Olorn^U ICam ^rljaal SItbratji Cornell University Library KF 1384.A7S65 1902 V.I A selection of cases on private corporat 3 1924 019 332 547 Cornell University Library The original of tiiis bool< 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/cu31924019332547 SELECTION OF OASES ON PRIVATE CORPORATIONS, BY JEREMIAH SMITH, STORY PROFKSSOB OF LAW IST HAKVABD USIVBBSITT. SECOND EDITION. m TWO VOLUMES. Vol. I. CAMBRIDGE: THE HARVARD LAW REVIEW PUBLISHING ASSOCIATION. 1902. ^/cr>/ Copyright, 1901 and 190S, Bt Jkebmiah Smith PRINTED BY H. O. HOUGHTON & CO. CAMBRIDGE, MASS. U. S. A. PREFACE TO SECOND EDITION. This edition dLEfers from the first in the following respects : — 1. The order of the topics has been changed. 2. Some new topics have been added. 3. New cases have been added : not only nnder new topics, but also under many of the old topics. 4. Some cases which were inserted in the former edition have been omitted, and some others have been abridged. J. S. April, 1902, PREFACE TO FIRST EDITION. When Professor Gumming was preparing his " Cases on Private Corporations," in 1892, the list of cases then in use on that subject at the Harvard Law School was placed at his service, with the under- standing that the same list was liable to be used by me, at any time after one year, in preparing a selection of cases on the same subject. Such use has now been made of that list. This explains the similar- ity between Professor Cumming's book and the present work, in re- gard to the cases selected on some topics. JEEEMIAH SMITH. April, 1897. TABLE OF CONTENTS. VOLUME I, Page Table or Sei-ected Cases xi CHAPTER I. Definition of Corporation 1 CHAPTER II. Distinction between Cokpokation and Stockholder 32 Section I. The Distinction applied Generally 32 Section II. The Distinction as applied to Questions of Taxation . 68 Section III. The Distinction as applied to Jurisdiction of U. S. Court on the Ground of Diversity of Citizenship 94 CHAPTER III. Creation of Corporation 103 Section I. By what Authority, and in what Method 103 Section II. Acceptance of Charter 109 Section III. Conditions Precedent to Incorporation X)et/«re. "One Man Company " 118 CHAPTER IV. Corporations de Facto 149 CHAPTER V. Acquisition or Membership — Subscriptions for Stock 212 CHAPTER VI. Promoters 232 CHAPTER Vn. Interpretation of Charters , .~ . 262 n TABLE OF CONTENTS. CHAPTER Vm. Paox Powers usually Implied 295 Section I. Power to acquire Property by Purchase 295 Section II. Power to acquire Property by Devise 301 Section III. Power to alienate. Power to mortgage 305 Section IV. Power to borrow Money. Power to issue Negotiable Notes 317 Section V. Power to make By-Laws 327 CHAPTER IX. Mode of Contracting and of Appointing Agents 328 CHAPTER X. Directors 344 Section I. Powers of Directors 344 Section II. Duty of Care due from the Directors to the Corpora- tion 358 Section III. Special Interest of Director, — how affecting Action taken by Board. Dealings between Director and Corporation 386 CHAPTER XI. Voting Rights of Stockholders 407 CHAPTER XII. Power of Majority of Stockholders 446 CHAPTER XIII. A Stockholder's Right to inspect Corporate Records and Papers 483 ^""^ CHAPTER XIV. Stockholder's Right to being Suit in Reference to Corporate Management, or to protect Corporate Interests 494 CHAPTER XV. Dividends. Preferred Stock 681 CHAPTER XVI. Transfer or Shares 612 CHAPTER XVII. Forfeiture of Charter — how enforced. Suit by State, or by Citizen, to restrain ultra vires Acts, or to compel Perform- ance of Corporate Duties 687 TABLE OF CONTENTS. VU VOLUME II. CHAPTER XVIII. Faoe LiABitiTT OF Corporation for Tokts. Eight of a Corporation to SUE FOR A Tort 733 CHAPTER XIX. Liability of Corporation for Crimes and Contempts 791 Effect of Ultra Section I. Section II. Section III. Section IV. Section V. Section VI. Section VII. Section VIII. Section IX. Section X. CHAPTER XX. Vires Transactions 806 Transaction within the Apparent Authority of the Cor- poration, and rendered Ultra Vires only by Reason of the Purpose entertained by the Corporation, or by other Extrinsic Facts 807 Executed Transfers to or from Corporation in Excess of Charter Authority . . . . • 810 Ultra Vires Lease. Remedies in Case of Repudiation by either Party before the Expiration of the Term 822 Bequest to Corporation in Excess of Charter Author- ity 833 Suits for Specific Performance of Contracts which are in Excess of Charter Authority ; or for Declara- tions of Trust for Purposes in Excess of Charter Authority 851 Ultra Vires Contract remaining wholly Executory on both Sides, or executed only in Part by either Side. Action for Breach, or for Cancellation .... 855 Suit by Corporation on an Ultra Vires Contract which has been fully performed on its Part . . . 866 Suit a,^ainst Corporation on an Ultra Vires Contract which has been fully performed on the Plaintiff's i Part 877 Obligation to restore what was received under a Contract which has subsequently been repudiated on the ground of Ultra Vires 927 Liability of Corporator where there is Crime, Tort, or Ultra Vires Contract on the Part of the Corpora- tion 944 CHAPTER XXI. Rights ank Remedies of Creditors against Property of Corpo- ration 966 Section I. GreneraUy 966 Section II. Effect of Dissolution upon respective Rights of Cred- itors and Stockholders ; and upon the Enforcement of Corporate Contracts 978 Section III. Rights and Remedies of Creditors in Cases of Con- solidation, Merger, or Transfer of Assets to another Corporation 1006 VIU TABLE OF CONTENTS. CHAPTJER XXII. Fasb Power of Insolvent Corporation to prefer Particular Credi- tors 1016 CHAPTER XXIII. Creditor's Suit to correct or restrain Corporate Manage- ment. Creditor's Suit against Directors 1029 CHAPTER XXIV. Right of Corporate Creditor to compel Shareholder to pay the Full Par Value of his Stock. Rights of Shareholders inter sese to compel such payments 1038 CHAPTER XXV. Statutory Liability of Stockholder to Creditor op Corporation, over and above stockholder's liability to pay in full the Amount subscribed by him foe Stock 1087 CHAPTER XXVI. Power of Corporation to become a Member of a Copartnership OR Trust. Corporation formed for the Purpose of establish- ing A Monopoly 1096 CHAPTER XXVII. Power of Corporation to own Shares in another Corporation 1125 CHAPTER XXVIII. Power of Corporation to purchase its own Shares 1137 CHAPTER XXIX. Modes of Dissolution other than by Forfeiture or by Reserved Legislative Power of Repeal 1153 CHAPTER XXX. Corporate Receivership 1167 Section I. Grounds for the Appointment of a Receiver .... 1157 Section II. Rights and Liabilities of Receivers 1178 CHAPTER XXXI. Foreign Corporations 1202 TABLE OF CONTENTS. IS CHAPTER XXXII. Fase Legislative Control 1246 Section I. How far Repeal, Change of Charter, or Confiscation is prohibited by the U. S. Constitution, or by State Constitutions 1246 Section II. Extent of Police Power, where Charter does not con- tain any Express Reservation of Power .... 1306 Section IH. Reserved Power in Legislature to repeal Charter . 1331 Section IV. Reserved Power in Legislature to alter or amend Charter 1363 TABLE OF SELECTED CASES. Paob Aberdeen R. R. v. Blaikie 38G Ambrose Lake, &c. Co., In re 663 American Nat. Bank v. American Wood Paper Co 339 American Union Telegraph Co. v. Union Pacific R. Co 826 Andover, Trustees of Free Seliools in v. Flint 1088 Andrews Bros. Co. v. Youngstown Coke Co 22 Anonymous (12 Modern, 559) 791 Aslibury Railway &c. Co. v. Riche 903 Ashton c. Burbank 451 Ashuelot R. R. V. Elliott 1391 Aspen, &c. Co. v. City of Aspen 126 Atchison, &c. R. R. v. Campbell 1442 Athol Music Hall Co. v. Carey • . 216 Attorney General v. Tudor Ice Co 709 Attorney General, Ex parte 999 Atwool V. Merryweather 516 Augusta, Bank of v. Earle 1202 Aurora &c. Society v. Paddock 305 Bacon v. Robertson 995 Bahia & San Francisco R. Co., In re 640 Baltimore, &c. Association v. Alderson 1198 Baltimore, Mayor of ». B. & O. R. R 83 Bank, American Nat. v. American Wood Paper Co 339 Bank, California Nat. v. Kennedy 1132 Bank, Continental Nat. v. Eliot Nat. Bank 680 Bank, First Nat. of Deadwood v. Gustin, &o. Mining Co 1057 Bank, Monroe Savings v. Rochester 81 Bank, Monument Nat. v. Globe Works 807 Bank, Narragansett v. Atlantic Silk Co 202 Bank, Nassau v. Jones 855 Bank, National, of Jefferson v. Texas, &c. Co 126 Bank, Pacific Nat. v. Eaton 230 Bank, Royal, of Liverpool v. Grand Junction R. & D. Co 337 Bank, Stockton Savings v. Staples 295 Bank, Union v. Jacobs 321 Bank of Augusta v. Earle 1202 Bank of Columbia v. Patterson 331 Bank of Michigan v. Niles 851 xii TABLE OF SELECTED CASES. Faos Bank of U. S. v. Dandridge 329 Bank of U. S. v. Deveaux 9* Baroness Wenloek v. River Dee Co 928 Bartholomew v. Derby, &c. Co 470 Bateman v. Mid- Wales K. Co 318 Bates V. Coronado Beach Co 1102 Bath Gas Light Co. v. Claffy 870 Beatty v. N. W. Transportation Co 437 Beer Co., Boston v. Massachusetts 1314 Bent V. Priest 390 Bingbamton Bridge 286 Bissell V. Michigan, &o. R. Cos 877 Black V. Delaware, &c. Co 477 Boatman's Ins. & T. Co. v. Able 618 Bolander v. Stevens 9 Booth V. Robinson 1125 Boston Beer Co. v. Massachusetts 1314 Boston C. & M. R. R. v. Gilmore 970 Boston Glass Manufactory v. Langdon 1153 Boston Music Hall Association v. Cory 663 Boyce v. Trustees of Towsontown, &c 210 Boyd V. Am. Carbon Black Co 1104 Bradbury v. Boston Canoe Club 317 Bradley v. Reppell 191 Brewer v. Boston Theatre 514 Bridge, Charles River v. Warren Bridge 273 Bridge, The Bingbamton 286 Bridge Co., Chenango v. Bingbamton Bridge Co . . 286 Bridge Co., Franklin v. Wood 103 Bridge Co., N. Y. & L. I. v. Smith 696 Bright V. Lord 604 Brightman v. Bates 434 Broderip v. Salomon 131 Brooklyn Steam Transit Co. v. City of Brooklyn 694 Brundred v. Rice 944 Brunswick, &c. Co. t'. United &o. Co 870 Bryant's Pond, &c. Co. v. Felt 219 Buffalo & N. Y. C. R. Co. v. Dudley 1363 Bundy v. Ophir Iron Co 42 Burges & Stock's Case 927 Burrill v. Nabant Bank 353 Burt V. British &c. Association 668 Bushnell v. Consolidated, &c. Co I77 Button V. Hoffman 44 California Nat. Bank v. Kennedy 1132 Callender v. Painesville, &c. R. R 208 Camden, &c. R. R. v. Mays, &c. R. R g06 Campbell's Case 403 Carr v. Iglebart 1087 Case V. Kelley 853 TABLE OF SELECTED CASES. xiii Fagb Cash Register Co., National v. Leland 955 Catlin V. Eagle Bank 1016 Central E. R. & Banking Co. v. Smith 778 ^.. Central Transportation Co. v. Pullman Car Co 269 Chadwick v. Old Colony R. R 312 Charles River Bridge v. Warren Bridge 273 Chenango Bridge Co. v. Binghamton Bridge Co 286 Cheraw & Chester R. Co. v. White 123 Chestnut Hill &c. Turnpike Co. v. Rutter 738 Chicago, Burlington & Quincy R. R. v. Iowa 1316 Chicago City R. R. v. AUerton 355 Childs V. Bank of State of Missouri 747 Cincinnati, &c. Co. v. Hoffmeister 49O City of Detroit v. Detroit & HoweU Plank Road Co 1414 Clapp V. Peterson 1149 Cleveland City Forge Iron Co. v. Taylor, &c. Co 1030 Coit V. Gold Amalgamating Co 1061 Columbia, Bank of v. Patterson 331 Columbus Ins. Co. v. Walsh 1225 Commonwealth v. Bringhurst 407 Commonwealth v. Crompton 620 Commonwealth v. Essex Co 1368 Commonwealth v. Smith 308 Commonwealth v. Union, &c. Ins. Co 698 Compagnie, &c., De Bellegarde, In re 403 Comstock, In re 1226 Continental Nat. Bank v. Eliot Nat. Bank 680 Cook V. City of Burlington 74 Covington Drawbridge Co. v. Shepherd 973 Cumberland Coal Co. v. Sherman 391 Currie's Case 1043 Curtin V. Salmon River Co 394 Dartmouth College, Trustees of v. Woodward 1246 Davenport v. Dows 523 Davidson College, Trustees of v. Chambers' Executors 833 Davis V. Old Colony R. R 909 Davis V. Smith Amer. Organ Co 909 Davis V. Stevens 156 Davis V. U. S. Electric, &c. Co 1130, 1167 De Bellegarde, In re Compagnie, &c 403 Deaderick v. Bank 1032 Deadwood, First Nat. Bank of v. Gustin, &e. Mining Co 1057 Delaware L. & W. R. R. v. Erie R. R 1170 Denver Fire Ins. Co. v. McClelland 912 Detroit, City of v. Detroit & Howell Plank Road Co 1414 Distillery, &c. Feeding Co. v. People 1117 Dodge V. Woolsey 498 Dovey v. Corey 378 Dow V. Northern R. R 479, 1418 Downing v. Mt. Washington R. Co 262 XIV TABLE OF SELECTED CASES. Fios Dudley V. Kentucky High School » . 