. Co. v. Scoggin 537 Oregon Ey. Co. v. Portland 163 a Oregonian Ry. Co. v. Hill 166 O'Reilly V. Bard 783 Ormsby v. Vermont, etc. Co. 381, 381 798 SECTION Orndorff v. Adams Express Co. 353 Orr V. Bracken County 502 V. Lacey 298 V. Quimby 470 Osborn v. Crosby 92 V. People 153 Osborne u. County of Adams 319 V. Knox, etc. E. E. Co. 366 V. Mobile 485 V. Osborne 801 V. Tunis 204, 248 Osborne & Cheeseman Co. v. Crooney 769 Osgood V. King 702 V. Laytin 705, 708 V. Ogden 730 Ossippee H. and W. Co. v. Can- ney 127, 205, 286, 537, 738 Oswego Starch Factory v. DoUo- wav 477 a, 479 Otis V. Gardner 794, 795 Otoe County v. Baldwin 319, 325 Ottawa V. Gary 321 V. National Bank 326 Ottawa, etc. E. E. Co. v. Black 529 V. Hill 521 Otten «. Eichmond, etc. E. E. Co. 876 V. Smith 436, 437 V. Whitaker 581 Otter V. Brevoot Petroleum Co. 545, 599 Ouachita Packet Co. m. Aiken 474 c Oubre ji. Donaldsonville 326 Overend v. Gurney 620, 695 Overend & Gurney Co. *. Gibbs 620, 695 Overmeyer v. Cannon ° 725 Owesley o. Montgomery E. E. Co. 342 Oxford Iron Co. v. Spradley 125, 204, 286 P. Pace v. Burgess , 480 Pacific Railroad Co. v. Chrystal 179 V. Ketcham 627, 630 Pacific E. E. Co. v. Hughes 530 V. Maguire 488 V. Missouri Pac. E. E. Co. 140 i>. Seeley 162 V. Th6mas 193, 212 Pacific E. R. Removal Cases 413 TABLE OF CASES. 630 350 122 474 ft 474 6 474 6 103, 696 V. Com- 167 Co. V. 125, Pacific R. R. of Mo. v. Mis- souri Pac. Ry. Co. Packard v. Taylor Packer v. Sunbury and Erie R. R. Co.- Packet Co. v. Catlettsburg V. Keokuk V. St. Louis Paddock v. Fletcher Paduoah, etc. R. R. Co, monwealth Paducah, etc. R. R. Hoehl Page V. Chicago M., etc. R'y Co V. Heinburg Paige V. Smith Paine v. Hutchinson V. Lake Erie, etc. R Co. V. Stewart Palairet's Appeal Palestine Co. v. Wooden Palfrey v. Paulding Palmer v. Forbes V. Missouri Pac. R'y Co, V. Nassau Bank V. Ridge Mining Co. V. Yates Pana v. Bowler 318, 329, 831 Panama, etc. Telegraph Co. v. India Rubber, etc. Telegraph Works Co. Pangborn v. Citizens' Building Ass'n Pardee v. Drew Parish v. Wheeler 276, 277, 303 Park V. Grant Locomotive Works V. Petroleum Co. Parke v. Commonwealth Ins. Co. Parke's Appeal Parker v. Boston and M. R. R. V. Kett V. McKenna 629, 631 V. Metropolitan R. R. Co. 502 V. Nickerson 263, 629, 631, 647 V. Northern Central, etc. R. R. Co. 515, 516 Parkersburg v. Brown 319, 456, 477 Parkin v. Fry Parks V. Tel. Co. Parrott v. Byers I). Colby Parsons v. Spooner V. Winchell Passenger Cases Passenger R. R. Co Passenger Ry. Co. v. Boudron Passmore v. Western Union Tel. Co. Patrick v. Boonville Gas Lieht Co. V. Reynolds Patterson v. Clyde V. B. and M. R. R. Co. Kentucky SECTION 378 376 178 128 395 791 R. 424, 627 724, 749 163 501 449 676 36H 628 587 234 637 618 355 308 563 138 396 162 178 188 V. Lynde V. Wallace Pattison v. Albany Building Ass. V. Syracuse Nat. Bank Paul V. Virginia Paulding v. Chrome Steel Co. 357 633 77 359 376 4696 703, 704 '366 147 161 382 185, 81 357 588 715 85 752 474 6, 485 Young 347 Paulman v. Erie R. R. Co. Paup V.' Drew Paxton Cattle Co. v. First Nat. B'k Payne v. Bullard V. Commercial Bank V. New South Wales Coal Co. Payne's Case Payson v. Stoever V. Withers Peabody v. Flint Pearce v. Madison, etc. R. Co. 195, 264, ■Pearson v. Duane V. Tower V. Wheeler Peavy v. Calais R. R. Co. Peck V. Coalfield Coal Co. 300, 668 365 507 90 709 241 211, 87 586 213 527 559, 688 R. 305, 418 348 688 417 166 545, 702, 717 V. Cooper 755 V. Gurney 755 V. Miller 734 V. N. Y. C. and H. R. R. R. Co. 348 Peckham v. Hendren 210 V. North Parish 396 V. Van Wagenen 798 Peebles v. Patapsco, etc. Co. 342 Peek I.. Detroit Novelty Works 210 Peel V. Phillips 775 Peet V. Chicago and N. W. R'y Co. , 362, 363 Peete v. Morgan 480 Pegram v. Charlotte, etc. R. R. Co. 630 Peik i». Chicago, etc. R'y Co. 474 c, 476 a Peirce v. Jersey Water Works 518 Pell's Case 545, 702 Pelton V. National Bank 484 799 TABLE OF CASES. Pelton V. Renssellaer, etc. E. E. Co. 360 J'emberton v. N. Y. C. E. E. Co. 359 Pendergast v. Bank of Stockton 601 Pendleton v Kinsley 347 Peninsular E'y Co. u. Duncan 109 Penn Bank v. Hopkins 756, 758 Penn Match Co. v. Hapgood 86, 87 Penniman's Case 493, 494 Pennock v. Coe 815 Pennoyer v. Neff 395, 472 Pennsylvania D. Quicksilver Co. 413 Pennsylvania Canal Co. v. Bentley 376 Pennsylvania Co. v. Roy 350 V. Wentz 475 .Pennsylvania, etc. Nav. Co. v. Dandridge 283 Pennsylvania Co. v. Toomey 344 V. Woodsworth 350 Pennsylvania E. E. Co. v. Balti- more and C. E. E. Co. 163 a Pennsylvania E. R. Co. v. Berry 363 Pennsylvania E, E. Co. v. Butler 353 Pennsylvania E. E. Co. v. Hen- derson 853 Pennsylvania E. E. Co. v. New YorkandL. B.'E. R. Co. 171 Pennsylvania R. R. Co. v. Richter373, 374 Pennsylvania E. E. Co. v. Schvpar- .zenberger 363 Pennsylvania E. E. Co. v. Sly 416 Pennsylvania E. R. Co. v. St. Louis, etc. R. E. Co. 305, 409 Pennsylvania E. E. Co. v. Van- diver 348 Pennsylvania E. E. Co. u. Weber 376 Pennsylvania R. R. Co.'s Appeal 122, 163 a, 470, 592, 641 Pennsylvania Transportation .Co.'s Appeal 415, 711 Penobscot, etc. E. E. Co. v. Bartlett 96 Penobscot, etc. E. E. Co. v. Pummer 96, 108, 263 Penobscot, etc. E. R. Co. w. .Dunn 229, 513 Pensacola Tel. Co. v. Western Union Tel. Co. 383, 474 a Pentz V. Citizens' Fire Ins. Co. 583 People V, Albany, etc. R. E. Co. 454, 460, 574, 677, V. Batchelor 573, 674 V. Board of Governors 575 V. Bogart 459 ,v. Boston and Albany E. R. Co. 457, 475 800 SECTION People u. Commissioners 484,489 V. Campagnie Generale Transatlantique 474 6, 480 V. Crockett 601 V. Crossley 576, 579 V. Cummings 688 V. Draper 464 V. Empire Mut. L. Ins. Co. 659, 665 V. Equitable Trust Co. 477 d, 479 V. Fire Association 383, 400, 480 V. Fishkill Plank Eoad Co. 459 V. Flint 437 V. Glann 320 V. Globe Mutual Ins. Co. 649 V. Hektograph Co. 140, 611 V. Holden 320 V. Home Ins. Co. 484 V. Horn Silver M'g Co. 479 V. Howard 386 V. Humphrey 470 V. Improvement Co. 460 i>. Kerr 171, 175, 175 a V. Kingston and Middle- town Turnpike Co. 459 V. Lake Shore, etc. E. R. Co. , 585 V. La Rue 128 V. Manhattan Co. 453, 460 V. Manhattan Gas Light Co. 454 V. Marshall 667 V. Metropolitan E'y Co. 224, 563 V. Mott 808 V. National Trust Co. 437 V. N. Y. C. and H. R. E. Co. 455, 502 • , y. North Chicago Ey. Co. 459 V. N. Y., L. E. and W. E. E. Co. 454, 455 V. Oakland County Bk. 121 V. O'Brien 504 V. Ottawa Hydraulic Co. 460 V. Pacific Mail S. S. Co. 585 V. Perrin 157 V. Pittsburgh E. R. Co. 457 V. Robinson 578 V. Salem 319, 476 V. Saratoga, etc. E. E. Co. 474 c V. Security Life Ins. Co. 813 V. Selfridge 451 V. State Treasurer 139 TABLE OF CASES. SECTION People V. Sterling M'fg Co. 591 V. Supervisors 472, 480 V. Throop 808 V. Twaddell 228, 4.'52, 579 People V. Utica Insurance Co. 120, 161, 293, 457, 459 t'. Wabash, etc. R'y Co. 474 c V. Walker 432 V. Weaver 484 People's Bank v. Kurtz 793 V. National Bank 239, 241 People's Ferry Co. v. Balch 518 People's Gas Light Co. v. Chi- cago Gas Light Co. 454 People's Mut. Ins. Co. v. West- cott 190, 540, 573, 574 People's Savings Bank 0. Cupps 199 Peoria and P. W. Ry. Co. v. Chicago, etc. Ry. Co. 362 Peoria and P. W. Ry. Co. v. Peoria and F. R'y Co. 155, 163 a Peoria and R. I. R. R. Co. v. Coal Valley M'g Co. 305 Peoria and R. I. R. R. Co. v. Lane 170 Peoria and R. I. R. R. Co. u» Preston 518, 530 Peoria and Springfield R. R. Co. V. Thompson 270, 280 Peoria P. and I. R. R. Co. v. Black 1 79 Percy v. Millaudon 228, 620 Perin v. Carey 128 Perkins v. Church 722 V. Eastern R. R. Co 369 I'. Missouri, K. and T. R. R. Co. 347, 378 V. New York Central R. R. Co. 353 v. Sanders 704 1'. Union Button-hole, etc. Machine Co. 519 V. Watson 298 Pcrley v. N. Y. C. and H. R. R. R. Co. 355 Perrine v. Chesapeake and Dela- ware Canal Co. 122 Perrine v. Chesapeake and Dela- ware Canal Co. 122 Perry v. Hale 104 0. Little Rock, etc. R'y Co. 86 V. Simpson Waterproof M'f g Co. 212 V. Thompson 359 B. Turner 725 Peru Iron Co., Ex parte ° 204 51 Peterborough R. R. Co. v. Ns/- shua and L. R. R. Co. 212 Peters v. Lincoln and N. W. R. Co. 185 Petersburg Savings, etc. Co. v. Lumsden 605 Petre v. Eastern Counties R'y Co. 88 Petty V. Myers 319 Pew V. Gloucester Nat. Bank 647 Peychard v. Hood 745 Pfeifer v. Sheybogan, etc. R. R. Co. 415 Pfleger v. Hastings 178 Pfohl V. Simpson 669, 705, 725, 813, 814, 825, 826 Pfyfe V. Eimer 406 Phelan v. Hazard 545, 702 Phelps V. Farmers', etc. Bank 562 V. Illinois Central R. R. Co. 350 V. Wait 752 Phenix Bank v. Curtis 137 Philadelphia and Bait. Cent. R. R. Co. V. Johnson 682 Philadelphia and E. R. R. Co. V. Cake 179 Philadelphia and Reading R. R. Co. V. Derby 335, 350, 352 Philadelphia anjd Reading R. R. Co. e. Ramsey 363 Philadelphia and Reading R. R. Co. V. Smith 680 Philadelphia and Reading R. R. Co. V. Spearen 372 Philadelphia and Reading R. R. Co. V. Stichter 125, 126 Philadelphia and Reading R. R. Co. V. Yerger 368 Philadelphia and Wilmington R. R. Co. V. Maryland 490 Philadelphia Contributionship v. Commonwealth 484 Philadelphia, etc. R. R. Co. v. Hickman 518 Philadelphia, etc. R. R. Co. v. Lewis 204 Philadelphia, etc. R. R. Co. v. Maryland 421 Philadelphia, etc. R. R. Co. v. Philada., etc. Towboat Co. 170 Philadelphia, etc. R. R. Co. v. Quigley 335, 838, 342 Philadelphia, etc. S. S. Co. v. Pennsylvania 485 Philadelphia Fire Ass'n v. New York 400 Philadelphia Loan Co. v. Towner 298, 313 801 TABLE OF CASES. SECTION Philadelphia Pass'r R'y Co.'s Appeal 465, 470 Philadelphia v. Western Union Tel. Co. 305 Philadelphia, W. and B. E. R. Co. V. Bowers 4 76 6 Philadelphia, W. and B. R. R. Co. V. Kent County R. R. Co. 409 Philadelphia, W. and B. R. R. Co. V. Larkin 377 Philadelphia, W. and B. R. R. Co. V. Lehman 361 Philadelphia, W. and B. R. R. Co. 0. Woelpper 676 Phillips, In re 749 Phillips w. Campbell 193,197 V. Covington, etc. Bridge Co. 518 V. Dunkirk, etc. R. R. 163, 175a, 473 V. Earle 356 V. Therasson 719 V. AViekham 432, 579 V. Winslow 125, 671 V. Wortendyck 752 Phillips Limerick Academy v. Davis 92 Phoenix Bank v. Donnell 137 V. Risley 672 Phoenix Ins. Co. v. Common- wealth 383, 480 V. Welch 400, 480 Phoenix Iron Co. v. Common- wealth 585 Phoenix Warehousing Co. v. Badger . 521 Phosphate of Lime Co. v. Green 213 Phosphate Sewage Co. v. Har- mont 82 Pickard v. Pullman Southern Car Co. 485 Pickering v. Stevenson 231, 275, 622 Piedmont M'f g Co. v. Columbia, etc. R. R. Co. 363 Pier V. George 771 V. Hanmore 764, 774 Pierce V. Crompton 384, 389, 394 V. Drew 175, 357 V. Emery 305, 676, 814 V. Jersey Waterworks Co. 96 V. Milwaukee Construction Co. 706 Pike V. Bangof, etc. R. R. Co. 517 Pinckney v. Western Union Tel. Co. , 357 Pjngry v. Washburn 309, 476 b 802 SECTION Pinney v. First Div. St. P., etc. R. R. Co. 360 Pioneer Paper Co., Matter of 577 Piscatauqua Ferry Co. v. Jones 516, 521 Pitchford v. Davis 96 Pittsburgh and C. R. R. Co. a. Bedford, etc. R. R. Co. 305 Pittsburgh and C. R. R. Co. v. Pillow 347 Pittsburgh and L. E. R. Co. v. Bruce 175 a Pittsburgh and L. E. R. Co. v. Robinson 178, 179 Pittsburgh, etc. Coal Co. v. Ot- terson 587 Pittsburgh, etc.- R. R. Co. v. Applegate 516, 740 Pittsburgh, etc. R. R. Co. v. Bentley 178 Pittsburgh, etc. R. R. Co. v. Biggar 517, 518 Pittsburgh, etc. R. R. Co. v. Clarke 511,587,589 Pittsburgh, etc. R. R. Co. v. Gazzam 511 Pittsbtirgh, etc. R. R. Co. v. Hollowell 350, 861 Pittsburgh, etc. R. R. Co. v. Robinson 178 Pittsburgh, etc. R. R. Co. v. - Rnbv 210 Pittsburgh, etc. R. R. Co. u. Southwest. Penn. R. R. Co. 163 a, 475 Pittsburgh, etc. R. R. Co. v. Stewart Pittsburgh, C. and St. L. R. Co. V. Barrett Pittsburgh, C. and St. L. R. Co. V. Nash Pittsburgh, C. and St. L. R. Co. V. Nelson Pittsburgh, C. and St. L. R. Co. V. Theobald Pittsburgh, C. and St. L. R. Co. V. Thompson Pittsburgh, C. and St. L. R. Co. V. Vandine Pittsburgh, C. and St. L. R. Co. V. Williams Pittsburgh, Cincinnati, etc. R. Co. !-. Moore Pittsburgh, Cincinnati, etc. R. Co. V. Morton Pittsburgh, Ft. W. and C. R'y Co. u. Bingham 517 360 860 366 210 349 348 849 418 850 871 TABLE OP CASES. Pittsburgh, Ft. W. and C. R'y Co. V. Divinney 366 Pittsburgh, Ft. W. and C. R'y Co. V. Hazen 361 Pittsburgh, Ft. W. and C. R'y Co. V. Hinds 347 Pittsburgh, Ft. W. and C. R'y Co. V. Lewis 363 Pittsburgh, Ft. W. and C. R'y Co. V. Slusser 377 Pittsburgh, V. and C. R'y Co. V. Bentley 178 Pixley V. Roanoke Nav. C6. 1 53 156, 457 V. Western Pae. R. R. Co. 249 Place V. Union EsSp. Co. 361 Planters' Bank o. Padgett 148 V. Sharp 211, 298, 453 K. Whittle 759 Planters', etc. Mut. Ins. Co. %k Selma Sav. Bank 604 Piatt V. Archer 435 V. Birmingham Axle Co. 210, 603 Player v. Burlington, etc. R'y Co. 350 Plimpton V. Bigelow 882, 392 Plummer v. Penobscot Lumber- ing Ass'n 120 Plymouth R. R. Co. v. Colwell 671 Pneumatic Gas Co. v. Berry 622 Poland V. Lamoille Valley R. R. Co. 816 a, 824 Pollard V. Bailey 726, 826 V. State 483 Pollock V. Shultze 224 V. National Bank 593 Pomeroy's Lessee u. State Bank 436 Pompton V. Cooper Union 330 Pond V. Framingham, etc. R. R. Co. 663 V. Vermont Valley R. R. Co. 560, 688 Pondville Co. v. Clark 663 Pontchartrain v. New Orleans, etc. R. R. Co. 152 Pontchartrain R. R. Co. u. Heirne 210 Pope V. Bank of Albion • 244 V. Brandon 668 V. Terre Haute Car Manu- factory 398, 472 Port V. Russell 628 Port of London Ass. Co.'s Case 311 Port Royal R. R. Co v. Ham- mond 406, 409 Porter v. C. R. I. and P. R. R. Co. 344 V. Chicago and R. I. R. Co. 360 V. Northern Missouri, etc. R. R. Co. 175 a u. Rockford, etc. R. R. Co. 477, 477 a, 492 a Portland Bank v. Apthorpe 488 Portland, etc. R. R. Co. v. Gra- ham 547 Post V. Supervisors 320 V. Toledo, etc. R. R. Co. 393 Potter V. Greenwich 321 V. Merchants' Bank 239 V. Stevens Machine Co. 733 V. Thornton 128 Poucher v. New York C. R. R. Co. 353 Poughkeepsie, etc. Plank R. Co. V. Griffin 92 Poulton V. London and South- western R'y Co. 339 Powell V. North Missouri R. R. Cq. 665 V. Pennsylvania R. R. Co. 353 Power II. Holly 804 V. O'Connor 804 Powers V. Hazleton, etc. R'y ■Co. 155, 178 Prather v. Jeffersonville, etc. R. R. Co. 163, 164 V. Western Un. Tel. Co. 162 a Pratt V. Boston and Albany R. R. Co. 593 V. Jewett 610 V. Pratt 556, 562 V. Railway Co. 360 V. Short 298, 299 V. Taunton Copper M'f'g Co. 593 Pray v. Mitchell 789 Prendergast v. N. Y. C. and H. R. R. R. Co. 372 Prentice v. Decker 353, 359 Prentiss v. Nichols ' 668 Presbrey v. Old Colony and N. R. R. Co. 178 Presbyterian Church v. City of New York 572 Presbyterian Society v. Auburn, etc. R. R. Co. 175 a Preston v. Liverpool, etc. R'y Co. 87, 88 V. M^ville 800 803 TABLE OF CASES. SECTION Preston v. Missouri, etc., Lead Co. 233 Price V. Anderson 800 V. Grand Rapids, etc. R. R. Co. 260 u. Milwaukee, etc. R. R. Co. 1 78 V. New Jersey R. R. Co. 369 V. Oswejro, etc. R. R. Co. 360 Price's Appeal 513 Priestley v. Northern Ind., etc. R. R. Co. 361 Prince v. Commercial Bank 137 Pringle v. Woolworth 144 Pritchard v. Norton 493 Propellor Niagara v. Cordes 350, 351 Proprietors, of Locks and Canals V. Nashua and Lowel R. R. Co. 162 a, 163, 178 Prospect Park, etc. R. R. Co., Re 163 a, 420 Prospect Park, etc. R. R. Co. v. Williamson 163 a Protection Life Ins. Co. v. Os- good ' 599 Prouty V. Lake Shore, etc. R'y Co. 426 V. Michigan Southern, etc. R. R. Co 394, 564, 572 Providence Bank v. Billings 488 Provident Institution v. Massa- chusetts 482 Prov. Savings Inst. v. Jackson Place Skating Rink 501, 714, 749 Pruitt V. Hannibal and St. Jo. R. R. Co. 193 Pueblo, etc. R. R. Co. v. Rudd 163, 166 Pugh V. Chesseldine 642 V. Fairmount M'g Co. 682 Pugh and Sherman's Case 742 Pulien V. Cincinnati, etc. R. R. Co. 125, 305, 676 Pullman Palace Car Co. v. Reed 348 V. Smith 347 Pullman v. Upton 541, 587, 741 Pumpelly v. Green Bay Co. 173, 473 Purcell V. Southern Exp. Co. 353 Putnam v. Broadway, etc. R. R. Co. 347 Putnam v. New Albany 745, 746 Pyralusite Manganese Co., Mat- ter of 430, 610 Pyralusite Manganese Co. v. Ward 480 804 Q. 8ECTI0K Queenan v. Palmer 726 Quested v. Newburyport Horse R. R. 170 Quick V. Lemon 513 Quimby v. Vanderbilt 364 Quincy v. Jackson 333 0. Steel 141 Quincy Bridge Co. v. Adams County 406 Quincy Coal Co., v. Hood 210 Quiner v. Marblehead Ins. Co 589 R. Raber v. Jones 774 Racine and Miss. R. R. Co. v. Farmers' L. and T. Co. 248, 406, 420, 665 Racine County Bank v. Ayres 517 Ragan v. Aiken 131, 309 Rahm v. Bridge Manufactory 209 Rahway v. Munday 333 Railroad Co. v. Alabama 462 V. Androscoggin Mills 362, 363, 364 V. Baldwin 383 V. Barron 170 