446 Duucuft V. Albrecht 612 Dunphy v. Traveller, &c. Association 529 Dupee V. Boston Water Power Co 1137 Diufee V. Old Colony, &c. R. R 1373 Eagle Ins. Co. v. Ohio 1320 East Birmingham Land Co. v. Dennis 626 Enstcrn Counties R. Co. v. Broom 749 Edwards v. Standard R. S. Syndicate 1157 Ellermau v. Chicago, &c. R. R 348 Ellis V. Marshall 114 Elyton Land Co. v. Dowdell 466 Empress Engineering Co., In re 233 Erie & North-East R. Co. i>. Casey 1334 Erlanger v. New Sombrero, &c. Co 232 Ewing V. Composite Brake Shoe Co 1008 Ex parte The Attorney-General 999 Ex parte Williamson 933 Fairfield County Turnpike v. Thorp 64 Falk V. Curtis Pub. Co 799 Farmers' Loan, &c. Co. ». N. T. & N. R. R 534 Farrington v. Putnam 844 Fayette Land Co. v. Louisville, &c. R. R 816 Finnegan v. Noerenberg 149 First Nat. Bank of Deadwood v. Gustin, &o. Mining Co 1057 Fiske, Estate oi, In re 838 Fitzwater v. Bank of Seneca 521 Ford u. Easthampton, &c. Co 588 Forrest v. Manchester, &o. R. Co 552 Fort Madison Lumber Co. v. Batavian Bank 673 Fosdick V. Schall 1194 Foss V. Harbottle 507 Foster v. Commissioners Inland Revenue 51 Franklin Bridge Co. v. Wood 103 Free Schools in Andover, Trustees of v. Flint 1088 Gallagher v. Germania Brewing Co. 48 Gashwiler ti. Willis 344 Gibbons v. Anderson 372 Gifford V. Livingston 20 Goodspeed v. East Haddam Bank 753 Graham ». Boston H. & E. R. R 1220 Gray v. CofQn 1095 Great Northern, &c. Coal Co., In re 1043 Great Southern, &c. Hotel Co. v. Jones 30 Green v. London General Omnibus Co 755 Greenwood v. Leather, &c. Co 237 Greenwood v. Union Freight Co 1343 Guernsey v. Cook , 444 TABLE OF SELECTED CASES. XV H. & M. Tin and Copper Mining Co., In re 1063 Hanchett v. Blair iqi Handley v. Stutz IQgg Hartford & N. H. R. Co. v. Croswell .'.'..,!!. 4S2 Harvey v. Linville Co 423 Hawes v. Oakland 524 Heard v. Talbot g87 Higginson & Dean, In re 999 HoUius !'. Brierfield, &c. Co 1159 Home V. Ivj 328 Hospes V. N. & M. Co 1048 Hotchldss and Upson Co. v. Union Nat. Bank 670 Hoyt V. Thompson 349 Huddersfield Canal Co. v. Buckley 1079 Hun V. Cary 353 Hurd V. City of Elizabeth 1199 Hiird V. New York, &o. Co 1006 Hutchinson v. American Palace Car Co 1172 Hutchinson v. Green 354 In re. [See ReJ] Indianapolis C. & L. R. R. v. Jones 1011 Indianapolis Furnace Co. v. Herkimer . . . ■ 162 Ireland v. Palestine, &c. Turnpike Co 1091 Janney v. Minneapolis &c. Exposition 401 Jeflferson, Nat. Bank of v. Texas Investment Co 126 Jemison v. Citizens' Saving Bank 858 Jesnp V. Illinois Central R. R 392 Johnson v. Corser 165 Johnson v. Goodyear Mining Co 1323 Johnson v. Kessler 125 Joint Stock Discount Co. v. Brown 1129 Jones V, Aspen, &o. Co 151 Jones V. Cincinnati Type Foundry Co 204 Journal Printing Co. v. MacLean 787 Junkiiis !'. Union School District 400 Justices, Opinion of 1426 Kelner v. Baxter 244 Killen V. Barnes 1036 King, The, v. Westwood Ill Lancaster v. Amsterdam Improvement Co 1213 Lake Shore, &o. R. Co. v. Prentice 766 Laud, &c. Co. V. Mclntyre 506 Land Grant Railway v. Com'rs of Coffey County 1210 Landman v. Entwistle 249 Le Roy V. Globe Ins. Co 584 Leazure v. Hillegas 810 Lincoln Shoe Mfg. Co. v. Sheldon .220 svi TABLE OF SELECTED CASES. Page Liverpool Ins. Co. v. Massachusetts ..., 1 London Trust Co. v. Mackenzie "' ' Long V. Georgia Pacific R. Co °1* Louisville, &c. R. R. v. Letson 97 Love Mfg. Co. V. Queen City Mfg. Co 1026 Lowe V. Pioneer Threshing Co 1139 McArthur v. Times Printing Co 251 McColgau V. Baltimore Belt R. R 968 McCutcheon v. Merz Capsule Co 861 McDonald v. Williams 598 MoElhenny's Appeal 242 McGraw, Estate ot, In re 838 McLennan v. Hopkins 156 MoNab y. McNab & Harlin Mfg. Co 691 McNeil D. Tenth Nat. Bank 630 Mack V. DeBardeleben Coal & Iron Co 410 Madden w. Penn E. L. Co 1241 Marble Co. v. Harvey 866 Marshall v. Baltimore & Ohio R. R. Co 99 Matthews v. Hoagland 622 Maund v. Monmouthshire Canal Co 736 Mayor, &e. of Baltimore u. B. & O. R. R 85 Mayor of Norwich v. Norfolk R. Co 338 Melvin v. Lamar Ins. Co 1074 Menier v. Hooper's Telegraph Works 631 Mercantile Trading Co., In re 693 Mercantile Trust Co. u. M. K. & T. R. R 1161 Metropolitan, &c. Co. v. Hawkins 784 Michigan, Bank of v. Niles 861 Mill V. Hawker 949 Miller J). Ewer 1219 Minneapolis Threshing, &o. Co. v. Davis 226 Mobile & Ohio R. R. Co. v. Nicholas 4I8 Monroe Savings Bank v. Rochester 81 Montgomery v. Forbes 158 Monument Nat. Bank v. Globe Works 807 Moore & Handley Hardware Co. v. Towers Hardware Co 66 Morisette v. Howard 3Qg Morris u. ElytonLandCo ^ 4gg Morrison v. Wilder Gas Co 332 Morville v. Amer. Tract Society ggg Mumma v. Potomac Co nyg Narragansett Bank ». Atlantic Silk Co 202 Nassau Bank v. Jones okk National Bank of Jefferson v. Texas Investment Co 126 National Building Society, In re 033 National Cash Register Co. v. Leland 955 National Home &o. Association v. Home Savings Bank . . , 916 Natusoh V. Irving ' ^jq TABLE OF SELECTED CASES. xvii Faob New Bedford R. K. v. Old Colony E. R 1009 New Orleans, &e. Association 966 New York & Long Island Bridge Co. v. Smith 696 New York & New Haven R. R. v. Schuyler 653 Newcomb v. Reed 121 NicoU V. New York & Erie R. R 297 Ninjs V. Mount Hermon Boys' School 773 Norris v. Staps 327 Northern Pacific R. R. v. Townsend 316 Northern Pacifle R. R. v. Washington Territory 724 Northwestern Transportation Co. v. Beatty 437 Northwestern Union Packet Co. v. Shaw . 941 Norwich, Mayor of v. Norfolk R. Co 338 Oakland R. Co. v. Oakland, Brooklyn, &c. R. Co 693 O'Herron v. Gray 636 Ohio, ex rel. v. NefE 1428 Ohio & Miss. R. R. v. Wheeler 1220 Opinion of the Justices 1426 Oregon, &c. Co. v. Oregonian R. Co 270 Ottumwa Screen Co. v. Stodghill 678 Pacific Nat. Bank v. Eaton 230 Palmer v. Lawrence 128 Panhard, &o., La Soci^td, &c. v. Panhard, &c. Motor Co ' . . 945 Parker v. Bethel Hotel Co 36 Parrott v. Lawrence 291 Parsons v. Hayes 569 Parsons v. Joseph 560 Parsons v. Tacoma, &c. Co 474 Paul V. Virginia 1221 Peabody v. Flint 502 Pearson v. Concord R. R 1126 Pender v. Lushington 441 People V. Assessors of Watertown 18 People V. Chambers . „ „ 130 People V. England 948 People V. Globe M. L. I. Co 986 People V. Kankakee River Impr. Co 704 People V. Montecito Water Co 118 People «. New York Central R. R 713 People V. North River Sugar Refining Co 1108 People V. O'Brien 1351 People, ex rel. Union Trust Co. v. Coleman C8 Perun, Society v. Cleveland 183 Philadelphia, &c. B. C. R. Co.'s Appeal 975 Philadelphia W. & B. R. R. v. Quigley 753 Phillips V. Providence, &c. Co 463 Phcenix Life Assurance Co., In re 927 Pittsburgh, &c. R. R. v. Stickley 315 Pond V. Framingham & Lowell R. R • 1029 xviii TABLE OF SELECTED CASES. Faob Porter v. Sabin 1178 Price V. Holcomb 443 Proprietors of Cliarles River Bridge v. Proprietors of Warren Bridge . . 273 Proprietors of Stourbridge Canal v. Wheeley 266 Queen v. Birmingham & Gloucester K. E 791 Queen v. Great North of England R. R 794 R. R., Aberdeen, w. Blaikie 386 R. R., Ashuelot v. Elliot 1391 R. R., Atchison, &c. v. Campbell 1442 R. R., Babia & San Francisco, In re 640 R. R., Boston C. & M. v. Gilmore 970 R. R., Buffalo, &c. V. Dudley 1365 R. R., Camden &o. v. Mays, &c. R. R 806 R. R., Central, and Banking Co. v. Smith 778 R. R., Cheraw & Chester v. White 123 R. R., Chicago, Burlington & Quincy v. Iowa 1316 E. R., Chicago City v. Allerton 355 R. R., Delaware L. & W. v. Erie R. R 1170 R. R., Eastern Counties v. Broom . . » 749 R. R., Erie & North- East v. Casey 1334 R. R., Hartford & N. H. v. Croswell 452 R. R., Indianapolis C. & L. v. Jones 1011 R. R., Lake Shore, &c. v. Prentice 766 R. R., Louisville, &c. v. Letson 97 R. R., Mobile & Ohio v. Nicholas 418 R. R., New Bedford v. Old Colony R. R 1009 R. R., New York & New Haven v. Schuyler 653 R. R., Northern Pacific v. Townsend 316 R. R., Northern Pacific v. Washington Territory 724 R. R., Oakland v. Oakland, Brooklyn, &c. R. Co 693 R. R., Ohio & Miss. V. Wheeler 1220 R. R., Philadelphia, &c. v. Quigley 753 R. R., Philadelphia & B. C, Appeal 975 R. R., Pittsburgh, &c. v. Stickley 315 R. R., St. Louis, &o. V. James 99 R. R., St. Louis, &o. u. Paul I433 R. R., St. Louis, &o. V. Terre Haute, &c. R. R 829 R. R., Severn & Wye and Severn Bridge, In re 681 R. R., Union Pacific v. Hall 721 R. R., Union Pacific i>. U. S 1400 R. R., Weatherford 11. Granger 255 R. R., Wrexham, In re ' . . . . 936 Railway Land Grant v. Com'rs Coffey County 1210 Railway, &c. Co., Ashbury v. Riche ' ^ 903 Railway, &c. Co., Oregon w. Oregonian Railway Co 270 Re Ambrose Lake, &c. Co ego Re Bahia & San Francisco R. Co. =..„.. g4() Re Compagnie, &c. De Bellegarde . , , 403 Re Comstock „s ^ ^ 1226 TABLE OF SELECTED CASES. xU Re £mpiess Engineermg Co 253 Re Estate of Fiske 838 Re Estate of MoGraw 838 Re Great Northern, &o. Coal Co 1043 Re H. & M. Tin & Copper Mining Co 1063 Re Higginson & Dean 999 Re Mercantile Trading Co 593 Re National Building Society 933 Re Phcenix Life Assurance Co 927 Re Severn & Wye and Severn Bridge R. Co 581 Re Steinway's Petition , 483 Re Wrexham E. R 936 Read v. Frankfort Bank 1331 Reg. V. Birmingham & Gloucester R. Co 791 Reg. u. Great North of England R. Co 794 Rex V. Westwood Ill Roberts v. P. A. Deming &c. Co 336 Rogers v. Simmons 1233 Rosenbaum v. U. S. Credit Co 990 Ross V. Ross 34 Rouse V. Merchants' Nat. Bank 1021 Royal Bank of Liverpool v. Grand Junction R. & D. Co 337 Russell V. Temple 32 Russell V. Wakefield Waterworks Co 539 Rutherford v. Hill 173 St. Clair w. Cox 1234 St. Louis, &o. R. Co. V. James 99 St. Louis, &c. R. Co. V. Paul 1438 St. Louis, &c. R. Co. V. Terre Haute, &c. R. Co 829 Sabine Tram Co. v. Bancroft 1106 Sager Mfg. Co. v. Smith 1181 Salomon v. Salomon & Co., Limited 131 Sanford v. McArthur 957 Sawyer v. Hoag = - 1038 Schufeldt V. Smith 1023 SooviU V. Thayer , 1044 Scripture v. Francestown Soapstone Co 665 Seaton v. Grant 655 Seeberger v. MoCormick 960 Severn and Wye and Severn Bridge Co., In re 681 Seymour v. Spring Association 405 Shayne v. Evening Post Co 981 Shelby County v. Union, &c. Bank 86 Shepaug Voting Trust Cases 415 Sherman v. Fitch 335 Singer Mfg. Co. v. Heppenheimer 86 Sinking-Fund Case 1400 Slocum V. Providence, &c. Co 198 Slocum V. Warren '. 198 Smith V. Kurd , . . 494 XX TABLE OF SELECTED OASES. Faoi Smith V. San Francisco & N. P. R. Co 426 Snider's Sons Co. v. Troy 169 Snyder v. Studebaker 1°" Soci^t^ Anonyme, &c. v. Panhard, &c. Motor Co 945 Society Perun v. Cleveland 183 Spargo's Case 1063 Speriug's Appeal . 358 State V. Boogher 789 State V. Bull 116 State V. Commercial State Bank 994 State V. Dawson 109 State V. Fourth N. H. Turnpike Co 699 State V. L. & W. Turnpike Co 1330 State 0. Obei'lin, &c. Association 702 State, ex rel. Jackson v. Newman 1131 Steacy v. Little Rock, &c. R. Co 1081 Stearns v. Minnesota 1431 Steinway's Petition, In re 483 Stewart v. Lehigh Valley R. R 397 Stevens v. Rutland, &c. R. Co 455 Stockton Savings Bank v. Staples 295 Stokes V. HofCman House 1187 Stourbridge Canal Co. v. Wheeley 266 Stoutimore v. Clark 206 Stringer's Case 593 Sweutzel V. Penn Bank 368 Taft V. Hartford, &c. R. Co 607 Telegram Newspaper Co. v. Commonwealth • 802 Thacher v. Dartmouth Bridge Co. 782 Thomas v. Dakin 4. Thomas v. West Jersey R. Co 822 Thorpe v. Rutland, &c. R. Co 1306 Thrasher v. Pike County 212 Tisda'.e v. Harris 613 Tomkinson r. Southeastern R. Co 648 Tomlinsou v. Jessup 1363 Trenton Potteries Co. v. Oliphant 1119 Trevor v. Whitworth 1140 Trustees of Dartmouth College v. Woodward 1246 Tr;istees of Davidson College v. Chambers' Executors 833 Trustees of Free Schools in Andover v. Flint 1088 U. S., Bank of v. Dandridga 329 U. S., Bank of v. Deveaux 94 U. S. V. John Kelso Co 795 U. S. V. Wolters . . . 