V. Brown 305 V. Bruraley 364 ' V. Commissioners 489 V. County of Hamb- len 490 V. County of Otoe 319 V. Falconer 322 V. Fraloff 353, 355 V. Fuller 474 c V. Furnace Co. 224 V. Georgia 421, 468, 491 f. Gladraon 375, 376 V. Hambleton 175 a V. Hamersley 475 V. Hanning 170 V. Harris 408, 412 V. Hecht 493, 495 V. Houston 368, 374 V. Howard 127, 183,656, 679, 702, 711 « V. Husen 474 c V. Jackson 479 V. Koontz 412 V. Look wood 350, 352 " V. Maine 491 V. Manufacturing Co. 359, 360 I). Maryland 474 c, 485 TABLE OF CASES. SECTION Kailroad Co. v. McClure 468 V. National Bank 318, 468 V. Peniston 482 V. Pollard 169, 351 V. Pratt 362, 363 V. Reeves 351 V. Richmond 474 c, 475, 476 V. Rodrigues 548 V. Schurmeir 176 V. Schutte 210 V. Skinner 369 V. Soutter 663, 815 V. Stevens 352 V. Stout 372, 375 V. Telegraph Co. 276 V. Tennessee 462 V. Vance 477 a V. Walrath 349 V. Yeiser 368 Railroad Commission Cases 476 b Railroad Companies v. Gaines 489, 490 Railroad Com'rs v. Portland, etc. R. R. Co. 454 Railroad Tax Cases 480, 492 a Railway Co. v. Allerton 133, 227, 228, 555 V. Ailing 645, 651, 684, 757 V. Lavirrence 175, 175 a v% Loftin 489 V. McCarthy 121, 362 V. Orr 815 u. Philadelphia 489 V. Renwick 174 V. Sprague 674, 680 V. Stephens 350 V. Valleley 348 V. Whitton 400, 408, 411, 412 Raleigh and Augusta Air Line 0. Wicker 178, 179 Raleigh and Gaston R. R. Co. v. Reid 488 Raleigh and G. R. R. Co. v. Davis 163 Ralls County Court v. United States 333 Ramsden v. Boston and A. R R. Co. 335 Ramsey v. Peoria, etc. Ins. Co. 146 Ramsgate, etc. Hotel Co. v. Mon- tefiore 517 Ranee's Case 622 Randall v. Baltimore and O. R. R. Co. 366 Randall v. Van Vechten 248, 753 Ranger v. Great Western R'y Co. 335 Rankine v. Elliott ' 707 Raritan and D. B. R R. Co. u. Delaware, etc. Canal Co. 152 Rashdall v. Ford 754 Rathbun v. Citizens' Steamboat Co. 360 Raw V. Minnesota Valley R. R. Co. 173 Rawson V. Pennsylvania R. R. Co. 359 Raymond v. Palmer 757 Raynay v. Alexander 97 Read V. Frankfort Bank 665 V. City of Plattsmouth 325 V. Memphis Gayoso Gas Co. 234, 518 V. Spaulding 350 V. St. Louis, etc. R. R. Co. 361 Reapers' Bank v. Willard 495 Reaveley's Case 95, 747 Reciprocity Bank, In re 740, 747 Redmond v. Dickerson 629 V. Enfield M'f g Co. 394 Red Wing Hotel Co. v. Fried- rick 109 Reed V. Boston Machine Co. 541 !;. Head 799 V. Home Savings Bank 342 V. Jones 581 V. Richmond Street R. R. Co. 99, 451 V. St. Louis, etc. R'y Co. 353 Reg. V. Mayor of Tewkesbury 577 Regents of University v. Wil- liams 453 Regina v. Mayor of Tewksbury 577 V. Registrar, etc. 158 V. Victpria Park Co. 661 V. Wilts, etc. Canal Navi- gation '585 Reichwald v. Commercial Hotel Co. 229, 381, 710 Reid V. Commercial Ins. Co. 595, 789 V. Eatonton M'f g Co. 583, 708, 745 Reilly V. Oglebay 573, 575 Reisner v. Atchinson, etc. R. R. Co. 178 V. Strong 165 Relfe V. Bundle 27, 28, 120, 264, 390 Relief Fire Ins. Co. v. Shaw 248, 254 Remington v. Samana Bay Co. 703 Rendall v. Crystal Palace Co. 555 805 TABLE OF CASES. BECTIOK Renner v. Bank of Columbia 195 Rennie v. Clarke 76 Reno Water Co. v. J.eete 286 Rensselaer, etc. Plank Road Co. V. Barton ' 92, 513, 516 Rensselaer, etc. Plank Road Co. V. Wetsel 96 Rensselaer R. R. Co. v. Davis 163 Revere v. Boston Copper Co. 433 Rex V. JJicken . 460 V. Langhorn 573 V. Pasmore 14, 449 ■.«. Peacock 460 V. Wardroper 460 Reynell v. Lewis 77 Reynolds v. Collins 248 V. Crawfordsville First Nat. Bank 276, 302 V. Hindman 876 V. Kenyon 240 y. Simpson 120 Rhodes v. Webb 628 Ribon V. Railroad Co. 816 Rice V. Boston, etc. R. R. Co. 860 V. Hart 360 V. Hosiery Co. 393 Ricb V. State National Bank 515 V. Town of Seneca Falls 326 Richards v. Merrimack, etc. Co. 305 w. New Hampshire Ins. Co. 668, 692, 759 Richardson v. Abendroth 733 V. Larpent 692 V. Pitts 783 V. Railroad Co. 563 V. Richardson 799, 800 V. Sibley 125, 305 V. Vermont, etc. R. R. Co. 510, 572 V. Williamson 754 Richardson's Case 742, 747 Richboro Dairymen's Ass'n v. Ryan " 546 Riche V. Bar Harbor Water Co. 163 Richmond v. Irons 714, 727, 748, 749 V. Union Steamboat Co. 860 Richmond Bank v. Robinson 301 Richmond Enquirer Co. v. Rob- inson 201 Richmond, etc. R. R. Co. v. City of Richmond 474 Richmond, etc. R. R. Co. v. Louisa- R. R. Co. 122 Richmond, etc. R. R. Co. v. Reed 531 Richmond's Case 548, 586 806 SECTION Richmond's Ex'rs Case 747 Richwald v. Commercial Hotel Co. 89 Ricketts v. Bait, and Ohio R. R. Co. 864 Ricord v. Central Pac. R. R. Co. 842 Riddle o. Bedford County 189 V. Proprietors of Locks and Canals 169, 449 Rider v. Morrison 551, 586, 745, 749 Rider Life Raft Co. v. Roach 288 Ridgway v. Farmers' Bank 205, 225, 233 Ridgway Township v. Griswold 424 Ridley v. Plymouth Baking Co. 262 Riggs V. Cnigg 800 V. Taylor 792 RikhofF ■ V. Browne's Sewing Machine Co. 99, 538 Riley v. Rochester 128 Rinesmith v. People's Freight R'y Co. 521 Ringling v. Kohn 240 Ringo V. Biscoe 668 Ringold V. Haven 861 Risley V. Indianapolis, etc. R. R. Co. 236 Rittenhouse v. Independent Line of Telegraph 357 Rivanna Nav. Co. v. Dawsons 136 Rives V. Dudley 128 V. Montgomery Plank Road Co. . 523 Road Co. V. Kreeger 537 Robb V. Ross County Bank 239 Bobbins v. Embry 668 V. Justices 737 V. Milwaukee and H. R. R. Co. 178, 179 Roberts u . Easton 175 Roberts's Case 97 Robinson v. Bank of Darien 812 V. Bank of Attica 668 V. Bland 299 V. Chartered Bank 601 V. Gardner 502 V. Merchants' Despatch TranS'. Co. 859, 361 w. National Bank 587, 589 V. Pittsburgh, etc. R. R. Co. 521, 779 V. Smith 690, 758 Rochester S'v'gs B'k v. Averell 185 Rockford, etc. R. R. Co. v. HiU- mer .475 V. Sage 86, 647 TABLE OF CASES. Rockford, etc. R. R. Co. v. Wells 170 Rockland, etc. Steamboat Co. v. Sewall 137, 518 Rockville, etc. Turnpike v. Van Ness 740 Rockwell V. Elkhorn Bank 125, 254 Rocky Mountains Nat. Bank v. Bliss 724 Rodgers v. Wells 539 Rogers v. Burlington 319 V. Hastings, etc. R'y Co. 647 V. Kennebec, etc. R. R. ■ Co. 174 V. La Tayette Agricul- tural Works 560, 688, 689, 690 V. Wheeler 417 Rogers Locomotive Works v. Erie R'y Co. 309 Rollins V. Clay 206, 229 Roman v. Fry 742 Rome, etc. R. R. Co. v. Ontario, etc. R. R. Co. 415 Rome R. R. Co. v. Sullivan 361, 363 Root V. Goddard 298 V. Great Western R. R. Co. 363, 392 V. Sinnock 720 V. Wallace 195, 298 Rorke v. Thomas 768 Rose V. Des Moines Valley R. R. Co. 353 V. Turnpike Co. 429, 432 Rose Hill, etc. Road Co v. Peo- ple 145 Rosenblatt v. Johnson 484 Rosenfeld v. Einstein 808 V. Peoria, etc. R. R. Co. 353 Rosevelt v. Brown 741 Ross V. C. B. and Q. R. R. Co. 533 u. Union Pacific R'y Co. 790 Roth V. Buffalo, etc. R. R. Co. 360 Rotherham Alum, etc. Co., In re 88 Rothschild V. Michigan Cent. R. R. Co. 360 Rowland u. Meader Furniture Co. 738 Roxbury v. Boston and P. R. R. Co. 496 Royal British Bank, In re Wal- ton's Case 253 Royal British Bank v. Turquand 195, 204, 251 Ruby V. Abyssinian Society' 187 Ruffner v. Cincinnati, etc. R. R. Co. 368 Ruggles V. Brock 52S V. State of Illinois -4,53, 476 a, 476 5 Rundle v. Delaware, etc. Canal 174, 177 Runyan u. Coster ■ 303 Runyon v. Coster's Lessee 383, 384 Russel V. McLellan 263, 429, 432 u. Wakefield Water Works 142 Russell V. Bristol 513 Russian Iron Works, In re 523 Rutland and B. R. R. Co. v. Proctor 308 Rutland and B. R. R. Co. v. Thrall 517,532,546,571,572 Rutz V. Esler, etc. M'f g Co. 523, 529 Ryan v. Chicago and N. W. R'y Co. 365 V. Cumberland Valley R. R. Co. 366 V. Dunlap 241 V. Fowler 365 V. Hays 417 V. Leavenworth, etc. R'y Co. 631, 637, 638, 688 V. Martin 159 V. Vanlandingham 146 Ryder v. Alton, etc. R. R. Co. 516, 576 Rye's Case 110 S. Sacalaris v. Eureka, etc. R. R. Co. 202 Sackett's Harbor Bank v. Blake 723 Sadler u. Langham 163 Safety Deposit Life Ins. Co. v. Smith 86 Safford v. Wyckoff 253, 285 Sage V. Central R. R. Co. 816 Sage, Matter of 585 Sager v. Portsmouth, etc. R. R. Co. 353 Sagory v. Debois 513, 546 Salem Bank v. Gloucester Bank 195, 231, 253 Salem Iron Factory v. Danvers 477a Salem Mill Dam Co. v. Ropes 96, 133, 527 Salisbury v. Metropolitan R'y Co. 696 Salisbury Mills v. Townsend 596, 598 Salmon v. Hamborough Co. 661 V. Richardson 755 807 TABLE OF CASES. SECTION Salt Co. V. East Saginaw 489 Salter v. Utica, etc. R. R. Co. 374 Salt Lake City v. Hollister 264, 335 Saltinarsh v. Planters' etc. M. ■ Bank 435 Samuels v. Central Overland Ex- press Co. 142 u. Holladay 142 San Antonio v. Jones 520 V. Mehaffy 329 Sanborn v. Firemen's Ins. Co. 254 V. Lefferts 770, 772 San Buenaventura M'Pg Co. v. Vassault 574, 577 Sandford v. Railroad Co. 309, 556 San Diego v._ San Diego and Los Angeles R. R. Co. 640, 642 Sandy River Bank v. Merchants', etc. Bank 240 Sandy River R. R. Co. v. Stubbs 627 San Francisco, etc. R. R. Co. v. Bee 657 San Francisco, etc. R. R. Co. v. Caldwell 163, 179 San Francisco, etc. R. R. Co. v. State Board 480 Sanger w. Upton 537 San Joaquim Valley B'k v. Bours 618 San Josfe Bank v. Sierra Lumber Co. 189 San Jof6 Savings Bank v. Phpris 728 Santa Clara County v. Southern Pac. R. R. Co. 480 Santa Clara Female Academy v. S.ullivan " 384 Santa Clara M'g Ass'n v. Mere- dith ■ 647 Santa Cruz R. R. Co. I'. Schwartz 518 V. Spreckles 632 Sapp V. Northern Central R'y Co. 304 Sappington v. L. R. M. R. and T. R. R. Co. 415 Sargent v. Essex Marine R'y Co. 796 V. Franklin Ins. Co. 796 V. Webster 184, 225, 260, 261, 573 Sater v. Burlington, etc. Plank Road Co. 178 Savage v. Ball 578 Savannah and Memphis R. R. Co. V. Lancaster 125, 679 Savannah Bank v. Hartridge 210 Savings Bank v. Baltimore 593 V. Bates 668 V. Davis 248 V. Wulfekuhler 135, 627 808 Sawyer v. City of Acton 464 V. Dulaney 350 V. Hoag 542, 704, 710, 729 V. Pawner's Bank 647 V. Upton 655 V. Winnegance Mill Co. 137 Savers v. First Nat. B'k 137 S.'C. and St. Paul R. Co. v. Osceola County 326 Scammon v. Kimball 670 Scanlan v. Crawshaw 430 Scarlett u. Academy of Music 521 Sehaeffer v. Missouri Home Ins. Co. 511, 737, 744 ■Schallard v. Eel River T^av. Co. 204, 263 Schenck v. Andrews 723 Schenectady, etc. Plank Road Co. V. Thatcher 533 Schew V. Erie Ry. Co. 360 Schley v. Dixon 757 Schmidlapp v. La Confiance Ins. Co. 392 Schmidt V. Hennepin, etc. Co. 604 Schoenwald v. Metropolitan S'v'gs B'k 199 Schofield V. Henderson 774 Schollenberger, Ex'parte 412 School District v. Boston, Hart- ford, and Erie Co. 353 School District v. Insurance Co. 451 V. Stone 321, 332 Schooner v. Hinckley 542 Schrieker v. Ritlings 723 Schroeder v. Detroit, etc. Ry. Co. 155 Schulenberg v. Harriman 153 Schultz V. Sutter 543 Schumm v. Seymour 258 Schurneier v. St. Paul, etc. R. R. Co. 175 a Schuylkill Nav. Co. v. Thoburn 178 Schwartz v. Atlantic, etc. Tel. Co. 357 Scofield V. Railway Co. 309 V. State Nat. Bank 302 Scofield Rolling Mill Co. v. Geor- 342 327 563 755 566 324 236 76, 87 R. 211, 214 Scotland County v. Hill Scott V. Central R. R., etc. V. Depuyster V. Eagle Fire Ins. Co. V. Hansheer u. Johnson V. Lord Ebury V. Middleton, etc. R. Co. Co. 563, TABLE OF CASES. 6ECT10W Scott V. Nat. Bank of Chester Valley 337 V. Pequonnoek Nat. Bank 796 Scottish N. E. U'y Co. v. Stew- art 141 Seoville v. Thayer 541, '661, 709 Screven Hose Co. v. Philpot 276, 286 Scripture v. Francestown Soap- stone Co. 589 Scudder v. Trenton Delaware Falls Co. 163 Searight v. Payne 114, 545, 752 Sears !•. Hotchkiss 688, 690 Secombe v. Railroad Co. 46g, 473 Second Nat. Bank v. Burt 616, 631 V. Hall 148, 749 V. Western Nat. Bank 245 Security Bank v. National Bank 245 Sedalia W. and S. Ry. Co. v. Abell 616, 518 Sedalia W. and S. Ry. Co. v. Wilkerson 91 Seeley v. New York, etc. Nat. Exch. Bank 570 V. San Jos6 Mill Co. 202, 627, 632 Seeligson v. Brown 796 Seibert v. Lewis 333 Seligman v. Charlottesville Nat. Bank 267 Sellers v. Phoenix Iron Co. 658, 627. 688 Selma, etc. R. R. Co. v. Ander- son 518, 523 V. Harbin 666 V. Tipton 91, 546 V. Tyson 392 Selma R. and D. R. R. Co. v. Camp 178 Selma R. and D. R. R. Co. v. Keith 1 78 Semple v. Bank of British Co- lumbia .401 Seneca County Bank v. Lamb 583 Sewall V. Boston Water Power Co. 592, 593 V. Brainerd 816 a Seward v. City of Rising Sun 479 Seymour «. Detroit Rolling Mills 219 V. Sturges 700, 703 Shackleford v. Mississippi C. R. R. Co. 427, 665 V. New Orleans, etc. .R. R. Co. 647 Shamoking Valley R. R. Co. v. Livermore 671 Shjinck V. Northern Cent. Rv. Co. ' 365 Shane v. Kansas City, etc. R. R. Co. 173 Sharp- 0. Mayor, etc. of New York 342 Shaw V. Bill 681 V. Boston and W. R. R. Co. 374 V. Clark 210 V. Norfolk, etc. R. R. Co. 4^6, 666, 814 w. Port Philip, etc. M'g Co. 342, 698 V. Railroad Co. 814, 816 V. Spencer 598, 797 Shawhan v. Zinn 140 Shawmut Bank v. Plattsburg, etc. R. R. Co. 308 Shaw's Claim 87 Shay V. Tuolumne County Water Co, 187 Sheffield Nickel Co. v. Uuwin 224, 563 Sheffield R'y Co. w. Woodcock 511 Shelbyville, etc. Turnpike Co. V. Barnes 636 Sheldon Hat Blocking Co. v. Eickmeyer Hat, etc. Co. 187, 213, 225, 229, 609 Shellington v. Howland 689, 723, 724, 748 Shenandoah Valley R. R. Co. V. Griffiths 432, 796 Shenango and A. R. R. Co. v. Braham 178 Shepherd v. Gillespie 791 Shepherd's Case 589 Shepley v. Atlantic, etc. R. R. Co. 305, 125 Sheridan v. Sheridan Electric Light Co. 141 Sherley v.. Billings 347 Sherlock v Ailing 350, 474 h Sherman v. Fitch 211, 212, 237 0. Hudson River R. R. Co 361 V. McKeown 400 V. Milwaukee, etc. R. R. Co. 175 a V. Smith 600 Sherwood v. St. Paul and C. Ry. Co. 178 Shewalter v. Pirner 276, 303 Shibley v. Angle 100 809 TABLE OF CASES. SECTION Shields v. Ohio 424, 476 b &h\ffv. N. Y. C.andH. R. E. R. Co. .S64 Ship's Case 110 Shipley v. Baltimore, etc. R. R. Co. 179 Shoekley v. Fisher 542, 668 Shoe and Leather Bank v. Thompson 137 Shoemaker u. Nat. Mechanics' Bank 161 Short V. Medbury 734 V. Stevenson 82 Shorter v. Smith 453 Shortridge v. Bosanquet 748 Shortz V. Unan<;st 258, 573 Shotwell V. Mali 696, 755 Shrewsbury v. North Stafford- shire R'y Co. 88, 291 Shriver v. Sioux City 353 Shropshire, etc. R'ys Co. v. Queen ■ 511, 598 Shultz u. Christman 615, 616, 757 Shurtleffi;. Wiscassett 329 Shurtz V. Schooloroft, etc. R. R. Co. 516 Sibell V. Remsen 298 Sibley v. Quinsigamond Nat. Bank . 