91 Union Bank v. Jacobs 32^ Union M. L. I. Co. v. McMillen 1225 Union Pacific R. R. v. Hall TOl Union Pacific R. R. v. United States 140q Union Trust Co., People ex rel. v. Coleman g8 TABLE OF SELECTED CASES. xxi Page Van Allen v. Assessors 77 Vauderbilt v. Bennett 412 Vilas V. Milwaukee, &o. K. R 1012 Voting Trust Cases, Shepaug 415 Wallamet, &c. Co. 0. Kittridge 691 Waring v. Catawba Co 50 Warner v. Beers 9 Warren 0. Davenport Fire Ins. Co 69 Washburn Mill Co. v. Bartlett 874 Washington Ins. Co. v. Price 66 Weatherford, &o. R. R. v. Granger 255 Wenlock, Baroness v. River Dee Co 928 Wheeler v. Pullman Iron & Steel Co 706 Whitaker v. Delaware & Hudson Canal Co 271 White V. Howard 301 White V. Salisbury 616 Whitechnrch v. Cavanaugh 648 Whittentou Mills v. Upton 1096 Williams v. Nail 1449 Williamson, Ex parte , 933 Williamson v. Smoot 34 Willoughby v. Chicago Junction, &c. Co 642 Windsor, &c. Electric Co. v. Tandy 214 Winsor v. Bailey 559 Wrexham R. R., /re re 936 Yarborongh v. Bank of England 733 Yeaton u. Bank of Old Dominion 1446 Zabriskie v. Hackensack & N. Y. R. Co 1383 Ziegler v. Lake Street El. Co 530 SELECT CASES ON PRIVATE CORPORATIONS. CHAPTER I, DEFINITIOif OF COKPORATION. LIVERPOOL, &c. INSURANCE CO. v. MASSACHUSETTS. 1870. 10 Wallace, U. S. 566.1 Error to the Supreme Court of Massachusetts. Bill in equity by State of Massachusetts to collect a tax, and to restrain companj- from doing further business till the tax was paid. One question raised in this case was, whether the above Insurance Company is a corporation within the meaning of the Massachusetts Statute imposing upon each fire, &c. insurance companj' " incorporated or associated under the laws of anj' government or State other than one of the United States, a tax of 4 per cent upon all premiums charged or received on contracts made in this Commonwealth for insurance of propertj-." The facts as to the nature of the company are sufficiently stated in the opinion. The Supreme Court of Massachusetts decided that the company was liable to the tax. 100 Mass. 531 \^OMver\. Liverpool, etc. Ins. Uo.]. B. a. Curtis and J. G. Abhott., for insurance company. Charles Allen, Attorney-General of Jlassachusetts, for State. Mr. Justice Miller Tliese propositions dispose of the case before us, if plaintiff is a foreign corporation, and was, as such, conducting business in the State of Massachusetts, and we proceed to inquire into its character in this regard. 1 Statement abridged. Arguments and part of opinion omitted. — Ed 1 2 LIVEEPOOL, ETC. INS. CO. V. MASSACHUSETTS. The institution now known as tlie Liverpool and London Life and Fire Insurance Company, doing an immense business in England and in this country, was first organized at Liverpool by what is there called a deed of settlement, and would here be called articles of association. It will be seen by reference to the powers of the association, as or- ganized under the deed of settlement, legalized and enlarged by the acts of Parliament, that it possesses many, if not all, the attributes generally found in corporations for pecuniary profit, which are deemed essential to their corporate character. 1. It has a distinctive and artificial name by which it can make contracts. 2. It has a statutory provision by which it can sue and be sued in the name of one of its officers as the representative of the whole body, which is bound by the judgment rendered in such suit. 3. It has provision for perpetual succession by the transfer and trans- mission of the shares of its capital stock, whereby new members are introduced in place of those who die or sell out. 4. ■ Its existence as an entity apart from the shareholders is recog- nized by the act of Parliament, which enables it to sue its shareholders and be sued by them. The subject of the powers, duties, rights, and liabilities of corpora- tions, their essential nature and cliaracter, and their relation to the business transactions of the community, have undergone a change in this country within the last half-century, the importapce of which can hardly be overestimated. They have entered so extensively into the business of the country, the most important part of which is carried on by them, as banking companies, railroad companies, express companies, telegraph com- panies, Insurance companies, &c., and the demand for the use of cor- porate powers in combining the capital and the energy required to conduct these large operations is so imperative, that both by statute, and b}' the tendency of the courts to meet the requirements of these public necessities, the law of corporations has been so modified, liberal- ized, and enlarged, as to constitute a branch of jurisprudence with a code of its own, due mainly to very recent times. To attempt, there- fore, to define a corporation, or limit its powers by the rules which pre- called when they were rarely created for any other than municipal purposes, and generally by royal charter, is impossible in this country and at this time. Most of the States of the Union have general laws by which persons associating themselves together, as the shareholders in this company have done, become a corporation. The banking business of the States of the Union is now conducted chiefly by corporations organized under a general law of Congress, and It is believed that in all the States the articles of association of this company would, if adopted with the usual formalities, constitute it a cor- poration under their general laws, or it would become so by such legis- LIVEEPOOL, ETC. INS. CO. V. MASSACHUSETTS. 3 lative ratification as is given by the acts of Parliament we have mentioned. To this view it is objected that the association is nothing but a part- nership, because its members are liable individually for the debts of the companj-. But however the law on this subject may be held in Eng- land, it is quite certain that the principle of personal liability of the shareholders attaches to a very large proportion of the corporations of this country, and it is a principle which has warm advocates for its universal application when the organization is for pecuniary gain. So also it is said that the fact that there is no provision either in the deed of settlement or the act of Parliament for the company suing or being sued in its artificial name forbids the corporate idea. But we see no real distinction in this respect between an act of Parliament, which authorized suits in the name of the Liverpool and London Fire and Life Insurance Companj', and that which authorized suit against that company in the name of its principal officer. If it cancontract in the* artificial name and sue and be sued in the name of its officers on those contracts, it is in effect the same, for process would have to be served on some such officer even if the suit were in the artificial name. It is also urged that the several acts of Parliament we have men- tioned expressly declare that they shall not be held to constitute the body a corporation. But whatever may be the effect of such a declaration in the courts of that country-, it cannot alter the essential nature of a corporation or prevent the courts of another jurisdiction from inquiring into its true character, whenever that may come in issue. It appears to have been the polic}- of the English law to attach certain consequences to incor- porated bodies, which rendered it desirable that such associations as tliese should not become technically corporations. Among these, it would seem from the provisions of these acts, is the exemption fronj individual liability of the shareholder for the contracts of the corpora, tion. Such local policy can have no place here in determining whether an association, whose powers are ascertained and its privileges con. ferred by law, is an incorporated bodj'. The question before us is whether an association, such as the one we are considering, in attempting to carry on its business in a manner which requires corporate powers under legislative sanction, can claim, in a jurisdiction foreign to the one which gave those powers, that it is only a partnership of individuals. We have no hesitation in holding that, as the law of corporations is understood in this countrj", the association is a corporation, and that the law of Massachusetts, which onlj' permits it to exercise its corpo- rate function in that State on the condition of payment of a specific tax, is no violation of the Federal Constitution or of any treaty protected bj' said Constitution. Mr. Justice Bbadlet. Whilst I agree in the result which the court has reached, I differ from it on the question wheth€;r the company is a 4 THOMAS V. DAKIN. corporatiou. I think it is one of those special partnerships which are called joint-stock companies, well known in England for nearly a cen- tury, and cannot maintain an action or be sued as a corporation in this country without legislative aid. But as it is a company associated un- der the laws of a foreign country, it comes within the scope of the Massachusetts statute, and cannot claim exemption from its operation for the causes alleged in that behalf. It could not have been the intent of the treaty of 1815 to prevent the States from imposing taxes or license laws upon either British corporations or joint-stock companies desiring to establish banking or insurance business therein. And cer- tainly these companies cannot be exempted from such laws on the gi-ound that citizens of other States have chosen to take some of their shares. Judgmmt affirmed. THOMAS y. DAKIN. 1839. 22 Wendell, 9.1 In the Supreme Court of New York. Action brought by plaintiflf Thomas as president of Bank of Central New York, an association formed under the General Banking Act of April 18, 1838, to recover several demands alleged to be due to the institution. The declaration alleged the indebtedness to be to the bank, and the promises to have been made to the bank ; concluding to the damage of the bank of $10,000 ; and, therefore, the said plaintiff, as president of the Bank of Central New York, brings suit, &c. Demurrer to declaration; assigning, in substance, the following special causes : — 1. Plaintiff Thomas has no cause of action. 2. No authority exists in law for plaintiff to sue on behalf of the bank, or upon promises made to the bank. ^ 3. No association of persons not incorporated are entitled by law to bring an action in the name of their president, but onlj' in their indi-__ vidual names. 4. The General Banking Act of 1838, so far as it purports to authorize this suit, is unconstitutional ; and also is void because it did not receive the assent of two-thirds of all the members of the legislature. The Constitution of New York, article 7, section 9, is as follows : " The assent of two-thirds of the members elected to each branch of the legislature shall be requisite to every bill . . . creating, continuing, altering, or renewing any body politic or corporate." 1 Statemeut abridged from facta stated by reporter and from facts stated in tha opinions. The arguments are omitted ; also the greater part of the opinions. — Ed THOMAS V. DAKIN. 5 The provisions of the General Banking Act of 1838 are sufficiently stated in the opinion of Nelson, C. J. C. P. ICirkland, and S. A. Foote, for plaintiffs. Ward Ilimt, for defendant. Nelson, C. J. . . . Are these associations corporations? In order to determine this question, we must first ascertain the properties essen- tial to constitute a corporate bodj-, and compare them with those conferred upon the associations ; for if they exist in common, or sub- stantially correspond, the answer will be in the aflirmative. A corpo- rate body is known to the law by tlie powers and faculties bestowed upon it, expressly or implied]}-, by the charter ; the use of the term corpo- ration in its creation is of itself unimportant, except as it will imply the possession of these. They may be express!