599, 796 Silk M'f g Co. V. Campbell 138 Silkstone i'all Colliery Co., Re 574 Silliman v. Fredericksburg, etc. R. R. Co. 195 Silver Hook Road v. Green 233, 234, 543 Silver Lake Bank v. North 302, 884 Simm V. Anglo-^American Tele- graph Co. 593 Simons o. First Nat. B'k 302 V. Vulcan Oil Co. 82 Simonson v. Spencer 725 Simpson v. Building Ass'n 276 V. Denison 308 V. Garland 189 V. Moore 800 V. Railroad Co. 368 V. Westminster Palace Hotel Co. 556 Sims V. Street E. R. Co. 219, 224 Singer i: Given 148, 729, 737, 745 Singer M'fg Co, v. Holdsfodt 377 Single V. Supervisors 325 Singleton v. Southwestern R. R. Co. 170, 305 Sinking Fund Cases 499 Sinnickson v, Johnson 171 810 BECTIOX Sioux City and P. Ry. Co. v. United States 565 Sixth Ave. R. R. Co. v. Kerr 163 a 165, 470 Skelly V. Jefferson Branch Bank 453, 488 Skinner v. Hall 363 Skohegan and K' R. R. Co. u. Kinsman 518 Skowhegan Bank v. Cutler 589 Slater Woolen Co. v. Lamb 282 Slatterly v. St. Louis, etc. Trans. Co. ' 141 Slaughter v. Commonwealth 383 Slaughter House Cases 474 Slawson v. Loring 753 Slaymaker v. Gundacker 806 Slee V. Bloom 432, 549, 745 V. International Bank 589 Sleeper v. Goodwin 734 Slipher u. Earhart 511,519 Sloan V. Central Iowa Ry. Co. 417 V. Pacific R. R. Co. 476 h Slocum V. Providence Steam and Gas-pipe Co. 147, 537, 738 V. Warren 537 Small V. Herkimer, etc. Co. 513, 546 V. C. R., I., and R. R. R. Co. 282 Smead v. Indianapolis, P. and C. R. R. Co. 453 Smelser v. Wayne Turnpike Co. 146 Smith V. Alvord 881 V. Chesapeake and Ohio Canal Co. 664 V. Chicago and N. W. Ry. Co. 415 V. Colorado Fire Ins. Co. 148 V. Corporation of Wash- ington 167, 177 V. Crescent City Live Stock, etc. Co. 796 V. Exchange Bank 161 V. First Nat. Bank 239, 387 V. Goldsworthy 133 V. Gower 542 V. Hannibal, etc. E. E. Co. 368 «;. Heideker 537 V. Huckabee 725, 788 V. Hurd 615, 690 V. Londoner 725, 753 V. Long Island E. E. Co. 647 V. McCuUough 676 V. Mosby 670, 810; 813 V. Mutual Life Ins. Co. 893 V. Nelson 584 TABLE OF CASES. SECTION Smith V. North Am. M'f 'g Co. 569 V. North Carolina R. R. Co. 353 V. Plank Road Co. 158, 521 V. Prattville M'f g Co, 553, 562, 694 V. Putnam 646, 759 0. Railroad Co. 657, 660 V. Silver Valley M'f g Co. 381, 382,449 V. Smith 196, 230, 238, 432 V. South Royalton Bank 210 V. State 460 V. Steel 688, 714 V. St. Louis Mut. Life Ins. Co. 394 V. Weed Sewing Machine Co. 384 V. AVhiting 195 Smith's Case 745, 782 Smoot V. Wetumpka 376 Snyder u. Penn. R. R. Co. 175 a. Society for Savings v. Coite 482 Society Perun v. Cleveland 145 Solomon's Lodge v. MontmoUin 204 Solomon R. R. Co. v. Jones 237 Somerset R. R. Co.i;. Clarke 517 V. Cushing 517, 519 Somes V. Currie 787 Sonoma Valley Bank v. Hill 715, 722 South and North Alabama R. R Co. V. Chappell 335, 342 South and North Alabama R. R. Co. V. Henlein 353 South and North Alabama R. R. Co. V. McLendon 377 South and North Alabama R. R. Co. V. Wood 350, 360 South Carolina v. Gaillard 494 South Carolina R. R. Co. v. Blake 424 South Carolina R. R. Co., Ex parte 164 South Georgia, etc. R. R. Co. v. Ayres 529 South Mountain Cons. M'g Co., In re 702 South School District v. Blakes- lee 158, 574 South Wales R'y Co. v. Red- mond 308 South Yorkshire R'y Co. v. Great Northern R'y Co. 291 Southern Exp. Co. v. Armstgad 359 V. Caperton 356 SECTION Southern Exp. Co. v. Cook 353 V. Dickson 360 I). Fitzner 342 V. Kaufman 360 V. Memphis, etc. R. R. Co. 309 V. Moon 353 V. Shea 363 Van Meter 360 Southern HoteJ,C6. u. Newman 263 Southern Life Ins. Co. v. Lanier 529 Southern Minn. R. R. Co. v. Stoddard 162 Southern Pae. R. R. Co. v. Cali- fornia 468 Southern Pac. R. R. Co. v. Orton 451 Southern Pac. R. R, Co. v. Ray- mond 163 Southern Pac. R. R. Co. v. Reed • 175 a Southern Pac. R. R. Co. v. Wil- son 166 Southern Penn. R. R. Co. v. Stevens 531 Southgate v. Atlantic and Pac. R. R. Co. 202 Southwestern R. R. Co. v. Fel- der 360 Southwestern R. R. Co. v. South- ern, etc. Tel. Co. 163 a Southwestern R. R. Co. v. Wright 492ft Spackman v. Evans 550, 780 Spafford v. First Nat. Bank 161 Spahn V. Farmers' Bank 146 Spalding v. Oakes 803 Spangler B. Butterfield 114,202 Sparks v. Farmers' Bank 249 Sparrow v, Evansville, etc. R. R. Co. 536 Spaulding v. ChicagoandN. W. R'y Co. 368 Spear v. Crawford 92 0. Hart 798 . II. Ladd 233 Spehce v. Mobile, etc. R'y Co. 264 V. Shcpard 722 Spering's Appeal 620, 623, 626 Hpiller v. Paris Skating Rink Co. 87 Spofford V. Bucksport, etc. R. R. Co. 163 Spohn V. Missouri Pac. R'y Co. 347 Sprague v. Cutler, etc. Co. 400 w. N. Y. C. R. R. Co. 360 V. Illinois River R. R. Co. 536 811 TABLE OF CASES. SECTION Sprague v. Smith 417 Sprigg V. Western Tel. Co. 502 Spring Go. V. Knowlton 133, 313 Spring Valley Water Works, In re 451 Spring Valley Water Works v. San Francisco 498 Spring Valley Water Works v. Schofler 464, 477 a, 497, 499 Springer v. United States 478 Spurlock V. Pacific Railroad 583, 603 Squire v. N. Y. Central R R. Co. 351 St. Albans v. National Car Co. 479 St. Anthony Falls Co. v. East- man 376 St. Charles M'f g Co. v. Britton 537 St. Clair v. Cox 395, 399, 472 St. James's Parish « Newbury- port Horse R. R. Co. 259 St. John V. Erie R'y Co. 563, 565, 708 St. Joseph, etc. R. R. Co. v. Ryan 162 St. Joseph Township v. Rogers 329 St. Lawrence Steamboat Co., Re election of 577, 578, 579, 614 St. Louis A. and C. R. Co. v. Dalby 348 St. Louis and St. Jo. R. R. Co. V. Richardson 179 St. Louis and S. F. R'y Co. v. Wilson 599 St. Louis Drug Co. v. Robinson 281 St. Louis, etc. Coal, etc. Co. v. Sandoval Coal Co. 436, 437, 608 St. Louis, etc. R. R. Co. v. An- derson 178, 179 St. Louis, etc. R. R. Co. v. Eakins 517 St. Louis, etc. R. R. Co. v. Gil- ham 366 St. Louis, etc. R. R. Co. v. Kerby 178, 179 St. Louis, etc. R. R. Co. v. Lamed. 362, 363 St. Louis, etc. R. R. Co. v. , Marker 425 St. Jjouis, etc. R. R. Co. v. Mathers 162 St. Louis, etc. R. R. Co. v. Miller 415 St. Louis, etc. R. R. Co. v. Montgomery 860 St. Louis, etc. R. R. Co. v. Morris 179 St. Louis, etc. R. R. Co. v. N. W. St. Louis R'y Co. 174 812 SECTION St. Louis, etc. R. R. Co. v. Payne 372 St. Louis, etc. R. R. Co. v. Waller 633 St. Louis, K. C. and N. R'y Co. V. Piper 353 St. Louis V. Manufacturers' Sav- ings Bank 488 St. Louis Colonization Ass'n v. Hennessy 149, 538 St. Louis Domicile, etc. Ass'n v. Augustin 189, 432 St. J.,6uis Gas Light Co. v. St. Louis 150 St. Louis, I. and M. R. R. Co. V. Berry 490 St. Louis Perpetual Ins. Co. v. Cohen 392 St. Louis Perpetual Ins. Co. v. Goodfellow 603 St. Louis R. R. Co V. North- western St. Louis R'y Co. 152, 174 St. Louis R'y Supplies Co. v. Harbine 501, 714 St. Louis Stoneware Co. v. Part- ridge 282 St. Mary's Church, Case of 227 St. Paul, etc. R. R. Co. v. Rob- bins 520 St. Paul Fire Ins. Co. v. Allis 145, 451 Stafford V. American Mills Co. 394 Stafford Nat. Banku. Palmer 148, 739 Stamper v. Swan 201 Stange v. Hill, etc. St. R'y Co 175 a Stanhope's Case 548 Stanley u. Stanley 501, 589 Stanton u. Alabama, etc, R. R. Co. ' 815 V. Wilson 108 Star Line v. Van Vliet 182 Stark Banku. U. S. Pottery Co. 193 Starkweather u. American Bible Soc'y 387 Starr v. Camden, etc. R. R. Co. 176 a Starrett u. Rockland Fire Ins. Co. 515 State V. Accommodation Bank 449 B. Atherton 199, 240 V. Bailey 421, 459 V. Baltimore and Potomac R. R. Co. 376 V. Baltimore and O. R. R. Co. 568 V. Bank of Louisiana 33, 687 V. Bank of Maryland 130, 432, 668 V. Bank of Washington 436 TABLE OP CASES. State V. Barron V. Benefit Ass'n V. Berry SECTION 432, 459 647 - 488 u. Bienville Oil Works Co. 585 V. Bonnell 574 V. Boston, Concord, etc. R- R. Co. 384, 386 V. Brown 559 V. Building Association 459 u. Central Ohio Relief Ass'n 451, 459 V. Cherraw, etc. R. R. Co. 599 V. Chute 677 V. Cincinnati 460 V. Citizen's Saving Bank 201 V. Commercial Bank 239 V. Com'er of Railroad Taxation 464 V. Commissioners 491 V. Conklin 583 V. Consolidation Coal Co. 305 V. Consolidation Co. 457 V. Council Bluffis Ferry Go. 460 V. Crawfordsville T. P. Co. 459 V. Curtis 190, 583 V. Dawson 449 v., Dayton, etc. R. R. Co. 454 V. District Court 396 V. East Orange 475 V. Eastern and A. R. R. Co. 163 a V. Essex Bank 459 V. Ferris 578, 589 V. Fourth N. H. Turnpike 460 ■V. Goodwinsville, etc. Road Co. 460 V. Greer 577 V. Hartford and N. H. R. R. Co. 308, 454 V. Hazleton, etc. Ry. Co. 459 V. Krebs 120 V. Leete 614 V. Macon County 333 V. Maine Central R. R. Co. 491 V. Mansfield 128 V. Mayor of Manitowoc 333 V. McDaniel 577, 614 V. McGrath 133 V. Merchant 228, 577 w. Merchants' Exchange 583 V. Milwaukee, etc. R. R. Co. 459 V. Mississippi, etc. R. R. Co. 460 V. Montclair R. R. Co. 163 a V. Morgan 125) 490 SECTION State V. Morris 474 V. Morristown Fire Ass'n 667 V. Nashville, etc. R. R. Co. 464 V. National Bank 416, 667 V. Newark 128 V. New Haven, etc. Co. 162 a, 475 V. New Orleans, etc. R. R. Co. 577 V. New Orleans Gas Light Co. 589 V. Northern Central R'y Co. 406, 409, 676 V. Noyes 453, 475 V. Paterson, etc. R. R. Co. 454, V. Pawtuxet Turnpike Co. 459, 460 V. Person 464 V. Pettineli 575 V. R. R. Comm'rs 170, 432 V. Real Estate Bank 459 K.Rio Grande Ry. Co. 459 V. Rives 432, 671 V. Rombaur 599 I'. Saline County Court ' 328 V. Sherman 131, 305 V. Smith 136, 569 V. Southern Pacific R. R. Co. 460 V. Taylor 460 V. Telephone Co. - 464 V. Tudor 579, 582 !;. Vanderbilt 457, 459 V. Westgrn, etc. R. R. Co. 167, 434 V. Western Un. Tel. Co. 480 V. Wood 459 V. Wright 575 V. Young 450 State Bank v. Chetwood 257 V. City of Richmond 477 o V. Pox 135, 569 V. Knoop 453, 488 State Board of Agriculture v. Citizens' Street Ry. Co. 280 State Fire Ins. Co., In re 659 State Freight Tax, Case of 485 State Ins. Co. v. Sax 796 State of Florida v. Florida Cen- tral R. R. Co. 138, 256 State of Louisiana v. Bank of Louisiana 562 State of Louisiana v. North Louisiana and T. R. R. Co. 793 State of Minnesota ti. Winona, etc. R. R. Co. 476 a 813 TABLE OF CASES. SECTION State of New Hampshire w. State of Louisiana 462 State of Ohio v-. Pennsylvania, etc. Canal Co. 460 V. Sherman 131, 305 State of Pennsylvania v. Wheel- ing, etc. Bridge Co. 171, 459 State of Tenn. v. Davis 241 State Kailroad Tax Cases 477 a, 492 State Savings Ass'n v. Kellogg 825 State Tax on Foreign Held Bonds, Case of 479, 492 a State Tax on Railway Gross Re- ceipts 485 State Tonnage Taxes - 480 State Treasurer v. Auditor Gen- eral 419, 479 Steacy v. Little Rock, etc. R. R. Co. • 545, 702 Steamboat Co. v. McCutcheon 204, 384 Steamboat New World v. King 352 Steam Engine Co. v. Hubbard 764 Steam Navigation Co. v. Weed 276 Steamship Co. v. Portwardens 4 74 ft Steamship Co v. Tugman 412 Steam Ship Dock Co. v. Heron's Administratrix 600, 601 Stebbins v. Edmunds 764, 774 V. Merritt 575 Steckle v. First Nat. Bank 342 Steele v. Russell 346 V. Townsend 353 Steers v. Liverpool, etc. Steam- ship Co. , 359 Steins v. Franklin County 325 Steinweg v. Erie Railway 351 Stephens v. Fox 737 Sterling's Appeal 175 Stetler v. Chicago, etc. Ry. Co. 366 Stetson V. Chicago and E. R. R. Co. 175 Stettaner v. N. Y., etc. Cons. Co. 585 Stevens V. Boston and M. R R. Co. 360 V. Carp River Iron Co. 210 V. Corbitt 515 V. Davison 229 V. Eden Meeting House Soc'y 573 y. Paterson and N. R. R. Co. 174 V. Pratt 388 V. Rutland, etc. R. R. Co. 556 Stewart, Ex parte 210 814 SECTIOy Stewart v. Brooklyn and Cross- town R. R. Co. 335, 347 V. Erie and Western Transp. Co. 308, 309, 556 V. Fireman's Ins. Co. 592 V. Hoyt 137 V. Lehigh Valley R. R. Co. 309, 630, 631 Stewart's Appeal 305 Stewart's Case 110 Stillman u. Dougherty 519 Stilphen v. Ware 736 Stimson v. Connecticut River R. R. Co. 365 Stinchfield v. Little 753 Stinson v. Chicago, St. P., etc. R. R. Co. 178 Stinson v. Thornton 795 Stocker v. Wedderburn 112 Stockholders, etc. v. Louisville, etc. R. R. Co. 573 Stocks V. Van Leonard 707 Stockton, etc. R. R. Co. «. City of Stockton 319 Stokes V. Lebanon, etc. Turn- pike Co. 515, 546 V. New Jersey Pottery Co. 202, 236 V. Saltonstall 169; 349, 351, 375 V. Stickney 77 1 Stone ». Cartwright- 755 V. C. and N. W. R. Co. 348 V. Elliott 327 V. Fenno 699 V. Illinois Central Ry. Co. 170 V. Mississippi 474 Stoneham Branch R. BT. Co. v. Gould 547 Stoney v. American Ins. Co. 205, 285 Storey v. New York Elevated R. R. 'Co. 173, 174, 176 Stout I'. Sioux City. etc. R. R. Co. , 382, 412 V. Ye'ager Milling Co. 759 V. Zulick 145, 148, 739 Stoutemore v. Clark 146 Stover V. Flack 742 Stowe B. Flagg 451 V. Wyse 184, 201, 578, 574 Stoystown Turnpike Road Co. «.> Graver 258 Straffon's Exrs. Case 748 Strafford National Bank «. Dover 484 Strand Music Hall Co., In re 675 Strange v. H. and T. 0. R. R. Co. 594 TABLE OF CASES. SECTION Strasburg K. K. Co. v. Echter- nacht 109 Stratton u. European, etc. Ky. 417, 815 V. Lyons 189, 740 Street v. Ballis 102 Street R. R. Co. v. Nolthenins .376 Stringer's Case 622 Stringham o. Oshkosh and M. K. R. Co. 260 Strong V. Brooklyn Crosstown R. R. Co. 570 V. McCagg 611 V. Sacramento, etc. R. R. Co. .373 V. Smith 578 i>. VVheaton 7.37 Studebaker «. Montgomery 146 Sturges V. Burton 764 V. Crowninschield 493 V. Knapp 756, 814 V. Stetson 541, 678 V. Vanderbilt 432, 703 Sullivan v. l^ewiaton Institution of Savings 199 V. Triunfo Mining Co. 627 Summitt «. State 348, 371 Sumner v. Richardson Lake Dam Co. 167 Sumrall v. Sun Mutual Ins. Co. 449 Sunderland v. Westcott 359 Supervisors v. Uurant 333 V. Galbraith 320, 329 V. Miss., etc. R. R. Co. 531 V. Schenck 325,' 330 V. Stanley • 484, 492 r. Wisconsin Central R. R. Co. 162 a, 305 Supreme Commandery v. Ains- worth 498, 583 Susquehanna Boom Co. v. West Branch Boom Co. 468 Susquehanna Bridge Co. «. General Ins. Co. 125 Sussex R. R. Co. v. Morris and Essex R. R. Co. 308 Sutherland v. Olcott 133, 723 Sutter St. R. R. Co. i-. Baura 632, 634 Sutton V. N. Y. C. and H. R. R. R. Co. 371 Sutton's Hospital, Case of, 10, 12, 13, 14 Suydam v. Moore 752 Swan V. Manchester, etc. R. R. Co. 348 V. North British, etc. Co. 593 SECTrON Swan !■. Williams 163 Swann v. Clark 822 V. Wright's Ex'r 813 Swartwout v. Slechanics' Bank 672 V. Michigan Air Line R. R. Co. 146, 518 Sweatland v. 111. and Miss. Tel. Co. 357 Sweeney v. Old Colony R. R. Co. ■ 371 Swepson V. Bank 663, 668, 710 Swift V. Smith 187 0. Tyson 468 Swindler v. Billiard 353 Swinnej- u. Ft. Wayne, etc. R. R. Co. 163 Symon's Case. 586, 747 Syracuse, etc. R. R. Co., In re application of 577 T. T. and P. R'y Co. v. O'Donnell 372 Taft V. Hartford, etc. R. R. Co. 565 Taggart v. Western Md. R. R. Co. 91 Tait's Case 110 Talbot V. Hudson 163, 469 6 Talladega Ins. Co. !' Peacock 193 Tallmadge v. Eishkill Iron Co. 645, 702, 731 Talmage v. Pell 273 Talman v. Rochester City Bank 161 Tammany Water Works v. New Orleans 474 Tappan v. Merchants' Nat. Bank 479 Tarbell v. Page 751 Tarble'sCase 456, 461 Tarbox v. Gorham 210 TtTr River Co. v. Neal 738 Tatem v. Wright 383, 480 Tavistack Ironworks Co., In re Lyster's Case 262 Tawas, etc. R. R. Co. v. Circuit Judge 415, 657 Taxpayers v. Tennessee Central R. R. Co. 321 Taylor v. Agricultural, etc. Ass'n 125, 214, 225, 234, 254, 813 Taylor v. Chichester and Mid- hurst R,y. Co. 264, 269, 291 V. Bowker 736 V. Collier 361 V. Earle 268, 608 V. Gas and Coke Co. 382 V. Grand Trunk Ry. Co. 350, 377 815 TABLE OF CASES. SECTION Taylor u. Griwold 579,580 V. IfiU 719 V. Little Rock, etc. R. R. Co. 364 V. Miami Exp. Co. 135 V. Phila. and Reading R. R. Co. 126 V. South and North Ala- bama R. Co. 270 V. Taylor 618, 756 Taylor & Co. v. Little Rock, etc. R. K. Co. 353 Teasdale's Case 134, 550 Telegraph Co. o. Davenport 592 V. Griswold 357 V. Texas 486 Temple v. Lemon • 701 Ten Broeck v. Boiler Compound Co. 196 Ten Eyck v. Delaware and Rari- tan Canal Co. 173, 476 Tennesse v. Davis 469 b V. Sneed 494 c: Whitworth 477, 488, 490, 491 Tenncy v. East Warren l^umber Co. 259 Terhune v. Midland R. R. Co. 611 V. Potts 665 Terre Haute and I. R. R. Co. v. Clarke 374 Terre Haute and L R. R. Co. v. ■ Earp 530 Terra Haute and I. R. R. Co. v. Fitzgerald 347 Terre Haute and I. R. R. Co. !'. Jackson 347 Terre, Haute and I. R. R. Co. v. McMurray 201 Terre Haute and S. E. R. R. Co. » w. Rodel 175 a Terre Haute, etc. R. R. Co. v. Graham 844 Terre Haute Gas Co. v. Teel 173 Terrell o. Branch Bank 210 Territory v. Virginia Road Co. 460 Terry v. Anderson 493, 703 V. Eagle Lock Co. 279, 568, 801 V. Little 717, 726 V. Mcl.,ure 736 V. Merchant's, etc. Bank 432, 435 V. Martin 725 V. Tubman 736 Texas and Pac. R. R. Co. v. Murphy 376, 425 816 SECTION Texas and St. L. R. R. Co. v. Robards 162, 212 Texas and St. L. R. R. Co. w. Matthews 1 78 TexasandSt. L.R. R. Co. u. Orr 371 Thacher v. Dartmouth Bridge Co. 1 63 Thacherde v. Haas 792 Thames Central City Ins. Co. 579 Thames Haven Dock Co. v. Rose 262 Thatcher v. Bank of the State of N. y. 246 Thayer v. Burchard 361 V. New Bedford R. R. Co. 174 V. New England Litho- graphic Co. 770 V. Union Tool Co.. 733, 784 Thebus v. Smiley _ 728, 731, 825 Thigpen v. Mississippi Central R. R. Co. 515, 521 Third Ave. Svgs. Bank i>. Di- mock 276 Third National Bank u. Boyd 161 Thomas v. Boston and P. R. R. Co. . 360 V. Brownsville, etc. R'y Co. 638, 639 V. Citizens' Horse R'y Co. 185, 813 V. Dakin 1 7, 58 V. Railroad Co. 114, 120, 305 Thomas's Case 649 Thompson v. Abbott 666 V. Duncan 376 0. Erie R'y Co. 554, 563, 572 V. Guion 531, 532 V. Lambert '125, 203, 279, 286 I). North Missouri R'y Co. 376 V. Page 92, 108 V. Waters 384, 389, 391 V. Western Un. Tel. Co. . 