}- conferred, and then they denote this legal being as unerringly as if created in general terms. It has been well said by learned expounders that a corporation aggre- gate is an artificial bod}- of men, composed of divers individuals, the ligaments of which hodij are the franchises and liberties bestowed upon it, which bind and unite all into one, and in which consists the whole frame and essence of the corporation. The "franchises and liberties," or, in more modern language, and as more strictly applicable to private corporations, the powers and faculties, which are usuallj' specified as creating corporate existence, are :/l. The capacity of perpetual succes^ sion ; 2. The power to sue and be sued, and to grant and receive iu its corporate name ; 3. To purchase and hold i-eal and personal estate ; 4. To have a uommun s'cttl ; and 5. To make bj' - laws .^ These indicia were given by judges and elementarj' writers at a very^rly day : since which time the institutions have great!}- multiplied, their practical operation and use have been thoroughly tested, and their peculiar and essential properties much better understood. Any one comprehending the scope and purpose of them at this day will not fail to perceive that some of the powers above specified are of trifiing importance, while others are wholly unessential. For instance, the power to purchase and hold real estate is no otherwise essential than to afford a place of business ; and the riglit to use a common seal, or to make by-laws, may be dispensed with altogether. For as to the one, it is now well settled that corporations ma}' contract by resolution, or through agents, without seal ; and as to the other, the power is unnecessary, in all cases where the charter sufficiently provides for the government of the body. The distinguishing feature, far above all otliers, is the capacity'' conferred, by which a perpetual succession of difFerent persons shall be regarded in the law as one a nd the same body, and mxty at all times _ act in faliilmeni of tne ob jects of the association as a single individual. In this way a legal existence, a body corporate, an artificial being, is"^ constituted ; the creation of wjiich enables any number of persons to be concerned in accomplishing a particular object, as one man. While the aggregate rneans and influence of all are wielded in affecting it, the operation is conducted with the simplicity and individuality of a natural 6 THOMAS V. DAKIN. person. In this consists the essence and great value of these institii' tions. Hence it is apparent that the only properties that can be re- garded strietlj- as essential, are those which are indispensable to monld the different persons into this artificial being, and therebj- enable it to act in the waj' above stated. When once constituted, this legal being created, the powers and faculties that mux be conferred are various, — limited or enlarged at the discretion of the legislature, and will depend upon the nature and object of the institution, which is as competent as a natural person to receive and enjo^- tUem. We vany, in short, con- clude b^' saving, with the most approved authorities /at this daj', that the essence of a corporation consists in a capacity : fl. To have a per- petual succession under a special name, and in an artiiicial form ; 2. To take and grant propert}', contract obligations, sue and be sued by its corporate name as an individual ; and 3. .To receive and enjoj- in com- mon, grants of privileges and immunities/ -^ We will now endeavor to ascertain with exactness the powers and attributes conferred upon these associations by virtue of the statute. The first fourteen sections (1 to 14) prescril)e the duties of the comp- troller in furnishing notes for circulation, taking the required securities, &c. The loth provides that any number of persons maj- associate to establish oflSces of discount, deposit, and circulation. The 16th, that they shall make and file a certificate, specifying: 1. The name to be used in the business ; 2. The place where the business shall be carried on ; 3. The amount of cajSitai stock, and number of shares into which divided ; 4. The name s of the sharehold ers ; 5. The du /rgjifin of the association. The iStlTconfers upon the persons thus associating the most ample powers for carrying on banking operations, together with the right ' ' t o exercise such incidental powers as shall be nece ssary to carry o n such b usiness;" also to choose a president, vice-president, cashier, "and sucli~olher officers and agents as may be necessar}-. By the 21st and 22d sections, contracts, notes, bills, &c., shall be signed by the president and cashier; and all suits, actions, &o., are to be/yv brought in the name of, and also against the president for the time being ; and not to abate b^- his degih, re si filiation, or rem,ovq l, but to be ''""t'lP^d i" th" uf mp "f t he success or. 24th section : The associ- ation max _purchase and hold real estate, &c., the convej'ance to be made to the president/or such other otticer as shall be designated, who may sell and convey the same free from anj- claim against share- holders. 19th section :/The shares of capital stock to be deemed per- sonal property, transferable on the books of the association ; and every person becoming a shareholder by such transfer, shall succeed to all the rights and liabilities of the prior holdenc 23d section : J No sha re- ho ldnr to be pe rsonally liahlp. ; nnrl ihc gfesjQ ciation is not to ho dis- solved_b j_ the d eath o r insanity of any shar eholder. ^ TTUpori a perusal of these provisions, it wTll appear that the associa- tion acquires the power to raise and hold for common use any given amount of capital stock for banking purposes, which, when subscribed. THOMAS V. DAKIN. 7 Is made personal propertj-, and the several shares transferable the same and with like effect as in case of corporate stock ; to assume a common name under which to manage all the affairs of the associa- tion ; to choose all officers and agents that may be necessary for the purpose, and remove and appoint them at pleasure. It will hence be seen, that although the association may be composed of a number of different persons, holding an interest in the capital stock, its operations are so arranged that they do not appear in conducting its affairs ; all are so bound together, so moulded into one, as to constitute but a single body, represented by a common name, or names (the knot of the combination), and in which all the business of the institution is con- ducted b}- common agents. In this way it purchases and holds real and personal property-, contracts obligations, discounts bills, notes, and other evidences of debt, receives deposits, buys gold and silver bullion, bills of exchange, &c., loans money, sues and is sued, &c. It is true some portion of the business is conducted in the assumed name, and some in the name of the president for the time being ; but this in no manner clianges the character of the body. A corporation maj' have more than one name ; it ma}' have one in which to contract, grant, &c., and another in which to sue and be sued ; so it maj' be known by two different names, and may sue and be sued in either ; and the name of the president, his official name, or anj- other, will answer every pur- pose. 2 Bacon's Abr. 5; 2 Salk. 451; 2 Id. 237; Ld. Raym. 153, 680. The only mate rial circumstance is, a name, or names, o f some kind, in wl ncli all the affairs of the company may be conducte d. So niucli, andno more, is essential to give simplicity and effect to the operation. An artificial being is thus plainly created, capable of receiving all the ample powers and privileges conferred upon the asso- ciations, and of managing their diversified concerns in an individual capacity. _ All business is to be conducted in a common or proper name. 2. Tills artificial being possesses the powers of perpetual succession. Neither sale of shares or death of sliareholders affect it ; if one should sell his interest, or die, the purchaser or representative, b}' operation of law, immediatelj' takes his place. § 19. Nor can the insanity of a member work a dissolution. Id. Officers and agents for conducting the business of the association are secured. In case of vacancy, b^' death or otherwise, the place may at once be filled. § 18. For the entire duration, therefore, of the association, and which maj- be with- out limit, § 16, sub. 5, the whole body of shareholders, though perpet- ually shifting, constitute the same uniform, artificial being which is to be engaged through the instrumentality of officers and agents in con- ducting the business of the concern, and no member is personally liable. § 23. Then, as to the powers conferred, without again specially recurring to them, it will be seen at once that the associations possess all that arc deemed essential, according to the most approved author- ities, to constitute a corporate body. They have a capacity: l-_To have perpetual succession under a common name, and in an artificiaT 8 THOMAS V. DAKIN. form ; 2. To take and grant propierty, contract obligation s^o sue and be enpjbxJil-Cni'r" ''''^" ""'"^i '" th? same manner as an mdlvidn al ; 3. "T oreceive grants of privileges and immunities, and to enjo}^ them incommoiu AH these are expressly granted, and many more, besides the general sweeping clause, '■'■to exercise such incidental powers as shall be necessary to carry on such business " (meaning the business of banking), under which even the seal and right to make bj'-laws are clearly embraced, if essential in conducting the affairs of the institution. [After considering other questions, the learned judge concludes as ibllows : — ] Upon the whole, I am of opinion: 1. That these associations are corporations ; 2. That the legislature possesses no power to pass a general law like the one under consideration by a majority bill; and 3. That thej- maj' pass it by two-thirds of the members elected. The plaintiff is therefore entitled to judgment on the demurrer, with leave to amend on the usual terms. [CowEN, J., gave an elaborate opinion, concurring with Nelson, C. J., on points 1 and 2. As to point 3, he inclined to agree with Nelson, C. J. His opinion concludes as follows : — ] But this branch of the argument need not be pursued ; for it was agreed on both sides, at the bar, that we must, on this record, pre- sume the general banking law to have been passed bj' two-thirds of nil the members elected to both houses. We must clearlj- do so until the fact is denied 113' plea. The requisite constitutional solemnities in passing an act which has been published in the statute book, must alwajs be presumed to have taken place until the contrary shall be clearly shown. Should the defendant withdraw his demurrer, and plead specially that the law in question did not receive the assent of two-thirds, as required by the Constitution, it will then be in order to pass upon the validity of such an objection. Being clear that the plaintiffs declaration is sufficient in substance, and that he has technically' and aptly set forth his cause of action according to the statute, I think there should be judgment for him with leave to withdraw the demurrer, and plead on paj'ment of costs. Bronson, -J. I concur fully in the opinions expressed by my bretlwen, that associations formed under the general banking law are corporations, and that the assent of two-thirds of all the members elected to each branch of the legislature was necessary to the passing of the act. But, as at present advised, I cannot concur in the opinion that the legislature has the constitutional power, although two-tliirc!s may assent, to provide by a general law for the creation of an indefiniie number of corporations at the pleasure of any persons who may associ- ate for that purpose. It was conceded on the argument, that the demurrer does not reach the objection that the act was not passed by a two-thirds vote ; and I have not, therefore, considered the question whether we can look beyond the statute book. A plea may render it necessary for us to pass upon that question. . Judgment for plaintiff. WAENEK V. BEEES. WAENEE V. BEERS, Peesident of the Noeth American Teust AND Banking Co. BOLANDER v. STEVENS, President of the Bank of Commerce IN New York. 1840. 23 Wendell, 103.1 In the Court of Errors of the State of New York. Demurrers to declarations, raising substantially the same questions as in Thomas v. Dakin, 22 Wendell, 9 [ante, p. 4]. The Supreme Court gave judg- ment in both cases for the original plaintiffs, Beers and Stevens; refer- ring for reasons to the opinions delivered in Thomas v. Dakin. Both causes were removed by writs of error to the Court for the Correction of Errors. i. Sanford and J. A. Spencer, for plaintiffs in error. W. C. Noyes and S. A. Foote, for Beers. W. Kent and D. B. Ogden, for Stevens. [Opinions, which are reported in full, were delivered by Bradish, President of the Senate, Walworth, Chancellor, Root, Senator, and Verplanck, Senator. " A brief analysis" of these opinions maj' be found in a prefatory note by the reporter, 23 Wendell, p. 103. Por- tions of the opinion of Verplanck, Senator, are as follows] : — Verplanck, Senator. [The learned Senator dissented from the view of the Supreme Court, that the Court were bound, until the fact is denied by plea, to presume that the General Banking Law was passed by a two-thirds vote. He was of opinion that the Court, in deciding upon the demui'rer, should ascertain whether the Act received a two-thirds vote ; and that, if it were found that the Act received less than a two- thirds vote, it would then be the duty of the Court to inquire whether the provisions of the Act were such in themselves as to bring the case within the constitutional requirement. After some discussion of other topics, the opinion proceeds as follows] : — . . . What, then, is a body corporate? What is its necessary and essential meaning? "It is called a body corporate," says Lord Coke, " because the persons composing it are made into one body." " It is only in abstracto, and rests only in contemplation of law." 10 R. 50. So again, he saj's, 1 Inst. 202, 250, "Persons capable of purchasing are of two sorts, — persons natural created of God, axid. persons created by the policy of man, as persons incorporated into a body politic." If, leaving the quaint scholastic teaching of the father of English law, we come to the clearer and directer sense of our own Marshall, we find the_^ same prevailing idea. " A body corporate is an artificial being, invis- ible, intangible, existing only in contemplation of law. Being the 1 Statement abridged. Arguments omitted ; also part of opinions. — Ed, 10 WARNEK V. BEERS. creature of law, it possesses only the properties conferred upon it by its ihaiter. Among the most important of these are immortality, and, if__ the expression may be allowed, individuality." 4 Wh. K. 636 ; 1 Peters R. 46. Again: " It is precisely what the act of incorporator makes it; derives all its powers from tliat act, and is capable of exf/ting its faculties only in the manner which that act authorizes." " VVitliin the limits of the properties conferred by its charter, it can," saj-s Black- stone, " do all acts as natural persons may." " In corporations," saya^^ Professor Woodeson, " individuals are invested by the law with a politi- cal character and personality wholly distinct from their natural capa- city." " A corporation," says Kj'd on Corporations, 13, "is not a mere capacity, but a political person in which many capacities reside." Thus, then, the essential legal definition that covers the whole ground, and expresses the very essence of the being of a body corporate, is tills : " It is an artificial legal person, a succession of individuals, or\ an aggregate body considered by the law as a single continuous per- I son, limited to one peculiar mode of action, and having power only', of the kind and degree prescribed by the law which confers them.'y Such is the established notion of our common law. . . . So far was this principle of corporate personality carried in our old common law, that reasons were expressh' assigned whj- a corporation could not be excommunicated or punished for crime. " Because it has no soul," said Lord Coke, which, however ludicrously it may now sound, was but saying quaintl}', and in the style of that da^-, what in modern times would be expressed b^' sa^'ing that a corporation, being an arti- ficial and not a moral person, must be incapable of guilt. The very able argument in the celebrated historical case of the charter of Lon- don in 1682 went a good deal into these refinements, and it was held on one side that a political person had a mind and reason, according to Lord Chief Justice Hobart, and that its reason was expressed by its bj'-laws ; whilst the attorney-general, whom Bishop Burnet has egre- giously wronged in calling him " a hot, dull man," argued most acutelj-, as well as very learnedly, in support of the capacity of a corporation to incur political, if not moral, guilt and punishment. All these, it is true, are refinements of technical reasoning, in a taste and fashion of thought which have passed away ; but the}- prove con- clusively how strong and undoubted was that legal principle of per- sonality upon which these mere inferences and nice distinctions were founded. In order to continue the existence of such an artificial oerson, per- petual succession is ordinarily necessary, though it was not strictlv essential, for it may be confined to any given number of lives in beino-, holding in a sort of corporate joint tenancy, of which I think examples may be found. As a legal person, it has only the powers and proper-"" ties specifically conferred upon it; and can possess and exercise no others, excei)t such as are absolutely neecssarj- to the exercise of the powers expressly given. This is the enactment of our revised statutes, '~' WAKNER V. BEERS. 11 which, as our revisers rightly said in their report on that title of the law, is " declaratory of a principle of law frequently recognized by our courts, and which it was deemed useful to confirm by legislative authority." To these are added certain legal incidents by the common law, also declared in our statute, and common to all corporations, as to sue and be sued, hold and convey real and personal property, to appoint officers for its services, and to make by-laws for the management of its affairs. To these more important rights the law adds the external evi- dence of a name and a common seal. This last, though apparently a matter of form, is not without effect, any more than the legal conse- quences of seals to instruments in England and this state, so widely different from those of other legal systems, where the distinction be- tween sealed and unsealed instruments is unknqwn. It is only through a common seal and name that any grant of lands, or covenant touching them, can be made by a corporation. There are several very useful and beneficial accessary powers, or attributes verj' often accompanying corporate privileges, especially in moneyed corporations, which, in the existing state of our law, as modi- fled by statutes, are more prominent in the public eye, and perhaps sometimes in the view of our courts and legislatures, than those which are essential to the being of a corporation. Such added powers, how- ever valuable, are merely accessary. They do not in themselves alone confer a corporate chai'acter, and may be enjoyed by unincorporated individuals. Such a power is the transferability of shares, whereby investments may be made, without the owner losing the future control of his funds under changes of circumstances. Such, too, is the limited responsibility by which the stockholder, having once fairlj"^ paid up his share of the capital, is exempted from further personal liability. So, too, the convenience of holding real estate for the common purposes, ex- empt from the legal inconveniences of joint tenancy or tenancy in com- mon. Again : there is the continuance of the joint property for the benefit and preservation of the common fund, iiiy tion of the corporation merges and drowns the liability of its corpora- tors. The creation of the stock company leaves unharmed and un- , changed the liability of the associates. The one derives its existence >, from the contract of individuals ; the other from the sovereignty of the state. The two are alike, but not the same. More or less, they crowd upon and overlap each other, but without losing their identity ; and so, while we cannot say that the joint-stock company is a corpo- ration, we can say, as we did say in Van Aerman v. Bleistein, 102 N. Y. 360, 7 N. E. 537, that a joint-stock company is a partnership, with some of the powers of a corporation. Beyond that" we do not think it is our duty to go.'' If the nonliability of the members for the collection of debts be in fact a test of a corporation, then these Pennsylvania companies are clearly corporations under this authority. But we cannot be sup- posed to concede this. In Liverpool Ins. Co. v. Massachusetts, 10 Wall. 666-575, the fact of the liability for company debts of the members of the Liverpool Insurance Company was held to be no suffi- cient test of the corporate character of that joint-stock association. Justice Miller, as to this, said : " To this view it is objected that the association is nothing but a partnership, because its members are liable individually for the debts of the company. But, however the law on this subject may be in England, it is quite certain that the principle of personal liability of the shareholders attaches to a very large proportion of the corpora- ANDREWS BROS. CO. V. YOUNGSTOWN COKE CO. 29 tions of this country, and it is a principle which has warm advocates for its universal application when the organization is for pecuniary- gain." The Massachusetts court is cited as holding that these Pennsylva- nia associations are not corporations, and could not, therefore, be sued in Massachusetts as such. Edwards v. Gasoline Works, 168 Mass. 664, 47 N. E. 502. The case does so hold. But the decision is expressly rested upon the earlier Massachusetts cases holding that joint-stock companies organized under the law of that State were mere partner- ships. Tappan v. Bailey, 4 Mete. (Mass.) 629 ; Tyrrell v. Washburn, 6 Allen, 466. " If," says Lathrop, J., delivering the opinion of the court, "the question were an open one in this commonwealth, it might well be held that such an association could be considered to have so many of the characteristics of a corporation that it might be treated as one." The court in that case express their unwilling- ness to adopt the views of the Supreme Court of the United States in Liverpool Ins. Co. v. Massachusetts, 10 Wall. 666, and say that their own decision, reported in Oliver v. Insurance Co., 100 Mass. 531, and af&rmed in that opinion, was rested upon the ground stated by Jus- tice Bradley in his dissenting opinion. We have neither the disposi- tion nor the freedom of the Massachusetts court in respect to the opinion of the Supreme Court in Liverpool Ins. Co. v. Massachusetts. The Youngstown Coke Company presents many more of the charac- teristic features of a corporation than did the Liverpool Insurance Company, and that case is an authority most strongly supporting our conclusion that it is a corporation. The same conclusion was reached in regard to another one of these Pennsylvania associations by Judge Lacombe, in Bushnell v. Parh Bros. & Co., 46 Fed. 209. That case was subsequently afSrmed by the Court of Appeals, in 9 C. C. A. 138, 60 Fed. 583, though this question seems to have been abandoned by the plaintiff in error, against whose protest the case had been re- moved from the state court. Our conclusion, therefore, is that the Youngstown Coke Company is a corporation and a citizen of Pennsyl- vania, within the meaning of the jurisdictional requirement in respect to diversity of citizenship. Judgment affirmed. so GREAT SOUTHEEN FIEE PROOF HOTEL CO. V. JONES. GREAT SOUTHEEN FIRE PROOF HOTEL CO. v. JONES. 