857 Thomson v. Allen County 833 V. Lee County 31.9 V. Meisser 716, 728, 731, 738 V. Oliver 518 V. Pacific R. R. , 482 Thorington !). Gould 189 Thornton v. Lane 724 V. Marginal Freight Railway Co. 435, 496 V. National Exchange Bank 302 TABLE OF CASES. SECTION Thorp ». Woodhiill 91, 511, 516 Thorpe v. New York C. and H. R. R. R. Co. 348 V. Rutland, etc. R. R. Co. 152, 163 a, 464, 475 Thrasher a.' Pike County R. R. Co. 100 Thurber v. Harlem, etc. R. R. ' Co. 374 Thurston v. Union Pac. R. R. Co. 348, 350 Thweatt v. Bank of Hopkinsville 303 Tibbals v. Libby 723 Tidewater Co. v. Coster 163 Tiernan v. Rinker 480, 485 Tierney v. N. Y. C. and H. R. R. R. Co. 361 Tift V. City of Buffalo 325 Tileston v. Newell 187 Tilson V. Warwiek Gas Light Co. 87 Tinkham v. Borst 656 Tinsman v. Belvidere Delaware R. R. Co. 174, 177 Tipling u. Pexall 12 Tippets V. Walker 233, 753 Tisdale v. Harris 789 Titus u. Cairo and Fulton R. R. ■ Co. ■ ' 225, 236 V. Ginheiraer 676 V. Great Western Turnpike Road 591 V. Mabee 676 Tobin II. Portland, etc. R. R. Co. 371 Todd V. Kankakee, etc. R. R. Co. 179 V. Old Colony, etc. R. R. Co. 374 V. Taft 790 Toledo and Ann Arbor R. R. Co. V. Johnson 147, 153 Toledo and Wabash R. Co. v. Daniels 162 a, 164 Toledo Bank v. Bond 453, 488 Toledo P. and W. R'y Co. v. Deacon 475 Toledo, Wabash and W. R. R. Co. V. Beggs 144, 349, 353 Toledo, Wabash and W. R. R. ■ Co. V. Hammond 355 Toledo, Wabash and W. R. R. Co. V. Jacksonville 475, 476 Toledo, Wabash and W. R. R. Co. V. Moore 365 Toledo, Wabash and W. R. R. Co. V. Morrison 173 Toledo,' Wabash and W. R. R. Co. V. Rodrigues 121 52 Toledo, Wabash and W. R. R. Co. V. Williams 348 Toledo, Wabash and-W. R. R. Co. V. Wrifjht 348 Toll Bridge Co. v. Betsworth 210 Tolraan v. Syracuse, etc. R. R. Co. 376 Tombigbee R. R. Co. v. Knee- land ' 381, 384 Tome V. Parkersburgh, etc. R. R. Co. 598 Tomlinson v. Branch 424, 491 V. Jessup 497 Tonica, etc. R. R. Co. v. Mc- Neeley 109 Tooker v. Gormer 360 Tool Co. V. Morris 293 Totten v: Tison 565, 572 Toucey v. Brown 724 Touche V. Metropolitan Ware- housing Co. 87 Town V. Bank of River Raisin 432, 433 Town of Coloma v. Eaves 330 'J'own of Concord v. Portsmouth Savings Bank 320, 322 Town of Duanesburg v. Jenkins 326 Town of East Lincoln V. Daven- port 324 Town of Queensbury v. Culver 319 Town of Reading v. Wedder 323 Town of Searcy «. Yarnell 146, 630 Town of South Ottawa v. Per- kins 320 Town of Springport v. Teutonia S'v'gs B'k 332 Town of Venice v. Murdock 318, 330 Town of AVeyanwega v. Aylin 329 Townes v. Nichols 599 Townsend v. Mclver 589, 590, 599 u. N. Y. C. and H. R. R. R. Co 378 Township of Burlington v. Bease- ley 319 Township of East Oakland v. Skinner 320 Township of Elmwood v. Marcy 318 Township of Pine Grove v. Tal- cott 318, 319 Tracey v. Guthrie County Agri- cultural Soc. 211 V. Tallmage 286, 293, 299 Tracy v. Elizabethtown, etc. R. R. Co. 163 II. Yates ,718,^719 Transportation Co. v. Chicago ' 177 V. Downer 351 817 TABLE OF CASES. R. 148, SEOTIOH Transportation Co. v. Wheeling 469 b, 485 Treadwellr. Salisbury M'f'g Co. 431, 610 Trenton Mut. Life Ins. Co. v. Perrine Trevitt v. Converse Trigg V. St. Louis, etc. K'y Co. Trinity Church v. Vanderbilt Tripp V. New Metallic Packing Co. V. Swanzey Paper Co. Trippe v. Huncheon Trott V, Sarchett V. Warren Trow V. Vermont Cent. K. Co. Trowbridge v. Scudder Troy and Boston E. R. Co. i>. Boston, Hoosac Tunnel, etc. R. R. Co. Troy, etc. R. R. Co. v. Kerr V. Newton V. Tibbets V. Warren Troy, etc. Turnpike Co. v. Mc- Chesney Truckee, etc. Turnpike Co. v. Campbell 153, 156, 490 Trustees v. Flint _ 583, 782 Trustees of Canandaigua Aca- demy V. MeKechnie Trustees of Christian Church ». Johnson Trustees of Farmington Academy V. Allen Trustees of First Baptist Church V. Brooklyn Fire Ins. Co. Trustees of N. W. College v. Schwagler Trustees of School District v. Gibbs Trustees of the W. and E. Canal Co. V. Beers Tuckahoe Canal Co. v. Tuckahoe R. R. Co. Tucker w. Ferguson V. Mass. Central R. R. V. St. Louis, K. C. and N. R'y Co. Tuckerman v. Brown 550, 701 Tunesma v. Schuttler 725 Tunney v. Midland R'y Co. 865 TurnbuU v. Payson 740 V. Prentiss Lumber Co. 663, 668, 669 Turner v. First Nat. Bank 337 818 137 187 377 773 210 219, 225 737 518 263 373 739 305 432 546 91 91 546 204 248 92 254 158 449 507 453 489 17S 201 BBCTION Turner v. Grangers' Life Ins. Co. 744 V. Hannibal and St. Jo. R. R. Co. 170 V. Ha-wkeye Tel. Co. 357 V. Maryland 480, 485 V. Peoria and S. R. R. Co. 824 Turnpike Co. v. Illinois 122, 1^7 V. State 453 Turquand v. Marshall 622, 699 Tuscaloosa, etc. Ass. v. Green 436 Tuscaloosa M'f'g Co. v. Cox 687 Tuttle V. Michigan Air Line 539, 574 V. Walton 601, 603 Twelfth Street Market Co. v. Jackson 238 Twenty-second Street, In re 465 Twin Creek, etc. Turnpike Co. V. Lancaster 92, 109 Twin Lick Oil Co. v. Marbury 630, 631, 632 Twyncross v. Grant 103, 104 Tyler v. Trustees 249 V. Western Un. Tel. Co. 357 Tyrell «. Cairo, etc. R. R. Co. 270 Tyrrell v. Bank of London 82 U. Umsted v. Buskirk 721, 783 Una V. Dodd 618 Uncas Nat. Bank v. Rith 125 Union Agricultural Ass'n v. Neill 530 Union Bank v. EUicott 130, 225, 668 V. Ginoe 557 V. Jacobs 125 V. Laird 603 V. Ridgeley 235 V. Wando Mg. etc. Co. 737 Union Branch R. R. Co. e. East Tenn., etc. R. R. Co. 151 Union Bridge Co. v. Troy, etc. R. R. Co. 313 Union Canal Co. v. Gilfillin 507, 674 Union Depot, etc. Co. v. Bruns- wick ' 174 Union Express Co. o. Graham 353 Union Gold Mining Co. !'. Rocky Mt. Nat. Bank 181, 202, 236 Union Hotel Co. v. Hersee 97 Union Improvement Co. v. Com- monwealth 497 Union Insurance Co. a. Hart 401 V. Hoge 510 Union Iron Co. v. Pierce 764, 775 TABLE OF CASES. Union Locks and Canals v. Towne 531 Union Mut. Ins. Co. v. Keyser 181 V. White 238 Union Mut. Life Ins. Co. v. Frear Stone, etc. Co. 701 Union Nat. Bank v. Douglass 656, 757 V. Hunt 276, 621 Union Pacific K. R. Co. v. Credit Mobilier 638, 639, 642 Union Pacific R. R. Co. «. Hall 454 Union Pacific R. R. Co. v. Lincoln 319 Union Pacific R. R. Co. v. United States 565 Union Pac. R'y Co. v. Beatty 193 I). Cheyenne 492'i Union Trust Co. v. Illinois Mid- land R. R. Co. 824 Union Trust Co. v. Souther 822 V. Walker 822 Union Turnpike Co. v. Jenkins 91 United Hebrew Ass'nu. Benshi- nol 504 United Society of Quakers v. Underwood i 758 United States v. Central Pacific R. R. Co. 565 V. City Bank 236, 241 V. Coombs 474 a V. County of Clark 333 V. County of Macon 320, 333 V. Cniikshank 456, 461 «. DeWitt 469 6 o. Erie R'y Co. 479 V. Forty-three Gal- lons of Whiskey 474 a V. Fox 387 V. Insurance Com- panies 137, 149 V. jfones 473 V. Kansas Pacific R. R. Co. 566 V. Knox 716, 727 V. Lee 462, 467 V. New Orleans Railroad 333, 818 V. Reynes 172 V. Union Pacific R. R. Co. 452, 493 United States Bank v. Bank of Georgia 672 United States Bank v. Planters' Bank 462 SBCTIDX United States Bank v. Stearns 145 United States Express Co. v. Bockman 369 United States Express Co. v. Harris 356 United States Ins. Co. v. Schri- ver 210 United States Mortgage Co. v. Gross 388 United States Rolling Stock Co. V. Atlantic and Great Western R. R. Co. 642 United States Tel. Co. v. Gilder- sleeve 357 United Trust Co. v. Lee 388 University v. North Car. R. R. Co. 505 University w. People 461,488,489 University of Des Moines v. Livingston 515 Upham V. Worcester 179 Upton V. Burnham 589 V. Englehart 623, 744 V. Hansbrough 97, 519 V. South Branch R. R. Co. 179 V. Triblecock 611, 513, 622, 523, 542, 649, 701, 744 Utica Ins. Co. v. Scott 298 V. Kip 299 Utley V. Clark Gardiner M'g Co. 401 Vail V. Hamilton 135, 136, 185 V. Jameson 668 Valle V. Ziegler 479 Valley Bank v. Sewing Society 432 Van Aerraan v. Bleistein 56 Van Allen v. Assessors 477 a, 484 Van Amburgh v. Baker 769 Vance v. Erie R'y Co. 342 V. Phoenix Ins. Co. 620, 621 Van Cott V. Van Brunt 545 Van Diemen's Land Co. v. Cock- erell 547, 699 Van Doren v. Olden 799 Van Dyck v. McQuade 622, 750 Vane v. Cobbold 104 Van Etten v. Eaton 764 Van Hostrup v. Madison City 381 Van Leuren v. First Nat. Bank 161 Van Lindley v. Richmond, etc. R. R. Co. _ _ 360 Van Norman v. Jackson Circuit • Judge 567 819 TABLE OF CASES. Van Rensselaer u. Snyder 493 Vansands v. Middlesex County Bank 600 Van Santvoord v. St John 363 Van Weel v. Winston 756 Van Wyck v. Kneyals 153, 383 Vatable v. New York, etc. R. R. Co. 816 a Vaughan v. TafF Vale R'y Co. 368 Veazie Bank v. Fenno 478 Veeder v. Baker 764 V. Mudgett 723, 732 Veiller v. Brown 720, 747 Velt Hospital v. City of New York 489 Venner v. Atchison, etc. R. Co. 227 Vermont and C. R. R. Co. v. Vermont Central R. R. Co. 288, 305, 449, 458 Verner v. Sweitzer 359 Verplanck v. Mercantile Ins. Co. 135 Vick «. Lane 704 V. La Roehelle 745 Vioksburg v. Tobin , 474 J Vicksburg and M. R. R. Co. v. O'Brien 210 Vicksburg, etc. R. R. Co. v. Mc- Kean 97, 516, 521 Victory Webb Printing Co. v. Bucher 773 Vidal V. Girard's Ex'rs 315 Viets V. Union Nat. B'k 672 Vilas V. Milwaukee, etc. R. R. Co. ' 415 Vilas Nat. B'k v. Strait 237 Vinas v. Merchants' Mut. Ins. Co. 342 Vincent v. Sands 768 Viner v. N. Y. and C. Steam- ship Co. 360 Vinton's Appeal 799 Virginia and T. R. R. Co. v. Henry 178 Virginia and Tenn. R. R. Co. v. Sayers 353 Virginia and Truckee R. R. Co. V. Lovejoy 164 Virginia Coupon Cases 494 Von Glahn v. De Rosset 436, 437 V. Harris 725 Von HoiFman v. City of Quincy 333 Vos Burgh V. Lake Shore, etc. R. do. 365 Vose V. Bronson 815 V. Cockcroft 400 Vreeland v. N. J. Stone Co. 511 820 W. SECTION Wabash, etc. Canal Co. v. Beers 815 Wabash, etc. R'y Co. v. Illinois 474 c Wabash, etc. R'y Co. v. Jagger- man : 363 Wabash, etc. R'y Co. v. People 476 a Wabash R'y Co. v. McDaniels 365 Wadsworth v. Supervisors 320 Wager v. Troy Union R'y Co. 175 a Wagner v. Meety 323 V. Stall 507 Waite V. Mining Co. 259 Wakefield v. Fargo 734 Wakefield Bank v. Truesdale 240 Wakeman v. Dalley 755 Waldo V. Chicago, etc. R. R. Co. 523 Walker, Ex parte 158 Walker v. Bartlett 791 V. Detroit R'y Co. 795 V. Devereux 91 V. Fleming 190 V. Lewis 700 V. Mad River, etc. R. R. Co. 162 V. Mobile, etc. R. R. Co. 515, 523 V. St. Louis Nat. Bank 246 V. Whitehead 498 Walker's Case 601 Walkley u. City of Muscatine 333 Wall V. County of Munroe 826 u. Livezay 349 Wallace v. Clayton 350 V. Long Island R. R. Co. 642, 644 V. Loomis 451, 507, 823 V. Townsend 515 Walling V. Michigan 485 Walnut V. Wade 326, 330, 680, 681 Walsh V. Barton 282 Walsham v. Staunton , 697 Walstab v.; Spottiswood 104 Walther v. Warner 163 Walworth County Bank v. Far- mers' L. and T. Co. 212, 286 Wann v. Western Un. Tel. Co. 357 Waoters v. International and G. N. R. R. Co Ward V. Atlantic Tel. Co. V. Davidson V. Farwell 162 and Pacific 167 628, 629, 650 495 V. Griswoldville Mfg. Co. 661 V. Loudesborough 104 V. Johnson 125, 280, 672 V. Maryland 485 V. N. Y. Cent. R. R. Co. 361 TABLE OF CASES. SECTION Ward V. Sea Ins. Co. 457 V. South Eastern Ky. Co. 597 «.' Stahl 715 Ward and Garfit's Case 589, 748 Warden v. Railroad Co. 612, 638, 639 AVare v. Bazemore 140 Warner v. Calender 712, 721 V. De Witt County Nat. Bank 303 V. Mower 574 V. New York Cent. E. K. Co. 376 Warren v. Beers 58 V. King 565 V. Mobile, etc. R. R. Co. 426, 666 Warren Mfg. Co. v. jEtna Ins. Co. 383, 397, 399 Warwick R. R. Co. v. Cady 518 Waseca County Bank v. Mc- Kenna 492 6 Washburn, etc. M'f'g Co. v. Providence, etc. R. R. Co. 363 Washer v. Allensville, etc' T. P. Co._ 263 Washington, etc. T. Road v. Baltimore and Ohio R. R. Co. 152 Washington Uiiiversity v. Rouse 488 Water Company v. Ware 170 Water Valley Mfg. Co. v. Sea- man 523 Waterbury v. Merchants' Un. Express Co. 611 Waterford, etc. Ry. Co. v. Dal- baic 96 Waterhouse v. Jamieson 545, 702 V. London and S. W. R. Co. 593 Waterman v. Conn, and P. R. R. R. Co. 173 Waters v. Quimby 774 Watkins v. Eames 92 Watson V. Eales 547 V. Earl Charleihont 104 V. Memphis, etc. R. R. Co. 193 V. Pittsburgh, etc. R. R. Co. 178 Watts w. Salter' 104 Watts's Appeal 125, 688, 693, 694 Waukon, etc. R. R. Co. p. Dwyer 513 Weare v. Gove 754 Weaver v. Miss., etc. Boom Co. 173 Webb V. Com'rs 251 V. Graniteville MTg Co. 592 SECTION Webb V. Ridgeley 581 V. Smith 210 Webber v. Great Western R'y Co. 363 V. Virginia 485 Weber v. Fickey 719, 731, 732, 744, 783 Webster v. Turner 610 V. Upton 613, 587, 719, 747 Webster's Case 110 Webster Telephone Case 454 Weckler v. First Nat. Bank 161, 336 358 Weed V. Little Falls, etc. R. R. ' Co. 637 V. Panama R. R. Co. 361 Weeden v. Lake Erie, etc. R. R. Co. 518 Weeks v. Love 725 V. N. Y., N. H. and H. R. R. Co. 347, 355 V. Propert 754 Wehrman v. Reakert 718 Weight V. Liverpool, etc. Ins. Co. 395 Weir V. Barnett 755 V. Express Co. 356 V. St. Paul, etc. R. R. Co. 163 Weiss V. Pennsylvania R. R. Co. 376 Weisser ». Denison 672, Welch V. Boston and A. R. R. Co. 353 V. First ])iv. St. Paul and Pac. R. R. Co. 115, 415 V. Post 320 o. Pullman Palace Car Co. 347 Weld V. Gorhara 195 Wells V. American Exp. Co. 210 V. Maine Steamship Co. 360 V. New York Central R. R. Co. 353 V. Eahway Rubber Co. 260 V. Rodgers 543, 544 V. Supervisors 320 Welsh V. German American Bank 672 V. Pittsburgh, Ft. W. and C. R. R. Co. 353 Welton V. State of Missouri 485 Wemple v. St. Louis, etc. R. R. Co. 511 Wendell v. N. Y. Cent, and H. R. R R. Co. 375 Wertheimer v. Pennsylvania R. R. Co. 359 West V. Carolina Life Ins. Co. 153 V. Madison County Agri- cultural Board 125 821 TABLE OF CASES. BBCTIOH West Branch, etc. Canal Co.'s Appeal 599 West Chester, etc. R. R. Co. v. Jackson 563, 564, 565, 572 West Chester, etc. R. R. Co. o. Miles 348 Westcott 0. Fargo 353 West End, etc. R. R. Co. v. At- lantic, etc. R. R. Co. 502 West End R. R. Co. v. Dameron 544 West Jersey R. R. Co. v. Cape May, etc. R. R. Co. 152 West of England Bank, In re, Ex parte Booker 224 West River Bridge Co. v. Dix 470 West St. Louis S'v'gs Bank v. Shawnee County Bank 206, 241, 636 West Wisconsin R. R. Co. v. Supervisors 488, 489 Westerfield v. Rodde 236 Western and Atlantic R. R. Co. V. McElwee 363 Western Bank of Scotland v. Addie 342, 523 Western Bank v. Gilstrap 202 Western Bank of Scotland v. Mills 298 Western Boatman's Benevolent Ass'n V. Kribben 210 Western Maryland R. R. Co. v. Franklin B'k 342, 598 Western Pennsylvania R. R. Co.'s Appeal 16.Sa, 164 Western Pennsylvania R. R. Co. V. Hill 178 Western Plankroad Co. v. Stock- ton 529 Western R. R. Co. v. Avery 546, 709 V. Bayne 237 V. Pavis 415 Western Screw, etc. Co. v. Cousley 86 Western Trans'n Co. v. New- hall 351, 353 Western Un. R. R. Co. v. Smith 426, 666 West. Un. Tel. Co. «. Adams 357 V. American Union Tel. Co. 309 V. Atlantic and Pacific Tel. Co. 309 V. Blanchard 357 V. Burlington, etc.R'yCo. 309, 314 822 SBCTIOH West. Un. Tel. Co. v. Carew 357 !;. Chicago, etc. R. R. Co. 309 «. Eyser 377 V. Fontaine 367 V. Furguson 350 V. Graham " 357 V. Hamilton 393 V. Jones 357 w.'Meek 357 V. Meredith 357 V. Meyer 357, 383, 480 V. Neill 357 V. Pendleton 357, 474 d V. Pleasants 395 V. Reynolds 357 V. Young 357 Westinghouse Machine Co. v. Wilkinson 280 Weston j;. Bear River, etc. Co. 588, 766 V. Bear River, etc. Wa- ter and M'f 'g Co. 796 Weston's Case 586, 601, 747 Wetherbee v. Baker , 702, 704, 737 V. Fitch 236 Wetumpka and Coosa R. R. Co. V, Bingham 449 Weymouth v. Washington, etc. R. R. Co. 395 Whelan v. McCready 210 Wheeler, Matter of 228 Wheeler!'. Faurat 719, 791 u. Frontier Bank 501 V. Millar 723, 732, 740 V. Perry 799 V. San Francisco and A. R. R. Co. 308, 362 V. Smith 255, 754 Wheeler & Wihon M'f'g Co. V. Boyce 842 Wheeless v. Second Nat. Bank 342 Wheelock v. Boston and Albany R. R. Co. 376 V. Kost 738, 741 V. Moulton 187 Wherry v. Hale 281 , 302 Whipple V. Union Pac. R'y Co. 426, 427 Whirley v. Whiteman 372 Whitcomb v. Fowle 658 Whitaker v. Hartford, etc. R. R. Co. 680 V. Masterton .774 Whites. Coventry 157 TABLE OF CASES. White V. Franklin Bank SECTION 311, 313 V. How 506, 774 u. Howard 387, 391 V. Knox 669 V. Schuyler 790 V. Vermont, etc. R. R. Co. 679 White Hall, etc. R. R. Co. «. Myers 97, 521 Whitehouse's Case 110 Whiteman's Ex'r ji. Wilmington, etc. R. R. Co. 344 White Mountains R. R. Co. v. Eastman 105, 779 White Mountains R. R. Co. v. White Mountains R. R. 325, 674 White River T. Co. v. Vermont Central R. R. Co. 152, 163 a Whitewater, etc. Canal Co. v. Vallette 675 Whitewater Valley R. R. Co. v. McClure 178 Whitford V. Laidler 248, 753 Whiting V. Sheboygan ■ 319. V. Wellington 207 Whitman v. Boston and M. R. R. 179 V. Cox 737 Whitman, etc. Mining Co. v. Baker 384 Whitney w. Atlantic, etc. R. R. Co. 305 V. Butler 748 V. First National Bank 161, 337 V. Leominster Savings Bank 277 V. Peay 313 V. Wyman 87 Whitney Arms Co. v. Barlow 264, 276, 773 Whitsitt V. Trustees Presbyterian Church 92, 109 Whittenton Mills v. Upton 130 Whittlesey v. Delaney 669 V. Delaney 814 Whit well a, Johnson 195 V. Warner 668, 710, 811 Whitworth v. Erie R'y Co. 364 Wibert v. N. Y. and Erie R. R. Co. 361 Wickersham v. Chicago Zinc Co. 210 Wickham v. Grant 342 Widrig V. Newport St. R'y Co. 633, Wiggin V. Free Will, etc. Church 574 SECTION Wiggins Ferry Co. v. Chicago and Alton R. R. Co. 308 V. East St. Louis 453, 485 Wight V. Shelby R. R. Co. 516 Wight Co. V. Steinkemeyer 701 Wilbur V. Stockholders 267, 701, 703 Wilcox V. Bickel 140 Wild V. Bank of Passamaquoddy 239 Wilde V. Merchants' Despatch Trans. Co. 359 Wile V. Wilson 281 Wiles V. Suydam 764 Wiley.v. First Nat. Bank 161,337 V. West Jersey R. R. Co. 368 Wilkens v. Thorne 392, 394 Wilkinson v. Bauerle 668, 759 V. Dodd 619 Wilks V. Georgia Pac. R'y Co. 276 Willamette M'"f g Co. v. Bank of British Columbia 125, 131 Willcocks, Ex parte 260, 578 Willey V. Parratt 104 Williams, Ex parte 679 Williams v. Bank of Michigan 137 V. Boice 708 V. Clough 365 V. Cress well 384 V. FuUerton 696 V. Great Western R'y Co. 372 }!. Halliard 620, 625, 626 V. Hanna 718 V. Louisiana 321 V. Lowe 600 V. McDonald 622, 623 u. McKay 619, 756 V. Mechanics' Bank 595 V. Morgan 682 