1900. 177 U. 8. 449.1 Jones & Co. brouglit a bill in the U. S. Circuit Court for Ohio, against an Ohio corporation and various other defendants. The bill describes the plaintiffs as " members of the limited partnership associa- tion doing business under the firm name and style of Jones & Laugh- lins, Limited, which said association is a limited partnership associa- tion, organized under an act of the General Assembly of Pennsylvania, approved June 23d [2d], 1874, entitled ' An act authorizing the for- mation of partnership associations in which the capital subscribed shall alone be responsible for the debts of the association, except under certain circumstances,' "... and which association is " a citizen of the State of Pennsylvania." The claim of Jones & Co. was founded on the mechanics' lien statute of Ohio. The Hotel Company demurred to the bill ; contending that the said statute was unconstitutional. After a decision in favor of Jones & Co. in the U. S. Circuit Court of Appeals, the Hotel Com- pany brought the case to the U. S. Supreme Court on a writ of certiorari. Upon the argument in the Supreme Court, that court suggested the question (not raised by counsel, nor argued in the court below), whether the case as presented by the record was one of which the U. S. Circuit Court could take cognizance by reason of diversity of citi- zenship. iTohn E. Sater and D. F. Pugh, for petitioner. Talfourd P. Linn and Louis G. Addison, for respondents. Haklan, J. . . . We are of opinion that the plaintiff as a limited partnership association was not entitled to invoke the juris- diction of the Circuit Court. It was not alleged to be, nor could it have alleged that it was, a corporation in virtue of the statute of Pennsylvania under which, according to the averments of the bill, it was organized. It has been suggested that the plaintiffs are entitled to sue, and may be sued, by their association name. . . . But the capacity to sue and be sued by the name of the association does not make the plaintiffs a corporation within the mle that a suit by or against a corporation in its corporate name in a court of the United States is conclusively pre- sumed to be one by or against citizens of the State creating the cor- poration. [As to Const. Pa. Art. XVI. Sect. 13.] The only effect of that clause is to place the joint-stock companies or associations referred to under 1 Statement abridged. Portions of opinion omitted. Ed. GREAT SOUTHERN FIRE PROOF HOTEL 00. V. JONES. 31 the restrictions imposed by that article upon corporations ; and not to invest them with all the attributes of corporations. We have not been referred to any case in the Supreme Court of Pennsylvania which distinctly places limited partnership associations, created under the statutes of that State, on the basis of corporations. That a limited partnership association created under the Pennsyl- vania statute may be described as a " qvMsi corporation," having some of the characteristics of a corporation, or as a " new artificial person," is not a sufficient reason for regarding it as a corporation within the jurisdictional rule heretofore adverted to. That rule must not be extended. We are unwilling to extend it so as to embrace partnership associations. We have not overlooked the case of Andrews Bros. Co. v. Youngstown Coke Co., 58 U. S. App. 444, in which the Circuit Court of Appeals for the Sixth Circuit, speaking by Judge Lurton, held that limited partnership associations organized under the Pennsylvania statute were corporations within the jurisdictional requirement of diverse citizenship. Por the reasons stated, we are unable to concur in the view taken by that court. We therefore adjudge that ... it was necessary to set out the citizenship of the individual members of the partnership association of Jones & Laughlins, Limited, which brought this suit. Without considering the merits of the case, we are constrained to reverse the judgments of the Circuit Court of Appeals and of the Circuit Court, and remand the cause for further proceedings consistent with this opinion. Under the circumstances, the plaintiffs should be allowed, upon application, to amend the bill upon the subject of the citizenship of the parties. 32 EUSSELL V, TEMPLE. CHAPTEE II. DISTINCTION BETWEEN COEPOEATION AND STOCK- HOLDERS.i SECTION I. The Distinction applied Generally. RUSSELL ET ALS., Appellants v. TEMPLE et al., Appellees. 1798. Supreme Court of Massachusetts. 3 Dane's Abridgment, 108. [Probate Appeal.] In this case the heirs of Thomas Eussell con- tended that his shares in Maiden, Charles-river, Haverhill, Andover, and Merrimack bridges, in Middlesex canal, &c., ought to be considered as real estate, and his widow, afterwards married to Temple, ought to have only her dower for life in them. On the other hand, Temple and wife contended they were personal estate, and ought to be distributed as such, and she have one-third part forever. The strongest case among these, in favor of real estate, was the Middlesex canal, in which the corporation had a fee simple estate, or an estate forever, and a per- petual toll. By the statutes passed respecting this canal and real estate, the property therein was divided into 800 shares, and the shares in the canal, including the towing paths and wharves thereon, were made transferable and taxable as personal estate. This corporation also had power to hold real estate to the amount of £30,000, over and above the canal itself, and this appendant real estate was made taxable as real estate of the corporation in the several towns in which it lay. It was argued (for the widow) that these shares were personal estate for two reasons : — 1st. Because these estates can only exist in the corporation, which alone can acquire it, alone be seized or possessed of it, alone pass it away, manage or repair it, and so must hold it entire ; and that the corporation is a moral person to all the purposes of property. Its tenure is to their successors, or to their successors and assigns ; these estates never can vest in or be divided among the individual members, to hold as tenants in common &c., in their private capacities. Only the corporation can forfeit the estate, and that only by forfeiting 1 The distinction is also discussed in various cases which are given under special topics treated of in subsequent chapters. — Ed. EUSSELL V. TEMPLE. 33 their charter ; and only the corporation can be taxed for it on common law principles ; and on these can it alone be taken in execution for the debts of the corporation ; and on a dissolution of the corporation, " its lands revert to the grantor, or his heirs, and the debts due to or from it are totally extinguished ; so that the members of it cannot recover or be charged with them in their natural capacities." And a grant to a corporation can only be for its life or continuance. 2 Bl. Com. 484 ; 1 Lev. 239 ; 1 Bae. Abr. 510. The case of the JRoyal Exchange In- surance Company v. Vaughan, 1 Burr. 155, and Cowper, 79 to 86, Gardner's Case. Second. Because the share is personal estate, though the corporation hold real estate ; for the individual member has no estate, but only a right to such dividends as the corporation, from time to time, assign to him. He is unknown on the grants made to it, and he cannot grant any part of the estate ; nor can he be taxed for it but by statute- law ; nor can anj' private member of a corporation be distrained for a public concern of it ; his only remedy for his dividend is case in assumpsit, or an action on the case for a wrongful refusal or neglect to pay or allow him his part of the profits. 4 Wood's Con. 489, &c. ; Cowp. 85 ; Im- pey's Modern Pleader, 83; 1 Vent. 351, Dutch v. Warren; 1 Stra. 406 ; same case, 2 Burr. 1011. So lands may be real estate in one, yet the trees or corn growing on them may be personal estate in another. Idfford'sCase, 6 Co. 46 to 50 ; Imp. M. P. 167. For the heirs it was urged that these shares were real estate, because it was said the estates were real in the corporations ; annexed to the soil ; and that if these estates in the corporations were real, the estates of the individual members in them followed their nature, and were real ; and that the frequent declarations of the legislature declaring such shares personal estate, at least shew a doubt : that when one has a right to receive rent, he has only a right to receive a sum of money ; yet it does not follow that his estate is not real estate, out of which his rent issues. The judgment of the court was, that these shares were personal estate, and distribution was ordered accordingly. The principal reason of the decision appears to be, because the court considered that the indi- vidual member, or shareholder, had only a right of action for a sum of money, his part of the net proiits, or dividends. And so the law baa been held to be since this decision was made. 34 ROSS V. BOSS. WILLIAMSON V. SMOOT. 1819. 7 Martin, Louisiana, 31. Appeal from the court of the first district. Matthews, J., delivered the opinion of the court. The plaintiff having caused an attachment to be levied on the steamboat Alabama, the St. Stephens Steamboat Company intervened in their corporate capacity, and claimed her as their property. The intervening party are a body politic, created by an act of the legislature of the territory of Alabama, the capital stock of which is divided into shares of a certain amount, and Smoot the defendant owns ten of them, subscribed for by him. The questions to be decided are : 1. Is it proper for our courts of justice to recognize, in their judicial proceedings, the company as a cor- porate body? 2. Can the shares or stock of any individual stock- holder be legally attached?^ II. The existence of the claimants being recognized as a body corporate, and it being admitted that the boat attached belongs to them as a part of their common stock, it is clear that Smoot does not possess such certain and distinct individual property in it, as to make his interest attachable. The estate and rights of a corpora- tion belong so completely to the body, that none of the individuals who compose it has any right of ownership in them, nor can dispose of any part of them. Civ. Code, 88, art. 11. The court is of opinion that the district court erred in disallowing the claim of the companj-. It is therefore, ordered, adjudged and decreed that the judgment be annulled, avoided and reversed, and that the attachment of the plain- tiff and appellant be quashed, so far as it relates to the said steamboat the Alabama, and that she be released therefrom. Livingston, for the plaintiffs. Duncan, for the claimants. EOSS V. EOSS. 1858. 25 Georgia, 297.2 Martha B. Eoss sued W. W. and F. D. Eoss on a note. On this attachment was issued ; a summons of garnishment, directed to the Eatonton Eailroad ; the summons being served on the President. He answered that W. W. E. was the holder of 50 shares of stock in said Eoad, and F. D. E. of 48 shares therein ; and that, in other respects, if in this, the said road did not owe and had not owed either of them, or had any effects of either of them. 1 The opinion relating to Point I. is omitted. —Ed. a Statement abridged Ed. ROSS V. EOSS. 35 Motion to dismiss attachment. Motion denied. Bill of exceptions. Davis & Lawson, for plaintiff in error. Hudson, contra. Benning, J. Was the Court right in overruling the motion to dis- miss the attachment ? One of the grounds of the motion was, that stock in this railroad is \ not subject to garnishment by creditors of the stockholders. Was this ' a good ground ? The answer to this question depends on the import of the act of 1856, "to authorize the issuing of attachments and garnishments," &c. ; for, the 65th section of that act repeals " all acts, and parts of acts, upon the subject of attachments and garnishments." Acts of 1856, 38. By the 13th section of this act the summons of garnishment is to be \ " directed to any person who may be indebted to, or have property or ' effects of, the defendant, in their hands." By this section, then, it would seem that all of the debts, property, and effects of the debtor are subject to garnishment. But the 16th section says, "where the garnishee appears and answers that he is indebted, or has property, or effects in his hands, belonging to the defendant in attachment, judgment shall be rendered against him, in favor of the plaintiff, for such acknowledged indebted- ness, and the property and effects, whatever they may be, shall be delivered into the hands of the Sheriff," &c. Where the answer is, that he is "indebted," judgment is to be entered against him, " for such acknowledged indebtedness." Is stock in this railroad such a debt (" indebtedness ") of the rail- \ road to the stockholder that a garnishing creditor of the stockholder I can enter up judgment for it, against the railroad ? It is not ; it is a » debt which the railroad dares not pay even to the stockholder him- ) self ; the road may pay him dividends on it, but that is all. See • charter, section 3, Acts of 1850, 240 ; and charter of Central Eailroad Eule 7 {Pr. Dig. 330). The debt which a corporation owes to one of its stockholders for his stock is a debt of a peculiar nature. It is a debt not to be paid until the corporation comes to wind itself up. When the corporation winds itself up, then it pays back to its stockholders the money it received from them for its stock ; during its existence it may pay them proiits which it makes on their money, but anything beyond the said profits it dare not pay them. This is generally true. It is true in the case of this corporation. When will this corporation wind itself up ? It may never do so. Its charter sets no limits to the time of its existence. Pr. Dig. 333. It follows that the time may never come when this corporation will be bound to pay back to the Bosses the money it received from them for their stock. If so, of course, no judgment can be got against the corporation, requiring it to pay that money at any particular time ; 36 PAEKEE V. BETHEL HOTEL CO. consequently no judgment can be got against the corporation under the said 16th section of the act, for the judgment it contemplates is one requiring immediate payment. There is no other part of the act under which such a judgment can be got. We may conclude, therefore, that although the language of the 13th section of the act is broad enough to include all debts, yet that the 16th section of the act is such as to require this language to be so restricted that it shall not include such a debt as this ; a debt which a corporation owes to one of its stockholders for the money received from him for his stock. If dividends were due to the Eosses the case would be different. \ Dividends, there is little doubt, stand on the same footing as ordinary j debts due from the corporation to its stockholders. The judgment that is needed in such a case as the present is a judg- ment authorizing a sale of the stock. There is no law authorizing such \ a judgment in attachments or garnishments. 16 Ga. 437. There is a J law making " bank and other stock subject to execution." Cobb, Dig. 611. But this law does not reach the present case. We think, then, that this stock of the Eosses was not* subject to this garnishment, and, therefore, that the Court erred in not dismiss- ing the attachment. It becomes useless to consider the other grounds of the motion. Judgment reversed^ PAEKEE BT ALS. V. BETHEL HOTEL CO. bt als, 1896. Supreme Court of Tennessee.^ Appbal from Chancery Court of Maury County. The Bethel Hotel Co. was incorporated, in 1880, under the general corporations act of 1875 ; and erected a building used partly for a hotel and partly for other purposes. Sept. 1, 1885, the Bethel Hotel Co. and Lucius Erierson conveyed to Mayes & Dodson the " hotel proper part " of the building, by deed signed " Bethel Hotel Company, W. D. Bethel, President ; Lucius Erierson, Secretary and Treasurer ; and Lucius Erier- son." This conveyance was authorized by a vote of the stockholders at the last meeting ever held by them. No business seems to have been transacted by the corporation after this time. On or about Aug. 28, 1886, Erierson became the owner of all the stock of the company ; but, both before and after that date, he pledged various shares as security for debts of his which are still outstanding. The stock so pledged was 1 In almost all States there are now statutes providing methods wlfereby a creditor may attach, or levj' on, shares of corporate stock owned by his debtor. — Ed. 2 The statement of facts is abridged from the opinion, contained in advance sheets fur- nished by the State Eeporter. Portions of the opinion are omitted. — Ed. PAKKER V. BETHEL HOTEL CO. 37 not transferred on the books of the company. He used the remaindei of the building as his own up to Jan. 12, 1892, when he executed a deed in his own name, purporting to convey to Webster, in trust, the real es- tate owned by the Bethel Hotel Company and certain stock in that com- pany. The purpose of this deed was to secure the payment of certain debts owing by Frierson, preferring one creditor and providing for pro rata payment of the others. Most of the creditors of Frierson who had loaned him money on the stock of the Bethel Hotel Co. were not pro- vided for in the deed of trust. Parker et als., creditors of Frierson and pledgees of said stock, filed a bill in equit}-, praj'ing (inter alia) to annul the trust deed to Webster. The cause was heard before the Chancellor of Maury County, and afterwards before the Court of Chancery Ap- peals, from which the case was taken to the Supreme Court. G. T. Hughes, Fussell c6 Wilkes, W. S. Fleming, Jr., Qranhery, S Marks, and John T. Williamson, for Parker. Figuers & Padgett, E. H. Hatcher, and W. J. Webster, for Hotel Co. J. C. Bkadford, Sp. J. [After fully stating the facts and plead- ings.] It may be regarded as settled, therefore, that the legal title to the property convej'ed to defendant, Webster, was, at the date of that instrument, in the Bethel Hotel Companj', where it had been, unques- tioned and undisturbed, since 1880, the year of its incorporation and organization. Defendants insist that, although Frierson may not have been invested with the legal title, he, nevertheless, had such an equi- table estate and interest as entitled him to sell and dispose of the prop- ert3'. In other words, that he was the real owner of the propert3-, and, as such, had the absolute right to use or dispose of it. This alleged equitable estate was not the creation of any deed or written contract, executed by the Bethel Hotel Company, or of any corporate act or resolution adopted by the stockholders or directors, which in terras referred to or defined it, but is rather the result and consequence of certain facts and conditions, the existence of which is affirmed by the defendants. It is said that the Bethel Hotel Company, by the alienation of that part of its property built for and adapted to the uses and purposes of a hotel, deprived itself of the means of conducting a hotel business, and that, since 1885, the date of the sale to Mayes & Dodson, it had ceased to exercise its corporate franchises ; that the stockholders, at the meeting held in September, 1885, passed a resolution, or agreed among themselves, that the corporation should go into liquidation, and that Lucius Frierson, being then the owner of all the capital stock of the corporation, became, in consequence, the equitable owner of all its property, with full power to use it or dispose of it in such manner as he might choose to do. The position of the defendants seems to be that all rights of the corporation in the property were extinguished, that it had ceased to be affected with any corporate uses, and that it belonged absolutely to Frierson. The facts affirmed by defendants are not all of them exactly aa found by the Court of Chancery Appeals. It is true that the corpora- 38 PARKER V. BETHEL HOTEL CO. Hon sold and conveyed the hotel part of its building to Mayes & Dodson, retaining only the stores and opera house, and never after- wards engaged in the business of owning and operating a hotel. Lucius Frierson was not the sole stockholder in 1885, when the hotel was sold, and did not become such until August 28, 1886, when he purchased the Bethel stock. His stock, or a large part of it, at that time and subsequentlj', was held as collateral security by other parties. It is not true that a resolution was ever adopted by the stockholders directing the liquidation or winding up of the affairs of the corporation, or that they were ever wound up. The facts, as found by tbie Court of Chancery Appeals on this point, are stated in its opinion in the follow- ing words: "It maybe fairly inferred, though it does not distinctly appear in terms in the proof, that when the deed was made to Mayes & Dodson it was then understood between W. D. Bethel and Lucius Frierson, they then owning practically all, or nearly all, of the stock, that Bethel should take the proceeds of the sale to Mayes & Dodson, amounting to $22,500, and a sufficient amount, in addition, from Lu- cius Frierson, personally, to make $30,000, and for this he would transfer his stock, 161,000, to Frierson, and that this arrangement was consummated, so far as it could be done without direct corporate action of the corporation itself, by the paper of August 28, 1886, made by Bethel to Frierson, and this is what they understood by the resolu- tion to go into liquidation, there being no debts due by the corporation, and, following out this idea, from the date of the sale to Mayes & Dodson, Lucius Frierson proceeded to treat the propertj' as his own, on the idea that he himself constituted the corporation. We do not think that he entertained the idea that the corporation was defunct, but simply that he was, himself, the corporation, and could do what he wished with the assets." In considering the position of the defendants, that Frierson became the equitable owner of the assets of the corporation, we must, there- fore, leave out of view the idea that there was any corporate action looking to a dissolution of the corporation and winding up of its affairs. Frierson's estate or interest in the property, if he had any, rests on the postulate that, in consequence of the nonuser of its franchises and his sole proprietorship of all its capital stock, the corporation was dis- solved, and he became the equitable owner of all its property. I A corporation can be dissolved, and its existence wholly terminated, lonly by the extinguishment of the corporate franchises conferred by ,Hhe State. An ordinary business corporation, where its charter speci- fies no definite time for its continuance, may sell its property and wind up its affairs whenever a majority of the stockholders may deem it ad- visable {TreadweU v. SaUshufy Mfg. Co., 7 Gray, 393; Black v. Delaware <& C. Canal Co., 22 N. J. Eq., 416) ; but the franchises ponferred upon the stockholders by the State are not extinguished by (he cessation from business thus brought about. 