V. New York Cent. R. R. Co. 175 a V. Page 103, 622 V. Parker 565 V. Pigott 77 V. Planters' Ins. Co. 342 V. Reilley 756 V. Rilev 616 u. Savage M'f'g Co. 136, 569 V. St. George's Harbor Co. 88 V. Western Union Tel. Co. 565, 567, 801 Williams's Case 101, 586, 749 Williamson, Ex parte 123 823 TABLE OF CASES. SECTION Williamson v. Kokomo B'ld'g Ass'n 151 V. Mason 342 V. New Jersey, etc. R. E. Co. 676 ti. New Jersey South- ern R. R. Co. 814, 815, 818 V. Washington City, etc. R. R. Co. 822, 8^4 Williamsport Gas Co. v. Pinkerton 681 Willis V. Fry 208, 591 V. Grand Trunk C. Co. 353 Williston V. Michigan S., etc. R. R. Co. 563, 564, 5g5, 572 Wilmer v. Atlantic, etc. R'y Co. 409 Wilmington C. and A. R. R. Co. w. Board of Com'rs 477 a Wilmington, etc. R. R. Co. v. Ling 249 Wilmington R. R. Co. v. Reid 488 Wilson, Ex parte 622 Wilson ii. Boyce 676, 817 V. Curzon 77 V. Harry 362 V. Gaines 490 V. Goodman 754, 804 V. Little 794 V. Lumman 87 V. McNamee 474 b V. Miers 130 V. Northern Pacific R. R. Co. 349 V. Ohio and Miss. Rail- way Co. 476 a V. Pittsburgh, etc. Coal Co. 737 V. Proprietors 578 V. Rockford, etc. R. R. Co. 179 V. Salamanca 824 V. Shareholder, The 734 V. Tesson 504 V. Wills Valley R. R. Co. 511, 530 Wilson's Case 123 Wiltbank'6 Appeal 799 Winch V. Birkenhead, etc. R. R. Co. 305 V. Conservators of the Thames 169 V. Tobin 464 Winchelsea's Causes 460 Wi:ichester v. Baltimore and S. R. R. Co. 210, 628 Wincock V. Turpin 721, 725, 783 824 Windham Prov. Sav. Inst. v. Sprague 718 Winne v. 111. Cent. R. R. Co. 361 Winona, etc. R. R. Co. v. Blake 350, 476 a Winona and S. P. Ry. Co. v. Waldron 179 Winslow V. Vermont, etc. R. R. Co. 360 Winston v. Tennessee and P. R. R. Co 319 V. Westfelt 327 Winter v. Baker 756 V. Belmont M. Co. 795, 797 Winton V. Little _ 161, 302 Wirth V. Philadelphia City Pass'r Ry. Co. 162 o Withers v. Buckley 470 Witter V. Mississippi, etc. R. R. Co. 530 Wolff V. New Orleans 333 Woman's Christian Temperance Union v. Taylor 193 Wonder v. Bait, and Ohio R. R. Co. 365 Wonson v. Fenno 790 Wood V. Argyll 77 V. Bedford, etc. R. R. Co. 305 V. Burroughs 705 V. C. M. and St. P. R. R. Co. 193 V. Church B'ld'g Ass'n 581 V. Coosa, etc. R. R. Co. 516 u. Dummer 655, 656, 708 V. Macon, etc. R. R. Co. 163 a V. New Bedford Coal Co. 366 11. Pearce 703, 779 V. Whelen 90, 204, 219, 224, 225, 678 V. Wicks 714 Wood Hydraulic Hose Mining Co. V. King 214, 381 Woodfolk V. Nashville, etc. R. R. Co. 179 Woodfork v. Union Bank 449 Woodhouse v. Commonwealth Ins. Co. 501 Woodhouse V. Crescent Mut. Ins. Co. 592 Woodlawn Cemetery v. Everett 474 Woodruff V. Erie Ry. Co. 287, 305 V. Parhani 480 V. Sherrard 359 V. Town of Okoloma 321 V. Trapnell 507 V. Wentworth 680, 788 TABLE OF CASES. Woodruff, etc. Ironworks v. Chittenden 728, 733 Woodruff Sleeping, etc. Co. v. Diehl 347 Wood's Case 97 Woods V. Pittsburgh, Cin. and St. L. R'y Co. 817 Woodson V. Milwaukee, etc. R. R. Co. 368 Woodward v. St. Louis, etc. R. R. Co. 342 Woodridge v. Holmes 543 Wooley V. Batte • 803 Worcester Corn Ex. Co., In re 312, 645 Worcester v. Forty-second St. R. R. Co. 169 Worcester R. R. Co. v. Hinds 517 Workingmen's Bank v. Converse 149 Workman v. Campbell 162, 515, 589, 748 Worth V. Commissioners 479 u. Petersburg R. R. Co. 488 V. Wilmington, etc. R. R Co. 488 Wright V. Bundy 381 V. Chicago, etc. R. R. Co. 392 V. Commonwealth 577 V. McCormack 721, 826 V. Milwaukee, etc. Ry. Co. 415 V. Nagle 468 o. Nostrand 436 r. Oroville M'f g Co. 219, 224, 558, 688 V. Petrie 656 V. Pipe Line Co. 280 V. Ryder 309 V. Southwestern R. R. Co. 492 6 V. Springfield and New London R. R. Co. 614 V. Wilcox 752 Wright's Appeal 591, 597 Wyandott, K. C. and N. W. Ry. Co. V. Waldo 178 Wyatt V. Ohio and Miss. R. R. Co. 144 Wylie V. Northampton B'k 161 Wyman u. Chicago and Alton R. R. Co. 364 V. Hallowell and Au- gusta Bank 667 V. Penobscot, etc. R. R. Co. 305 Wynne v. Price 791 Xenia Bank v. Stewart SECTION 210, 240 Yates u. Milwaukee 174, 176 V. Van De Bogert 204 Yeaton v. Bank of the Old Do- minion 502 V. United States 764 Yellow Jacket Silver Mining Co. V. Stevenson 214, 258 Yeomans v. Contra Costa Steam Nav. iJo. 350 Yerkes v. Nat. Bank 161 Yonge V. Kinney 349 York and Cumberland R. R. Co. V. Ritchie 234, 54^ York and Maryland Line R. R. Co. V. Winans 305 York Co. V. Central Railroad 351 York, etc. R. R. Co. v. Hudson 629, 631 Yorkshire Ry. Wagon Co. v. McClure 291 Yorton v. Milwaukee, etc. R'y Co. 348 Youghiogheny Shaft Co. v. Evans 717 Young V. Iron Co. 392 V. Moses 690 V. N. Y., etc. Steamship Co. 718 V. Rosenbaum 715 V. Vough 602 Youngman u. Elmira, etc. R. R. Co. 670 Zabriskie v. Cleveland, etc. R. R. Co. 195, 270, 280, 286, 574 Zabriskie v. Hackensack, etc. B. R. Co. 502, 535 Ziegler v. First Nat. Bank 342 Zimmer v. State 424 Zinn V. N. J. Steamboat Co. 360 Zirkel y. Joliet Opera Co. 549 Zottman v. San Francisco 312 Zulueta's Claim 134, 314, 780 825 INDEX. [befebences aee to the sections.] ABANDONMENT OF CHARTER, 433, 434. ABUSE OF CORPORATE POWERS, corporation liable for damage paused by, 169. ABUTTING OWNERS ON STREETS, 175-177. ACCEPTANCE OF AMENDMENT TO CHARTER, 227, 530, note, estoppel to deny, 146, note, when shareholder may enjoin, 557. ACCEPTANCE OF BENEFIT. See Ratification. ACCEPTANCE OF CHARTER, 449. ACCEPTANCE OF SURRENDER OF FRANCHISES, 433, 434. ACCOMMODATION CERTIFICATIONS BY BANKS, 244. ACCOMMODATION ENDORSEMENTS BY BANKS, 244, note, 236, note. ACCOUNTING: by corporations for benefits received under ultra vires contracts, 310. specific chattels, 311-313. money, 311. illegal ultra vires contracts, 313. by other party for benefits received under ultra vires contracts, 314. See Secret Profits. ACQUIESCENCE. See Ratification. ACTIONS. See Suits by and against Corporations. ACTS DONE ON BEHALF OF CORPORATIONS: when franchises a protection from liability for, 167-170. when franchises not a protection from liability for, 171-177. of body corporate, when binding, 180-183. formalities required, 184-187. See Agents, Directors, President, Cashier, Illegal Acts, Torts, Ultra Vires. ACTS DONE WITHOUT THE STATE INCORPORATING THE CORPORATION : the two questions, 379. legal effect of the act within the limits of the home state, 380-382. legal effect of the act in the foreign state, 383. comity among states, 384. 827 INDEX. ACTS DONE WITHOUT THE STATE, Etc.— ^continued). limits to this comity, 385. foreign corporations cannot exercise special franchises, 386. nor act contrary to the laws or public policy of the state, 387, 388. nor do acts beyond their powers, 389-391. actions against foreign corporations, 392. by one foreign corporation against another, 392. penal provisions not enforced outside the state enacting them. Statutory liability, 393. jurisdiction over assets of foreign corporations, 394. service on foreign corporations, 395, 396. statutes regulating service, 397. New York doctrine, 398. proceedings in rem, 399. statutes imposing terms on foreign corporations, 400. effect of non-compliance with these statutes, 401. statutes of limitations, 402. status of a body of men incorporated by the legislation of two or more states, 403-408. ADJOURNED MEETINGS, 574. ADMINISTRATOR, foreign corporation as, 384. ADMISSIONS OF CORPORATE AGENTS, 210. of president, 235, note. AGENTS OP CORPORATIONS: promoters in what respects agents, 82-84. need not be appointed by deed under the corporate seal, 248. validity of their acts, general principles, 191-193. effective limitations on authority of, 194. Class I., where other party is charged with notice, 195. effect of by-laws, 196, 197. Class II., where other party has actual knowledge, 198, 199. Class III., where course of agent's employment indicates the limi- tations, 200, 202. authority of, dependent on actual functions, 202. effect of extrinsic facts on validity of contract of, 203-206, 284, 285. certification of their authority by, 207-209. fraud of, when corporation cannot plead, 20 7. fraud of, subscriptions obtained by, 523-526. admissions of, 210. notice to, 210. ratifying unauthorized acts of, 211-217, 256. delegation of authority by, 233, 234. authority of, when expires, 235. manner of action, non-observance of formalities by, 247-262. See Formalities. approval of acts by other agents, 252. 828 INDEX. AGENTS OF COUF OH ATIO'SS— {continued). cannot bind corporation by ultra vires acts, 265, 267. cannot represent corporation when dealing with themselves, 628-631. compensatiojn of, 646-648. See Directors, President, Cashier, Treasurer, Secretary, Station Agent, Insurance Agent, Teller, Torts. AGREEMENT BETWEEN THE CORPORATORS, 31. ALIENATE PROPERTY, power of corporations to, 130. ALLOT SHARES, power to, directors cannot delegate, 234. See Shares OF Stock. ALTERATION OF CHARTERS OR ENABLING ACTS : state cannot alter unless it has reserved the power to, 450, 453, 567. power to, may be reserved to the state, 464. by statute or constitutional provision, 464, 496. power reserved to prevents existence of contracts between corporation and state, 496, 497. contract between corporators subject to it, 498. limitations in th'e power to, 499-502. eifect of on subscriptions to shares, 530-535. release of subscribers thereby, 531-535. AMALGAMATION. See Consolidation. AMENDMENT OF CHARTER, acceptance of, 227, 449, note, 530, note, 557. See Alteration of Charters. AMOTION, 14, note, 649, 650. court of equity cannot pronounce judgment of, 581. ANALOGY, danger of reasoning from, 67-69, 717. ANALYSIS OF THE NOTION OF A CORPORATION, 23-51. the two meanings of the term "corporation," 23. meaning of the terms "legal institution," and "legal relation," 24-27. the constitution of a corporation, 28-30. incorporation, 28-30. fundamental agreement between the corporators, 31. the corporate funds, 32, 33. legal relations in respect to the corporate funds, 34, 35. result of the analysis, 36. persons between whom exist the legal relations in respect of the corporate enterprise, 37. corporate management, 38. order of treatment, 39. general nature of the legal relations existing in respect of the corporate enterprise, 40. trust relations, 41-47. the corporation also a body of men, 48-50. the legal person, 51. ANNUAL REPORTS. See Reports. 829 INDEX. APPEAR AS DEFENDANT, a corporation can, 143. a foreign corporation can, 396, note. APPOINTMENT OP AGENTS, 248. ARBITRATION, corporations may refer matters to, 137. ASSAULT, liability of corporations for, 344. ASSENT, of shareholders to mortgage, 185, 186. corporation cannot, as shareholder in itself, assent to mortgage, 136, note. ASSESSMENTS. See Calls. ASSETS OP CORPORATIONS: status of, 32, 33. legal relations in respect to, 34, 36, 41-47. trust fund for creditors, 654, 655. creditors may follow, 656, 657. restrain misapplication of, 657-659. assignments of for creditors, 130, 668. ASSIGNEE OF INSOLVENT CORPORATION, may sue for subscrip- tions, 542. ASSIGNMENTS FOR CREDITORS, 130, 668. made by directors, 225, 230, note, 668, note. ASSIGNMENT OF SUBSCRIPTIONS TO SHARES IN A FUTURE CORPORATION, 101, 102. ASSOCIATIONS. See Joint Stock Associations. ATTACHMENT OF SHARES, 796. does not incumber property of the corporation, 567, note. in foreign corporation, 392, note. ATTORNEY, corporation may appear by, 143. managing officers may employ, 202. AUSTIN'S ANALYSIS OP A LAW, 439. AUTHORITY, delegation of by directors, 233. AUTHORITY TO FORM A CORPORATION: in the Roman law, 4. in the common law, 12. BAGGAGE, liability of carriers for, 355. BANKRUPTCY. See Insolvency, Winding-up. BANKS: when cannot establish branches, 121, note. may loan money, 161. may deal in exchange, 161. may purchase, discount, and collect notes and bills, 161. may receive special deposits as gratuitous bailee, 161, 337. liability for special deposits, 161, 337, 346. may convey property, 161. power of to guarantee, 267. may make covenants of warranty, 161. may not subscribe to stock in a railroad company, 161, 267. 830 INDEX. BANK S — (continued) . liability on checks certified by cashier or teller, 242-245. liability on raised checks certified by, 245, 246. liability for money paid on forgeries, 199, 672. relations to depositors, 672. lien on deposits, 673. prohibited loans by, 301. excessive interest taken by, 298. prohibited circulating notes issued by, 298, 299. See National Banks, Savings Banks, Cashier. BENEFIT OF TRANSACTION, acceptance of, 211, 214. See Ratifi- cation. BENEFIT, set-off against amount of compensation for property taken, 179. BEQUEST OF SHARES, right to dividends, 799, 801. BILLS AND NOTES, issued by corporations, 205, 285, 299. BILLS OF LADING: effect of provisions in to limit liability of carrier, 358, 359. liability of railroad company to those who make advances on, 201. BLACKSTONE'S view of a corporation, 14, 15. BOARD OF DIRECTORS. See Directors. BODY CORPORATE : consists of whom, 48-50. acts of, when binding, 180-183. manner of acting, 184-187. See Legal Effect of Acts done by or ON BEHALF OF CORPORATIONS, UlTRA ViRES. cannot act outside the state, 382. BONDS: corporation may issue, 125. issued before incorporation, 90, note. situs of for taxation, 479. when negotiable, 679. effect of invalid provisions in, 677, 678. purchase of by directors, 633. that some are invalid may not affect mortgage security for the rest of the issue, 678, note. See Municipal Bonds. BONDS CONVERTIBLE INTO STOCK, 541, note, 679. BONDHOLDERS, 674-682. officers of corporations may act as trustee for, 629, note. affected with notice of terms of the mortgage, 674. and bound by them, 816. under railroad mortgages, 676. under mortgages of rolling stock, 676. rights of, how affected by invalid provisions in mortgages, 677, 678. remedies of, 682, 815, note. when not necessary parties to suit by trustee to foreclose, 815, notes. 831 INDEX. BONDHOLDERS— (cojiiinuerf). legal relations among, 815-820. on reorganization of debtor corporations, 816 a. • between and contractors, 817. between and other creditors, 820-824. under mortgages of separate portions of railroad, 819. appointment of receiver at suit of, 821, 822. priority of receiver's orders over claims of, 823. bonds held by, negotiable, 679. coupons, 680. See Ceeditoks, Trustees undek Railroad Mort- gages. BOOKS OF CORPORATION: interpolations in, 263. evidence to prove subscriptions, 263. to prove organization meeting, 263. when not against outsiders, 263. right of shareholders to inspect, 585. of directors to inspect, 808. mandamus to inspect, 586, 808. a mandamus lies to compel outgoing officers to surrender, 650, note. BORROW MONEY : power of corporation to, 125-127. mining superintendent cannot, 202. nor treasurer of savings bank, 202. liability of corporations for, 214-216, 232, 286, 311. cashier may, 240. power of directors to, 209, 225. statutory limitations on amount, 205, 286. BRANCHES, power of corporations to establish, 121, note. BURDEN OF PROOF OF CONTRIBUTORY NEGLIGENCE, 37C. See Presumptions. BUSINESS, place of. - power of corporation to change, 121, note, 382. when foreign corporations must state, 400. BY-LAWS : ' power of corporations to make, 6, 12, 14, 19, 582. where resident, 582. evidence against shareholders, 582, note, must be reasonable and not contrary to law, 583. cannot create statutory liability, 583. regulating transfers and alienations of shares, 583. repeal of, 584. creating lien on shares, 601, 602. outsiders, when not affected with notice of, 196, 107. when ordinarily disregarded do not affect rights of outsiders, 197. liability of savings banks for moneys paid in violation of, 199 and note. 832 INDEX. BY-LAWS— (conimuerf). transfers of shares in violation of, 689, 594. liability of directors for acts in violation of, 616-619. may provide for removal of officers, 649. CALLS : illegally chosen officers cannot make, 540. when a condition precedent to enforcing a subscription, 517, 543, 703. authority to make cannot be delegated, 233, 234, 543. may be assigned when made, 543. action for cannot be sustained after forfeiture of shares, 546. creditors can compel directors to make, 703. when necessary before creditors can sue shareholders, 703. until made, statute of limitations does not run against unpaid subscrip- tions, 709. CAPACITIES OF CORPORATIONS AT COMMON LAW, 12, 15. CAPITAL AND INCOME, status of dividends, 799-801. CAPITAL STOCK. See Stock. valuation of for taxation, 477 a, note. CARRIER. See Common Carkiee. CASHIER: powers of, 202, 239-243. appointment of, 248. has power to borrow, 240. powers restricted to ordinary business of the bank, 241. cannot bind bank as accommodation endorser, 241. cannot certify his own check, 241, note. cannot bind bank on his own note, 202, 241. fraud of, 240, 598, note. declarations of, 240, note. effect of notice to, 215, 240. cannot pledge assets for antecedent debt, 241, note. certifications of checks by, 243, 244. when not liable for acts in violation of by-laws, 616, note. prima facie entitled to compensation, 647, note. CATTLE ON RAILROAD TRACKS, 369. CERTIFICATE OF INCORPORATION MUST BE FILED, 451, note. CERTIFICATE OF STOCK. See Stock Ckutificate. CERTIFICATION OF CHECKS, 242-246, 636. CHANGE IN CORPORATE ENTERPRISE : effect of on subscriptions, 530-535. directors cannot make, 226, 227. CHARGES BY RAILROAD COMPANIES, power of state to regulate, 475, 476 a, 476 6. CHARTER : when fraud in obtaining cannot be pleaded, 147. emibodies a contract, 438, 448. 53 838' INDEX. CHARTER— (con(i)iu(S . for delay in carrying goods, 361. for loss of goods by carrier, 361. See Eminent Domain. DEATH of parties, penal actions do not survive, 764, 771. DEBTS, what are, 734, 772, 773. DECEIT, corporation liable in action for, 342. DECLARATIONS of officers or agents, 210. effect of when false on subscriptions, 97 note, 521. DECREASE OF CAPITAL STOCK: power of corporations to, 133. rights of shareholders on, 570. DEEDS OF CORPORATIONS, 248. proof of, 248, note. DE FACTO CORPORATION : how existence of may be questioned, 145. what is, 145, note, 148. corporation organized under void law is not, 148. subscriber before organization may deny existence, 99. subscriber after organization may not, 147, 537-539, 738, 739. when subscriber may question validity of consolidation, 539. when parties contracting with estopped to deny existence of, 146-148. 841 INDEX. DE FACTO CORPOKATION— (conhWed). when such parties not estopped, 149, 150. when creditors estopped to deny existence, 148, T39. when existence cannot be denied by parties affected with no estoppel, 151-153. when existence can be denied, 154. validity of special franchises may be questioned, 154-156. cannot exercise right of eminent domain, 155. defective organization remediable, 157. DE FACTO OFFICERS : who are, 188. general reputation does not make, 188. acts of, wlien valid, 188-190. cannot make calls, 540. rights of against other officers, 809. DE FACTO ORGANIZATION OF CORPORATION, when sufficient, 153. See Djb Facto Cobpobation. when insufficient, 154-156. DEFAMATION, 137, 342. DEFECTIVE ORGANIZATION OF CORPORATION, how cured, 157. DEFENDANT, corporation may appear as, 143. ' DEFERRED INCOME BONDS, 126. DEFINITIONS : of corpo'ration, 21, 23, notes, 27. of legal effect, SO, note, 113. of corporators, 114, note, of corporate powers, 114. of a valid act, 118, note, of a binding act, 118, note, of partnerships, 23, note, 59. of a tort, 335, note, of dissolution, 428. of law, 440, 446. of a legal right, 442. of shares of stock, 567. DELAY IN TRANSPORTATION : liability of carrier, 361. measure of damages, 361. DELEGATION OF AUTHORITY BY DIRECTORS, 233, 234. DELEGATION OF FRANCHISES, does not relieve corporation from liability, 170. DEPOSITORS : in savings banks, 199. relations of to bank, 672. forgeries, 672. . lien of bank on deposits of, 673. 842 INDEX. DEPOSITS ON SUBSCRIBING FOR SHARES. See Peeliminauy Deposits. DEPOTS : railroad company may condemn land for, 163. power of railroad companies to locate, 162. contracts to locate by railroad companies, 309. DEVISES TO FOREIGN CORPORATIONS, 391. DIRECTORS : on wrongful refusal of to sue, when shareholders may, 140. effect of vesting corporate management in, 180-183, 683-685. acts of, when valid, 191-193. notice to, 210, note. presumption of knowledge by, 216, note, cannot agree as to who shall be directors, 219, note, powers of when corporate powers are vested in, 219, 220, 224. limitations on, 221. to transact ordinary business, 223. to make compromises, 223, 224. to borrow, 225. to guarantee debts of other corporations, 224. to mortgage, 225. to make assignments, 225, 230, note, 668, note, cannot change corporate enterprise, 226, 227. accept amendment to charter, 227, 449, note, 530, note, increase capital stock, 228. transfer or lease certain property, 229. change termini of railroad, 229, note, close the business, 230. bind corporation in matters not relating to corporate business, 222, 231, 232. ratification by, 211, and note. of bonds issued before incorporation, 90, note, acquiescence of in unauthorized act, 212. delegation of authority by, 233, 234. must act as a board, 258, 259. meetings of, quorum, 260. may meet outside the state, 381. cannot be elected outside of state, 382, note, presumptions in favor of regularity, 261. action of, special provisions regarding, 262. record of their acts, 263 . cannot bind corporation by ultra vires acts, 267. liability of, for money borrowed from their corporation in violation of terms of a statute, 301. ' when illegally elected cannot make calls, 540. elections of, 577-581. 843 INDEX. mRECTO'RS— (continued.) fiduciary position of, 612, 613. when there are no other shareholders, 612, note. liability of to pay for qualification shares, 614. when need not be holders of shares, 614, note. duties of, enforceable by corporation, 615. or by its receiver or assignee, 615. liability of, for neglect of duty, 616-619. for fraud, 616-619. for acts in violation of by-laws, 616-619. for errors of judgment, 620, 621, 694. for not requiring officers to furnish official bonds, 619, note, 621. for ultra vires acts, 622, 623, 754. may be released from this liability, 622, note. for acts of other corporate agents, 624-626. for mistaking corporate powers, 622, 623. should have no interests opposed to the corporation, 627. cannot contract with themselves, 628-631. whether they may be trustees for bondholders, 629, note, must account for secret profits, 629-631. cannot set up that contract was ultra vires, 629. loans by, to the corporation, 632-634, 810, 811. transactions of fraudulent as a matter of law, 630. may be ratified by the corporation, 630. remedies of corporation regarding, 631. purchase by bonds of their corporation, 633. cannot bind corporation when personally interested with other contracting party, 635-639. when may act for two corporations, 640-644. when may sue corporation like an outsider, 634, note, right of to indemnification, 645, 699. to compensation, 646-648. removal of, 649, 650. right of to manage corporate affairs, 645, 683. actions against by shareholders, 683-691. trustees for shareholders, 692. only in regard to management of corporation, 698. liability of to shareholders, 692-695. for error, 694. for frauds of other officers, 694. for immediate injuries, 696, 697. for fraud, 696, 697. liability of, in contracting for their corporation, 752, 753. liability of, in contracting for their corporation, when contract is ultra vires, 754. liability of, to outsiders for acts of other corporate agents, 755. 844 INDEX. DIRECTOUS— (continued). liability of, to creditors, 756. for misapplication of corporate funds, 757. for neglect of duty, 758. for frauds of other officers, 758. discretion of, as to order of payment of debts of corporation, 668, note, duties of, to creditors on insolvency of the corporation, 759, 760. cannot prefer themselves over other creditors when corporation is insol- vent, 769, 760. statutory liability of to creditors. See Statutory Liability. legal relations between, 802. contribution among, 763, 764, 767, 803-806. contribution between, and other officers, 807. right of, to inspect corporate books, 808. rights of de facto directors, 809. rights of when creditors, 810-811. See Ofpicbrs. DISCRIMINATIONS IN PAYMENT OF DEBTS, 668, 669. DISSOLUTION OF CORPORATIONS: what is, 428. causes of, 429, 430. at Roman law, 6. at common law, 12, 20. consolidation causes, 421. decree when necessary, 431, 432. failure to elect corporate officers does not cause, 432. discontinuance of business does not cause, 432. insolvency does not cause, 432. assignment of property for creditors does not cause, 432, appointment of receiver does not cause, 432. power of majority to dissolve, 431, 610. power of minority to dissolve, 610. power of directors, 230. by surrendfer of franchises, 20, 433, 434. creditors cannot prevent, 664. jurisdiction of equity to dissolve a corporation, 611. court cannot dissolve a foreign corporation, 394. consequences of, 435-437. at common law, 20, 21. at Roman law, 6, note, suits by and against corporation abated by, 150, note, 435. no rights can be acquired against corporation after, 813, note, corporate capacities when preserved after, 436. lease to corporation not determined by, 437, note, relations between shareholders and creditors on, 750, 751. relations among shareholders on, 786. not always requisite to relieve officers from duty to file annual reports, 770. 845 INDEX. DITCHES, railroad company liable for obstructing, 173. DIVERGENCY OF INTEREST IN A CORPORATE ENTERPRISE, 116, 117. DIVIDENDS : directors cannot delegate authority to declare, 234. court -will not enjoin directors of foreign corporation from paying, 394. shareholders have no absolute right to, before declaration, 562, 563. when shareholders may compel declaration, 563. on preferred shares cumulative, 564. payable only out of profits, 565. recovery of when illegally paid, 566, 567. application of statutes of limitation, 566, note. transferree not liable to return dividends paid to his transferrer, 719, note, shareholders improperly receiving, cannot set off debt against liability to return, 568. after declaration belong to shareholders, 568, 750. even as against creditors, 750. stock dividends, 568, 800, 801. right to, as between transferrer and transferee, 798. right to, as between life-tenant and remainder- man, 799-801. scrip dividend, when bequest of shares does not carry, 798, note. DOMICILE OF CORPORATION CREATED BY TWO STATES, 409, 407, note. See Federal Coukts, Foreign Corporations. DOUBLE TAXATION, 477 a. DRAINS, railroad company liable for obstructing, 173. DRUNKEN PERSON MAY BE EXCLUDED FROM CARS, 348. DUE PROCESS OF LAW, 470-472, 480, 492, 492 a. EARNINGS : right to, as between general creditors and mortgagees, 820. v- right of insolvent corporation to control, 820. agreements for division of between corporations, 224. See Dividends. ELECTIONS OF OFFICERS, 577-581. held outside the state void, 382, note. court of law tribunal to determine validity, 581. EMINENT DOMAIN : how differs from police and taxing powers, 469 a. legislature cannot surrender, 465, 466. restrictions on, 469 i-472. state may take corporate property by, 470-473. franchises may be taken by, 470. due process of law, 471, 472. just compensation, 178, 473. what constitutes a taking of property, 171-177. 846 INDEX. EMINENT DOMAm— {continued). of railroad companies, 163-166. does not arise by implication, 163. extends only to necessary property, 163. property devoted to a public use may be taken by, 163 a. not exhausted by single exercise, 164. may acquire the fee, 165. not transferable, 166. not liable to sale on execution, 166. statute granting must be strictly followed, 166. mode of exercising, 166, 473. cannot be exercised by de facto corporation, 155. injunction against exercising, 155, note, nor by foreign corporation, 386. passes to consolidated corporation, 424. measure of compensation, 178, 473. set-oflp of benefits, 179. EMPLOTfiS: liability of corporation for torts of, 343, 344. for injuries to, 365, 366. ENABLING ACTS, formation of corporations under, 451, note. ENDORSEMENTS, by corporations, 125, note, 244, note. EQUITABLE MORTGAGES, 675. ERROR : subscriptions induced by, 527. liability of corporations for transfers registered by, 597. directors when not liable for, 620, 621. ERRORS OF JUDGMENT, when directors not liable for, 620, 621. ESTOPPEL : principles of, apply to corporations, 193, note. of corporation by acts of agent, 210, note, of shareholders, 187. to plead nul tiel corporation, 146-151. of corporation to deny what is certified by proper officer, 186, 207, 208. aflTecting promoters, 74, 75. of promoter to deny he acted as agent of the corporation, 82. of corporation by acts of promoters, 88-90. of persons dealing with corporation to deny corporate existence, 146-151. or validity of amendment to charter, 146, note. Or question validity of acts of de facto officers, 189, 190. by performance of ultra vires contract, 276-280. of municipality by recitals in bonds, 329-332. when corporation not estopped by interpolations in its books, 263. of subscribers to allege their subscriptions were fictitious, 105. of subscribers by their laches/ 111. of subscribers to insist on performance of conditions by corporation, 519. 847 INDEX. ESTOFP'EL— (continued) . of subscribers to plead nul iiel corporation, 537-539. in suit by creditors, 738. of creditors to deny corporate existence to charge shareholders as partners, 739. of subscribers to allege irregularity of shares issued to them, 541. of corporation to deny validity of transfer of shares, 589. of corporation by issuing a certificate of shares, 591, 598. of transferree of shares as collateral to deny that he is a shareholder, 741. EVIDENCE, rules of, applicable to corporations, 263. by-laws, 582, note. books of corporation when, 263. reports of officers, 263, note. general reputation as to who are officers not, 188. See Judgment ' AGAINST Corporation. EXAMINATION OF BOOKS OF CORPOEATION: by shareholders, 585. by directors, 808. EXCLUSIVE PRIVILEGES to be strictly construed, 122. EXECUTION: what corporate property exempt, 165, 671. property of municipal corporations exempt, 334. returned unsatisfied, when a condition precedent of statutory liability of shareholders to creditors, 713. EXECUTORS, transfers of shares by, 592. EXEMPLARY DAMAGES, when recoverable for personal injuries, 377, 378. EXEMPTION FROM TAXATION, 487-491. may not pass to succeeding corporations, 417, 487-491. EXPIRATION OF CHARTER, 150, note. See Dissolution. EXTRA-TERRITORIAL ACTS OF CORPORATIONS.. See For- eign Corporations. EXTRINSIC FACTS, do not affect validity of agents' acts, 203, 284, 285. FALSE IMPRISONMENT, corporation liable for, 342. FALSE REPORT, liability of directors for signing, 774. FALSE REPRESENTATIONS. See Fraud. FEDERAL AGENCIES, exemption of, from state taxation, 482. FEDERAL COURTS: jurisdiction, 410-413, 468. when corporation cannot deny its incorporation in order to oust, 146, note, state cannot prohibit foreign corporation to remove suits to, 400. how far will follow decisions of state courts, 318, 468. FEDERAL DECISIONS REGARDING RAILWAY AID BONDS OF MUNICIPAL CORPORATIONS, 318. 848 INDEX. FEE OF LAND, corporation may condemn, 128. FENCE, duty of railroad company to, 369. legislature may compel railroad company to, 475, note. FICTITIOUS SUBSCRIPTIONS, 105. FIDUCIARY RELATIONS, 41-47. FIRE, carrier may stipulate against liability for, 351. FIRES, caused by sparks from locomotives, 368. FLAGMEN AT RAILWAY CROSSINGS, 368. FORBIDDEN ACTS. See Statutory Prohibitions. FORHICLOSURE OF MORTGAGES : given by railroads, appointment of receiver, 821-824. by foreign corporation, 384, note, 401. of property of consolidated corporation created by two states, 409, note. sale under, 619, note, 682, note, 711, 813. parties to, 814, 815, note. purchasers^at, not liable on judgment against corporation, 415. but assume position of former corporation for the future, 417. FOREIGN CORPORATIONS, 379-402. legal effect of their acts, 383. may purchase land, 384, note, 388, note. permitted by comity to contract and sue, 384-390. foreclosure by, 384, note. devises to, 390. cannot exercise special franchises, 386. cannot act contrary to the law or public policy of the state, 387, 388. cannot act beyond their chartered powers, 389. implied notice of powers of, 195, note, 389-391. court will not take judicial notice of powers of, 389. nor entertain controversies relating to internal management of, 392, nor dissolve, 394. nor compel distribution of assets of, 394. nor enjoin dividend, 394. nor appoint receiver, 394. enforcement of individual liability of shareholders in, 393, attachment of shares in, 392, note. garnishment of, 392, note. suits by and against, 392-394, 399. jurisdiction over assets of, 394. service of process on, 395-399. may appear as defendant, 396, note. residence of, 395, note. proceedings in rem against property of,' 399. statutes imposing terms on, 400, 401. state cannot prevent from removing cases to Federal courts, 400. when statuteof limitations bars claims against, 402. corporations incorporated by two or more states, 403. 54 849 INDEX. FOREIGN CORPORATIONS— (fo«Im«e£i). taxation of, by states, 480. corporations created by act of Congress are not, 404. FORFEITURE: of franchises, 457-459. suit for, must be brought in the name of the state, 151. liability to, does not relieve from liability for damages, 169. may be waived, 460. grounds of, not to be taken advantage of collaterally, 460. when judicial decree not necessary, 458, 503. of shares, special authority requisite, 546. subscription cannot be enforced after, 546. must be regular, 547. due notice necessary, 547. by illegally chosen directors void, 547. for illegal assessments void, 547. option to declare, rests with corporation, 548. when collusive may be set aside, 548. directors cannot delegate authority to forfeit shares, 234. FORGERY : liability of savings bank for moneys paid on forged order, 199. transfers of shares on forged order, 593. FORMALITIES : required by statute, 185, 186. in leases, 185. in mortgages, 185. certification of fulfilment of, 186. validity of acts as dependent on, 247. corporate seal, 248. implied contracts, 249. non-observance of, 250. imperative or directory, 251. approval of contract by other officers, 252. when other contracting party has notice of, 253. when not applicable, 254. when corporate agent and other contracting party are not on equal terms regarding, 255. ratification of informal acts, 256. other party can set up non-observance of, 257. observable by directors. See Directous. FORMATION OF CORPORATIONS: in the Roman law, 4. under enabling acts, 451, note. See De Facto Corporation. FRANCHISES : transfer of, 131, 132, 304. delegation of, 1 70. 850 INDEX. FRANCHISES— (continued). when delegation of does not relieve corporation from liability, 170. mortgage of, 304. when not to be questioned collaterally, 145-157, 168, 460. by a subscriber for shares, 537-539. by creditors, 739. vest in consolidated company, 424. authority to mortgage passes to consolidated company, 424, extending duration of, 451, note, surrender of, 433, 434. forfeiture of, 457-459. forfeiture of, state may waive, 460. when not to be taken advantage of collaterally, 460. taxation of, 479, note, 488, 489. valuation of for taxation, 477 o. when a protection to the corporation from liability, 167-170. when not a protection to the corporation from liability, 171-177. may be exercised outside of the state, 381. exempt from execution, 671. state may take by eminent domain, 470-473. FRAUD : in obtaining charter, when cannot be pleaded, 147. liability of corporation for, 342. subscriptions obtained by, 97, note, 103, 523-526. liability of directors for, 616-619. in obtaining subscriptions cannot b,e pleaded against creditors, 744. against other shareholders, 781. of vendor of shares, 792. FRAUDULENT ISSUES OF SHARES, liability of corporation, 591. FRAUDULENT SUBSCRIPTIONS TO SHARES IN THE STOCK OF A CORPORATION TO BE FORMED, 105. See Subscrip- tions. FRAUDULENT TRANSFER OF SHARES: effect as to corporation, 586. effect as to creditors, 749. effect as to other shareholders, 780. FREIGHT : liabilities of carrrier regarding, 350, 356. FUNDS, CORPORATE. See Corporate Funds. GAIUS, his division of persons, 2. GAMBLERS, may be excluded from trains, 348. GARNISHMENT, of shares, 796, note.* of unpaid subscriptions, 660, note. ' GARNISHMENT OF FOREIGN CORPORATION, 392, note. GAS PIPES under streets, damages for laying, 176, note. 851 INDEX. GENERAL AGENTS, powers of, 201, 202. GENERAL ISSUE, plea of, admits corporate capacity to sue, 137. GENERAL PRINCIPLES, application of, in the formation of new rules of law, 70, 71. GILDA MERCATORIA, 13. GRANT. See Charter. GRATUITOUS SUBSCRIPTIONS, 94, note. GRATUITY TO EMPLOYlSS, 229, note. GUARANTY, power of corporations to, 127, 203, note, 224, 267. by a city, 322, note. of ultra vires lease is void, 305. of dividends on stock of another corporation, 563, note. HEREDITAS JACENS, 9. HIGHWAYS: railroads on, 175-177. telegraph poles on, 175, note. HOR^E RAILROADS in streets, 175. HYPOTHECATION. See Plbdgk of Shares. ILLEGAL : corporations are when organized for prohibited purposes, 149, note. what acts are, 287. acts against public policy, 289-291. acts contra bonos mores, 293. ultra aires acts, 292. acts forbidden by statute, 294-303. acts against public policy, 304-309. accounting for benefits received from illegal acts, 313. ILLEGAL CORPORATIONS, 6, 149, note. ILLEGAL LEGISLATURE, corporations incorporated by may,sue, 149. ILLEGAL PURPOSE, corporation incorporated for cannot enforce contract, 149. nor subscriptions to its shares, 95. ILLEGAL STOCK, 541. IMPLICATION, incorporation by, 13. IMPLIED CONTRACTS OF CORPORATE AGENTS, 249. IMPLIED NOTICE: of contents of packages carried by railroad companies, 369. of limitations on authority of corporate agent, 195, 264, note. of usages of corporations, 195. of by-laws, 196, 197. of formalities required, 251-253? of corporate powers contained in charter, 195, 264, 389-391. of powers of foreign corporations, 195, note, 389-391. IMPLIED WARRANTIES BY A CORPORATION, 249, note. 852 INDEX. INCIDENTS TACITLY ANNEXED TO A CORPORATION, 12. INCOME, when dividends are to be treated as, 799-801. INCOME BONDS, 126. INCORPORATION: effect of at common law, 12, 14. what is, 28. consequences, 29, 30. by implication, 13. lawful authority for, in common law, 12. in Roman law, 4. by two or more states, 403-409. INCREASE OF STOCK : p6wer of corporations, 133. by issue of stock dividend, 133, note, 568. rights of shareholders on, 569. directors cannot authorize, 228. when subscriptions to illegally increased stock cannot be enforced, 541. right to, as between life-tenant and remainderman, 800, 801. INDEMNIFICATION : right of promoters to, 80, 85. right of directors to, 645, 699. of transferrer by transferee, 791. See Contribution. INDICTMENT, corporation subject to for nuisance, 167, note. INDIVIDUAL LIABILITY. See Statutory Liability. INFANTS : subscription contracts of, 95, 515, note. transfers of shares to, 586. INFORMALITIES. See Formalities. INJUNCTION, from voting on shares, 581. by subscriber to prevent violation of subscription contract, 112. by shareholders to prevent ultra vires acts, 555, 656, 687. to restrain collection of tax, 484, note, 492 6. INSOLVENCY OF CORPORATION: no defence to suit on subscriptions, 542. does not cause dissolution, 432. relations of directors to creditors on, 759, 760. directors, when creditors, cannot prefer themselves to other creditors on, 759, 760. relations among creditors on, 813. See Set-off. INSOLVENT ASSIGNMENTS BY CORPORATIONS, 130, 668. INSPECTION OF BOOKS: by shareholders, 585. by directors, 808. INSPECTORS OF ELECTIONS, 577, 578. INSTITUTION. See Legal Institution. INTERPOLATIONS IN CORPORATE BOOKS, 263. 853 INDEX. INSURAKCE AGENT: powers of, 193, note, 201. informal consents to further insurance, 255. compensation, 648. INTEREST : excessive, taken by banks, 298. on overdue coupons, 326, note. statutory liability of shareholders in national banks, 727, note, 750, note. INTERPLEADER, when corporation entitled to, as against opposing claim- ants of shares, 596. INVALID STOCK, 541. IRREGULAR ORGANIZATION OP CORPORATIONS. See De Facto Corporation. ISSUE OF STOCK : rights of subscribers to shares in a company to be formed, 91. corporation may raise money by, 124. corporation cannot issue below par, 124. re-issue of shares purchased by the corporation, 136. rights of shareholders on issue of new shares, 569. See Increase of Stock, Stock, Preferred Shares. JOINDER OF PARTIES. See Creditors' Bills, Statutory Lia- bility, Foreclosure of Mortgages. JOINT STOCK ASSOCIATIONS, 56, 57, 61, note. suits against, 56, note. JUDGMENT AGAINST A CORPORATION : when evidence in an action by a creditor against shareholders, 737. not evidence in an action by creditors against directors, 763, note, 770. JUDICIAL NOTICE : courts will not take, of special charter, 264, note. nor of powers of foreign corporations, 389. > JURISDICTION. See Foreign Corporation, Federal Courts. JURY DUTY, exemption of corporate olBcers from, 424, note. JUST COMPENSATION. See Eminent Domain. KING, power of, to create corporations, 12. KNOWLEDGE: by corporation, presumption of, 216. of agents affects corporation, 210. implied of corporate powers, 195, 264, 389-391. (LABORERS, liability of shareholders for debts due, 734. LACHES OF SUBSCRIBER TO SHARES IN A CORPORATION TO BE FORMED, ill. LANDS : power of corporations to purchase, 12, 14, 18, 128. conveyances of, to corporation presumed valid, 128. 854 INDEX. LANDS — {continued). though purchased without authority, corporation can convey, 282. invalid conveyances and leases by shareholders, 181, 187, note. conveyances by corporate agents, 201^ president has no power to convey, 236. unauthorized conveyances of to corporations, 303. acquired by eminent domain, 163-166. foreign corporation may purchase and convey, 384, note, 388, note. devises of, to foreign corporations, 391. LAPSE OF TIME, when no ratification, 110, 217. See Ratification. LAF: Austin's analysis of, 439, 441. definitions of, 440, 446. relating to corporations, 53, 64-'71. See Rules of Law. LEASES BY CORPORATIONS : power of corporations, 130. by railroad company does not aflfect lessor's right to exercise eminent do- main, 166, note. may not relieve lessor corporation from liability for injuries, 170. when invalid, if executed by shareholders, 181. consent of shareholders to, 185. what property directors cannot lease, 229. of railroads, 305, 416. when ultra vires, 305. when shareholders may enjoin ultra vires lease, 305. rights of parties on recission of illegal ultra vires lease, 213. LEGAL EFFECT, definition of, 30, note, 113, 445. of acts, how aflfected by incorporation, 29, 30. LEGAL INSTITUTIONS : meaning of term, 24. resemblances between, 52-64. analogies between, 67-69. LEGAL PERSON, 2, 14, 21, 22, 51. a corporation not, in the Roman law, 2, 3. corporations called such in the common law, 14. inferences from the fiction, 21, 22. LEGAL RELATIONS : definition of, 24, note, 25. general nature of, existing in respect to a corporate enterprise, 40. arising from incorporation, between whom existing, 37. how they arise, 25, 26, 442-444. LEGAL RELATIONS ARISING THROUGH THE PROMOTION OF A CORPORATION. the law applicable, 72. two classes of persons interested, 73. liability of promoters, general principles, 74, 75. 855 INDEX. LEGAL RELATIONS ARISING, Etc.— (continued). legal relations between promoters and parties contracting with them, 76. responsibility of promoters for the acts of other promoters, 77. liability of contracting promoter whose contract binds, or is adopted by other promoters or the corporation, 78, 79. legal relations between promoters, 80, 81. legal relations between promoters and the corporation subsequently formed ; promoters' secret profits, 82-84. right of promoters to indemnify from the corporation subsequently formed, 85. / liability of corporation to compensate promoters, 86. legal relations between the corporation when organized and persons with whom the promoters have contracted on its behalf, 87-90. LEGAL RELATIONS CONSEQUENT UPON AN AGREEMENT TO TAKE SHARES IN THE STOCK OF A CORPORATION TO BE ORGANIZED : is the agreement binding, 91. consideration, 92-95. conditional agreement to take shares, 96, 97. when deposits may be withdrawn, 98. certain defences, 99. legal relations arising from a valid agreement to take shares, 100. assignment of subscriber's interest, 101, 102. legal relations between subscribers and promoters, 103. when promoters are liable to subscribers for deposits, 104. fraudulent subscriptions, 105. misapplication of deposits, 106. subscriptions in general enforceable by the corporation when organized, 107-109. rights of subscribers against the corporation, 110. effect of subscriber's laches. 111, 112. LEGAL RIGHT, definitions, 442. LEGISLATIVE RECOGNITION, of defectively organized corporations, 157. LEGISLATURES, restrictions on powers of, 464-466. LIABILITY OF SHAREHOLDERS. See Statutory Liability, Shareholders. LIABILITY TO ACCOUNT FOR BENEFITS RECEIVED UNDER ULTRA VIRES CONTRACTS. See Ultra Vires. LIBEL : action for, lies against corporation, 342. lies in favor of corporation, 137. LIEN OF BANKS ON DEPOSITS, 673. LIEN OF CONTRACTORS ON RAILROADS, 817. LIEN OF CORPORATION ON ITS SHARES : does not exist by implication, 600. 856 INDEX. LIEN OF CORPORATION ON ITS SHARES-(confmuerf). power of corporation to create by by-law, 601. national banks cannot create, 602. effect, 603, 605. scope, 604. waiver, 606, 607. LIEN OF CORPORATION FOR WORK DONE, 137, note. LIEN OF CREDITORS ON CORPORATE FUNDS, 657, 665. LIFE-TENANT AND REMAINDER-MAN, right to dividends as be- tween, 799-801. LIMITATIONS ON AUTHORITY OF CORPORATE AGENTS. See Agents, Directors. LIMITATIONS ON THE POWER OF GOVERNMENT OVER CORPORATIONS, 469 a, 469 h, et seq. LIMITATIONS, STATUTE OF • barring liability of directors for acts of other agents, 626, note, barring liability for unpaid subscriptions, 709. for dividends wrongfully received, 566, note, statutory liability of shareholders, 736. liability of directors to creditors, 770, 756, note, liability of foreign corporations, 402. liability of banks to depositors, 672, note, actions by shareholders against officers, 689. actions on coupons, 326, 680. LIMITED PARTNERSHIPS, resemblances of, to corporations, 58. LIQUIDATION. See Winding Up. LIS PENDENS, implied notice of, 327, 795. LOANS, excessive, by national banks, 301. LOANS BY OFFICERS TO THEIR CORPORATION, 632-634. LOCATION OF RAILROAD ROUTE, 162, 162 a. LOCATION OF RAILROAD STATIONS, 162. LOTTERY, state may forbid, 474. MALICIOUS PROSECUTION, action for, lies against corporation, 342. MALUM PROHIBITUM, 294-303. MANAGEMENT, corporate, 38, 118. creditors have no voice in, 653. See Contrgl of the Corporate Enterprise. MANAGING OFFICERS, powers of, 202. may employ counsel, 202. MANDAMUS : against officers of municipal corporations, 333. against corporation to compel performance of duties owing the public, 454, 455. against state officers, 462, note. ' i , to compel out-going officers to surrender books, 650, note. to obtain inspection of corporate books, 685, 808. 857 INDEX. MA^SDAMUS— (continued) . to compel transfer of shares, 599. to compel officers to publish annual reports, 688, note, to compel officers to call meetings, 575, note, to compel officers to hold elections, 688, note. MASTER AND SERVANT. See Employes, Torts. MEASURE OF COMPENSATION FOR PROPERTY TAKEN, 178. MEASURE OF DAMAGES. See Damages. MEETINGS : of body corporate, 184, 57S-576. validity of acts done at, 184, 185. must be notified to all the shareholders, 573. what notice should contain, 574. adjourned meetings, 574. must be called by proper authorities, 575. mandamus to compel officers to call, 575, note, business at, must be regularly done, 576. held outside of state, 382 . voting at, 576, 577. of directors, 260, 261. held outside the state, 381. of corporations created by two states, 409. MEMBERS. See Shareholders. MERITS, going to trial on, admits corporate existence, 137. MINING SUPERINTENDENT : has no implied power to borrow money, 202. notice to, 210, note. MISAPPLICATION by promoters of preliminary deposits, 106. MISAPPROPRIATION. ^ MISFEASANCE. I See Directors, Agents, Officers. MISMANAGEMENT. ] MISMANAGEMENT OF CORPORATE AFFAIRS DOES NOT RELEASE SUBSCRIBER, 529. MISNOMER, 159. MISTAKE. See Error. MISTAKE AS TO CORPORATE POWERS, liability of directors for, 622, 623, 694. MONEY: power of corporations to raise, 123-127. by issue of stock, 124. by sale of property, 124. by borrowing, 125. and issuing security, 125. by issue of "deferred income bonds," 126. by guaranty, 127. liability of corporations for money loaned officers, 214-216, 225. 858 INDEX. MO'NT^Y— (continued). power of directors to borrow, 225. amount that may be borrowed, 127. statutory limitations on amount, 205. MONOPOLIES, not to be presumed, 121, note. MORTGAGES BY CORPORATIONS : power to mortgage, 125. of franchises, 125. consent of shareholders, 185, 186. corporation cannot assent to as shareholder in its own stock, 136, note. shareholders cannot make, 187, and note. defective execution of, 254, note, i power of directors to make, 225. of committee of directors to make, 234. president has no power to make, 236. irregularities cannot be set up by subsequent grantee of premises, 282. when irregularities cannot be set up by creditor of corporation, 813. or by junior mortgagee, 151, note. equitable, 675. of railroads, 674-682, 815-820. provisicms in, 816. of rolling stock, 678, 819. of future to be acquired property, 676, 817. reorganization of debtor corporation, 816 a. invalid provisions in, 677, 678. foreclosure of, appointment of a receiver, 821. See Bondholders, Municipal Bonds. MORTGAGE-TRUSTEE. See Trustees under Railroad Mort- gages. MORTMAIN, statutesof, 12, 18, 128. MUNICIPAL BONDS IN AID OF RAILROADS, 317-333. Federal decisions regarding, 318. municipality has no inherent power to issue, 319. legislature may authorize municipality to issue, 319. special authority requisite, 320. holders charged with notice, 320. municipal subscription, what constitutes, 320. constitutional restrictions, 321, 332. for railroad not yet in existence, 322. consolidation of railroad company, 323, 324. may be validated, 325. negotiable, 326. coupons, 326, 327. no implied notice of lis pendens affecting, 327. presumptions in favor of validity of, 328. absence of seals, 328, note. 859 INDEX. MUNICIPAL BONDS IN AID OF B.AJLRO ADS— (continued). recitals in, 329-332. registration of, 332. remedy of holder, mandamus, 333. effect on, of failure to complete road, 521. MUNICIPAL CORPORATIONS, 177, 315, 316. distinction between liability of and that of privatfe corporation, 177. power of, to tax, 333. property of, exempt from execution, 334. NAME OF CORPORATION : necessary, 12, 14. corporation may enjoin use of its name, 137. right to, 158. corporation cannot change, 158. misnomer, 159. NATIONAL BANKS: may receive special deposits, 161, 337. may exchange and deal in government securities, 161. may not deal in stocks, 161. nor sell railroad bonds on commission, 161, 336, note. excessive loans by, 301. real estate security taken by, 161, 302. liability of, for loss of special deposits, 337. succession of to state bank, 416, note. state taxation of, 483, 484. cannot create by by-law a lien on their shares, 602. relative rights of creditors of, 669, note. liability of shareholders in, 727. in voluntary liquidation not thereby dissolved, 432, note. when agreements to transfer shares in, are against public poliey, 790. NAVIGABLE WATERS, right of railroad companies to cross, 162 a. NEGLIGENCE : liability of carrier for, 349-351. carrier cannot stipulate against liability for, 352-354. liability for negligent injuries to tresspassers, 3 70-37 2. contributory, 373-376. damages recoverable for personal injuries caused by, 377, 378. injuries to employes caused by, 365, 366. to persons on railroad track caused by, 368, 370-372. fires caused by, 368. injuries to cattle caused by, 369. NEGOTIABLE INSTRUMENTS OF CORPORATIONS, 205, 285, 299. when validity of, not affected by extrinsic facts, 285. See Municipal Bonds. NET EARNINGS, what are, 665. 860 INDEX. NEW STOCK, right of shareholders to take, 569. " NON-ASSESSABLE" SHARES, 522. NON-OBSERVANCE OF FORMALITIES. See Formalities. NOTICE : of defects when not necessary to charge the corporations with negligencet 169, note, to shareholders, when not notice to corporation, 187, note, to corporate agents, effect, 210, 215, 216. to cashier, 215, 240. to president, 216. judicial notice of charter, 264, note, implied of corporate powers, 195, 264. of usages of corporations, 195. of powers of foreign corporations, 195, note, 389-391". of formalities, 253. general notices by railroad companies to passengers and shippers, 359. railroad company should give notice to consignee of arrival of goods, 360. when essential to due process of laTjf, 472, note, 480, 492, 492 a. to delinquent shareholder before forfeiting shares, 547. of corporate meetings, 574, 575. of directors' meetings, 260, 261. necessary to forfeiture of shares, 547. to common directors of two corporations, 641. doctrine of implied notice of pendency of action does not apply to nego- tiable bonds, 327, 679, note, bondholders affected with notice of mortgage, 674. effect of notice to trustee under a mortgage, 679, note. NUISANCE : corporation may sue to restrain, 137. may be indicted for, 167, note, liable for, 169, note, 344. when acts of corporation not a nuisance, 171. NUL TIEL CORPORATION, plea of, 99, 146-151. NUMBER OF SHARES, power of corporation to increase, 133. OBJECTS OF INCORPORATION, important in determining corporate powers, 114, 120. OBLIGATION OF CONTRACTS, 333, 448-450, 453, 461-468, 487-491, .493-502, 507. OBSERVANCE OF FORMALITIES. See Formalitibs. OFFICERS: de facto, validity of their acts, 188-190. rights of, 809. jUegally elected cannot make calls, 540. election of, 577-581. indemnification of, 645. 861 INDEX. OFFICERS— (continued). compenaation o^ 646-648. removal of, 581, 649, 650. a court of equity has no power to remove, 611. approval by, of agents' acts, 252. relations of, to state, 506. may act as trustees for bondholders, 629, note, liability of, in contracting on behalf of their corporation, 752, 753. liability of, to other contracting party when contract is ultra vires, 754. liability of, to outsiders for acts of other agents, 755. liability of to creditors, 756. for misapplication of corporate fundsj 757. for neglect of duty, 758. for frauds of other officers, 758. relations of, to creditors on the insolvency of the corporation, 769. relations among, 802. contribution among, 803-807. right of, to inspect corporate books, 808. See Directors, Prksident, Cashier, Agekts, Statutory Liability. OFFICIAL BONDS, 249, note, 257. liability of directors for not requiring other officers to furnish, 619, note, 621.' ORDINARY BUSINESS : meaning of the term vrith reference to the powers of the board of directors, 223. with reference to powers of cashier, 241. ORDINARY CARE, required of directors, 617. ORGANIZATION OF CORPORATIONS, cannot be effected outside of the state, 382, note, when defective, is remediable, 157. must be a substantial compliance with enabling act, 451, note,, certificate must be filed, 451, note. See Db Facto Corporations. OWNERSHIP OP CORPORATE PROPERTY, 33. PAR, issue of stock below, when illegal, 124, 541, 545. PAROL DECLARATIONS, efi'ect of on subscriptions, 97, note, 103, note, 521. PARTIES TO CREDITORS' BILLS. See Creditors' Bills, Statu- tory Liability. PARTIES TO FORECLOSURE SUITS, 814, 815, note. PARTNERS : analogy between shareholders and, 68. promoters are not, 77. subscribers to shares before formation of corporation, not, 100. shareholders not held as on defective organization, 148. exceptions, 148. 862 INDEX. -PAKF-N^ns— (continued). creditors cannot deny corporate existence to charge shareholders as, 148, 739. shareholders not, 68, 716, 719. PARTNERSHIP : definitions, 23, note. how differing from a corporation, 59-61, 719. limited, 58. ■whether corporations can form, 130 note, 364. PASS-BOOK OF SAVINGS BANK DEPOSITORS, regulations in, 199. PASSENGERS: liability of railroad companies for injuries to, caused by another railroad company, 170. liability of common carriers to, for torts of employes, 335, 347. railroad regulations affecting, 348. cannot be detajned for non-payment of fare, 348. tickets, 348. liability of common carriers for negligence, 850. carrier cannot stipulate against liability for negligence, 352. persons travelling on pass may be, 352. PENALTY, not enforced outside of state creating it, 393. See Statutory Liability. PENDENCY OF ACTION: doctrine of implied notice inapplicable t6 negotiable instruments, 327. to stock certificates, 795. PERFORMANCE OF ULTRA VIRES CONTRACT, effect of, 275-281. PERPETUAL SUCCESSION, 12, 14, 16, 21, note, 430, note. PERSONAL LIABILITY. See Statutory Liability. PERSONAL PROPERTY, power of corporation to acquire, 129. PERSONS: legal or artificial, 2, 15, 21, 22, 51. between whom legal relations respecting a corporate enterprise exist, 37. interested in forming a corporation, 73. PLACE OF BUSINESS: power of corporation to change, 121, note. foreign corporations required to state, 400. PLEADING. See Suits, Creditors' Bills, Statutory Liability. PLEDGE OF SHARES, 794-797. when valid as against pledgor's creditors, 796. when the pledgor is a trustee, 797. PLEDGEE OF SHARES, when held as shareholder to creditors, 741. POLICE POWER: how differs from eminent domain and taxing power, 469 a. state cannot revoke franchise through exercise of, 474. restrictions on, through power of Congress to regulate commerce, 474 a. its limits, 475, 476. 863 INDEX. POLICE VOWEK— (continued:). legislature cannot surrender, 465, 466. regulation of railroad charges by, 475, 476 a, 476 h. state may change remedy by exercise of, 493-495. POOLING ARRANGEMENTS OF RAILROAD COMPANIES, 309. POWERS OF AGENTS. See Agents. POWERS OF CORPORATIONS. See Cokpokate Powbks. POWERS OF DIRECTORS. See Dirkctoks. PREFERENTIAL ASSIGNMENTS BY CORPORATIONS, 668. PREFERRED SHARES: power to issue, 124, 571, 572. right of holders to dividends, 563. dividends on, cumulative, 564. payable only out of profits, 565. rights of holders as to other shareholders on winding-up, 786. PRELIMINARY DEPOSITS : when may be withdrawn, 98. liability of promoters for, 104, 106. effect of failure to make, on validity of subscription, 516. PRESIDENT: powers of, 190, note, 192, note, 202, 236-238: enlarged by custom, 237. cannot mortgage corporate property, 187, note, 236. nor sell lands of corporation, 236. nor assign property in payment of antecedent debts, 236, note, nor bind it as an accommodation indorser, 236, note. may sell its goods, 237, note. when corporation liable for moneys borrowed by, 203. notice to, 216. admissions of, 236, note. compensation of, 646-648. of bank cannot certify his own check, 636. PRESUMPTIONS IN FAVOR OP VALIDITY OF CORPORATE ACTS, 128, 203-206, 251, 261, 263, 328. that land was acquired for authorized purpose, 128, note, 232, note. when outsider may assume that agent is acting rightfully, 204. outsider may not assume existence of unusual facts, 206. regarding negotiable paper, 205, 285. assertion by agent of his own authority, 207-209. in favor of validity of directors' acts, 232. that Corporate seal is rightfully affixed, 202, note. that formalities have been observed, 251. in favor of regularity of directors' meetings, 261. in evidence, ordinary presumptions apply, 263. that restrictions on corporate powers have not been violated, 284. 864 INDEX. PRESUMPTIONS IN FAVOR OF, Etc.— (continued). that money is not borrowed by a corporation in excess of authorized limit, 286. nor for an unauthorized purpose, 286. on part of seller of property that it is proper for corporation to purchase, • 286. in favor of validity of municipal bonds, 328-332. in favor of acts of foreign corporation, 390, note. PRESUMPTION OF KNOWLEDGE BY CORPORATION, 216. PRESUMPTION THAT PERSONS DEALING WITH A CORPO- RATION KNOW ITS POWERS, 195, 264, 389-391. PRINCIPAL, -when dividends are to be treated as, 799-801. PRIVATE PROPERTY: what is, 171. cannot be taken -without compensation, 163. PRIVILEGED COMMUNICATIONS OF OFFICERS TO MEMBERS OF CORPORATIONS, 342, note. PRIVILEGES, when exclusive to be strictly construed', 122. PROCESS, service on corporations, 143, 395-399. PROHIBITIONS, statutory. See Statutory Prohibitions. PROMISSORY NOTES : corporations may issue, 125. of corporations are negotiable, 125, note, when president may issue, 202. issued by agents, 205. title in corporation cannot be questioned by prpmissor, 282. when issued in contravention of statute void, 298. PROMOTERS : not partners presumptively, 77. liability of, 74-84, 103. to parties with whom they contract, 76-79. for acts of other promoters, 77. for statements in prospectus, 77. to each other, 80, 81. contribution among, 81. to the corporation subsequently formed, 82-84. false statements of, 97, note, to account for secret profits, 82-84. to subscribers, 103. for preliminary deposits, 104, 106. right of, to indemnify from the corporation, 85. from each other, 80. to compensation, 81. 86. liability of corporation for acts of, 87-90. PROMOTION OF A CORPORATION. See Legal Relations Aris- ing THROUGH THE PROMOTION OF A CORPORATION. 55 865 INDEX. PROOF OF ACTS OF CORPORATIONS, 263. PROOF OF DEED OF CORPORATION, 248, note. PROPERTY : what is, 172. power of corporations to acquire, 128, 129. of a corporation, ownership respecting, 33. not to be taken without compensation, 171. except when public, 171. what constitutes a taking of, 1 73. powers of corporation over, 124, 130. See Coeporate Powers. in which the public has an interest, 474-476. a corporation may receive in payment for its shares, 545, 701. PROSPECTUS : liability of promoters for statements in, 77. terms of become conditions in subscriptions, 96. PROVISIONAL COMMITTEE-MEN, not partners ;)Kma /acje, 77. not liable for contracts of managing committee, 77, note. remuneration of, 81. contribution among, 81, note. PROXY, right to vote by, 579. PUBLIC CORPORATIONS. See Municipal Corporations, Munici- pal Bonds. . PUBLIC POLICY: acts illegal as against, 289, 304-309. foreign corporations cannot act contrary to, 387, 388. agreement to sell shares, when against, 790. PUBLIC PROPERTY, when corporation may take without compensation, 171. PUBLIC USE: what is, 163. property devoted to, may be taken by eminent domain, 163 a. PUNITIVE DAMAGES, when recoverable for pei-sonal injuries, 377, 378. PURCHASE BY CORPORATION OF ITS SHARES, 134, 135, 552, 586, 747. PURCHASE OF 8HARES. See Transfer of Shares; Shares of Stock in another Corporation. QUALIFICATION SHARES OP DIRECTORS, 614. QUANTUM MERUIT, corporation may be held on, 249. QUASI CORPORATION, 58, note. QUO WARRANTO, must be brought in the name of the state, 151. nature of action, 460, note. See Forfeiture of Franchises. QUORUM necessary for transaction of business at directors' meetings, 260. QUORUM AT ROMAN LAW, 8. 866 INDEX. RAILRO A-D AID BONDS. See Municipal Bonds in aid of Eau-koads. RAILROAD COMPANIES: power of, to locate road, 162, 162 a. to locate stations, 162. to change location of route, 162 a, 229, note, to cross tracks of another railroad, 1 63 a. directors of cannot change terminis, 229, note, right of eminent domain of, 162, 163. may take easement or fee, 162 a, 165. for what purposes may take land, 163. right of to cross navigable waters, 162 a. when may take property devoted to a public use, 163 a. railroad a public use, 163. right of to exclusive use of its track, 162 o. can exercise eminent domain though road has been leased,. 166, note. in condemning land must comply strictly with statute^ )66. liable for throwing back,surface water, 173. for obstructing drains and ditches, 1 73. for obstruction of river navigation, 174. liability to riparian owners, 1 74. conditional subscriptions to shares in, 109, 517. collateral attacks on franchises of, 152. liability of for advances made on bills of lading, 201. le^se of road may not relieve from liability, 170. cannot relieve themselves from liability by delegating their franchises, 170. without special authority, cannot mortgage or transfer their franchises, 125, 305. nor lease their franchises, 305. such leases void, 305. effect of leases on right to tolls on leased road, 416. nor without special authority can they consolidate, 305. consolidation of. See Consolidation. ultra vires acts, 305. traffic arrangements, 307, 308. pooling arrangements, 309. contracts of as to stations, 309. contracts giving exclusive privileges, 309. charges by, 309. municipal bonds issued in aid of. See Municipal Bonds. liable for assaults and batteries, 344. for trespass, 344. for public nuisance, 344. may stipulate against liability for fire, 351. cannot stipulate against liability for losses arising from , negligence, 352- 354. liability of connecting lines as common carriers, 354, 362-364. 867 INDEX. RAILROAD COMPANIES— (cora