2 Morawetz on Corp., § 1004. PAEKER V. BETHEL HOTEL CO. 39 It is claimed by the defendants that the dissolution of the corpora- tion was eflfected by the fact that Lucius Frierson became the sole owner of all its capital stock. Admitting it to be true that he was the owner of all the stocli of the corporation, it by no means follows that the corporation was thereby dissolved and forfeited its franchises. On this question the latest text writer on corporation law has this to say, viz.: "Contrary to early opinion, it is now generally held that the fact that all the shares in a joint stock company have passed into the i hands of two members, or even into the hands of a single person, does 1 not, ipso facto, work a dissolution of the corporation, since such sole/ owner may so dispose of the shares, as, by the election of the neces-l sary directors and officers, to continue the corporate existence." 5' Thompson's Commentaries on the Law of Corporations, Sec. 6653. And, in 2 Morawetz on Corporations, Sec. 1009, it is said: "It is well settled that all the shares of a corporation may be held by a^ single person, and yet the corporation continue to exist, and, if the \ charter or by-laws should require certain acts to be done by more than one shareholder, the sole owner may transfer a portion of his shares to , other persons, so as to conform to the letter of the rule." It has been', held that a corporation which has sold all its assets, with the intention ( of putting an end to its business, whose officers had all resigned, and whose stockholders had all transferred their shares to a single person, was, nevertheless, not dissolved, and that its existence could be ter- minated only by judgment of forfeiture or by surrender accepted by the State. Russell \. McLellan, 14 Pick. (Mass.), 69, 70; Newton Mfg. Co. v. White, 42 Ga., 148 ; Baldwin v. Canfield, 26 Minn., 43. The dissolution of a pecuniary or business corporation is effected in one of the following waj-s, viz. : (1) by the expiration of its charter; (2) by Act of the Legislature, where power is reserved for that pur- pose , or there is no constitutional inhibition ; (3) by surrender of charter which is accepted; (4) by forfeiture of the franchises and judgment of dissolution pronounced by a Court having jurisdiction. 2 Morawetz, Sec. 1004 ; Taylor on Private Corporations, Sec. 430. It is not pretended that the Bethel Hotel Company was dissolved in either of the ways indicated. The charter of the corporation has not expired, neither has it been repealed by the Legislature, or been sur- rendered to the State by its members or stockholders. It may be true that there was a nonuser of its franchises by the corporation for a period of seven years or more, occasioned by the sale of the only property it owned which could have been used for hotel purposes. Undoubtedly the nonuser of its franchises by a corporation is ground for dissolution and forfeiture of its charter, at the instance of the State ; but until sentence of dissolution has been pronounced by a Court of competent jurisdiction, in a proper proceeding instituted for the purpose, the corporation will continue to exist, notwithstanding its failure to use its franchises. And forfeiture can only be decreed in a proceeding directly instituted for the purpose, by the State granting it. Code (M. & V.) § 1712; State v. Butler, 15 Lea, 104, \lQ;_Jersey 40 PAEKEK V. BETHEL HOTEL CO. City Gaslight Co. v. Consumers' Gas Co., 40 N. J. Eq., 427; Broad, well V. Merritt, 87 Mo. 95. Until dissolution has been thus judicially pronounced, neither the existence of the corporation or its title to its property can be questioned collaterally. "We are bound to conclude, therefore, that the Bethel Hotel Company was not dissolved, or its franchises extinguished for any of the reasons alleged by the defendants, and that it is now a corporation endued with life, with authority to own property and exercise all the powers conferi-ed on it by its charter. Defendants insist that the alleged equitable estate of Lucius Frier- son in the property of the Bethel Hotel Company, did not depend alone upon the dissolution of the corporation, but resulted also from the fact that he was the sole owner of all its Capital stock. The pro- position is, that if one person owns all the shares of stock of a corpo- ration which owes no debts, he, in virtue of such ownership, becomes the equitable owner of all its property, or, at least, may sell and dispose of it by deed, if he choose to do so. This proposition is argued by counsel for defendant with force and ability, and is supported by some authority. It has found favor with the Supreme Court of Maryland (Swift V. Smith, 65 Md., 428, 433); but the decision of that learned Court is opposed bj' the current of authoritj', and seems to us to over- look and ignore certain principles that are fundamental. A corporation and its shareholders are distinct legal entities. In JTeith v. Glar/c, 4 Lea, 718, this Court held that, notwithstanding the State owned all the stock in the Bank of Tennessee, " tlie bank and the State are entirelj- different legal entities," and, in LiUard v. Porter, 2 Head, 175, it was said, "stockholders are totally distinct from the cor- poration." Important consequences result from this rule. The share- holders are neither responsible for the debts nor for the torts of the corporation. In the absence of special circumstances, the shareholders cannot be parties, either plaintiffs or defendants, in actions respecting corporate rights, nor have they any title or direct interest in the prop- erty of the corporation. " Shareholders," says Thompson, "are not joint tenants or in any other sense co-owners of the corporate property, either before or after its dissolution. The title to it rests exclusively in the, legal entity called the corporation. A share of the capital stock merely gives the right to partake, according to the amount put into the fund, of the surplus profits of the corporation, and ultimately, on the dissolution of it, of so much of the fund thus created as remains unimpaired and is not liable for debts of the corporation." Commentaries on the Law of Corporations, Sec. 1071. As the shareholders have no direct interest in the corporate property, they cannot convey the real estate of the corporation, though all join in the deed. In Wheelock v. Moulton, 15 Vt. 519, Redfield, J., stated the reasons for the rule in his usual clear and accurate style. In that case, Moul- ton and Hutchinson, sole proprietors and owners of all the stock of a corporation, conveyed its real estate, in mortgage, to secure the repay PAKKEiv V. llifiTHEL HOTEL Cd. 41 ment of money borrowed of the plaintiff, Wheelock. He brought suit to enforce his mortgage. Judge Redfield said : « The fact that the signers of this deed owned the whole of the shares will make no differ- ence in regard to the necessity of a vote of the corporation, in order to convey the land. The title to the land was in the corporation, not in the individual shareholders. The deed of one, or of any number of the stockholders, will not affect the title to the land. The share owners are not tenants in common of the land. They have no title whatever to any of the property of the corporation. It is true that one who owned all the shares might control the corporation, and so he could if he owned a majority of the shares ; but he could, in either case, do it only by a vote of the corporation, at a meeting held in strict accord- ance with the statutes of the corporation." And in Humphreys v. McKissick, 140 U. S. 304, Mr. Justice Field, discussing the same question, said : "The property of a corporation is not subject to the control of individual members, whether acting sep- arately or jointly. They can neither incumber nor transfer that prop- erty, nor authorize others to do so. The corporation — the artificial being created — holds the property, and alone can mortgage or trans- fer it, and the corporation acts only through its officers, subject to the conditions prescribed by law." A very instructive case on- this question is Baldwin v. Canfield, 26 Minn., 43. The facts of that case were very similar to those of this case, and the direct question now under consideration was passed upon. The opinion of the court was in accord with the cases above cited. See also Button v. Hoffman, 61 Wis., 20. We are thus led, both hy reason and authority, to the conclusion i that Lucius Frierson, as sole stockholder of the Bethel Hotel Com-/ panj-, had no title, legal or equitable, to its property. The title to the property was in the Bethel Hotel Company, and could only be con- 1 ve3-ed by it. The convej-ance of its real estate is one of the most solemn acts of a corporation, and it can only be done in pursuance of a vote of the corporation, and b}- deed executed in the form and mode prescribed b}- law. Thompson's Commentaries on the Law of Cor- porations, Sec. 5096. At common law a corporation could not exe- cute a deed to realty except under seal ; and the general corporations Act of 1875, under which the Bethel Hotel Company was organized, provides that, if the corporation have no seal, it shall be bound by the signature of its name bj' a duly authorized officer. To have made a valid conveyance of the real estate of the company, it was necessary, therefore, that the' deed should have been executed in the name of the corporation, under seal, if it had one, and, if not, its name should have . been signed by an agent duly authorized by its governing agenc}', its board of directors. Garrett v. Selm,ont Land Co., 94 Tenn., 460. As we have seen, nothing of this kind was done. The deed to defendant, Webster, was executed by Lucius Frierson, in his own name and under his own signature. The Bethel Hotel Com- pany, although it owned the property, was in no sense a party to it 42 PARKEE V. BETHEL HOTEL CO. For this and other reasons given, the deed of Lucius Frierson, convey, ing the real estate of the Bethel Hotel Company to defendant, W. J. Webster, was void, and conveyed to him no title or interest therein. We have assumed as a fact, in the preceding discussion, that Lucius Frierson was, in truth, the sole owner of all the shares of stock of the Bethel Hotel Company at the date he executed the deed to Webster. But was he ? [The Court then held that the pledgees of the stock acquired title thereto, even though they took with notice of a by-law of the company that no transfer should be effectual unless made on the books of the company.] BUNDY V. OPHIE IRON CO. 1882. 38 Ohio State, 300.1 The Ophir Iron Companj' was a corporation consisting of ten stock- holders, including the plaintiff, Bundy. Bundy indorsed notes of the Company upon an agreement that he should be protected by a mortgage upon the Company's real estate. The mortgage, instead of being executed in the name of the Com- pany as grantor, was, by mistake, executed in the name of the other nine stockholders, thus : — " Know all men by these presents, that Robert Hoop'' [and eight others then named], "the grantors in this instrument, and who together with H. S. Bundy are the sole members and stockholders in the Ophir Iron Company, a corporation duly organized, ... in consideration of ten thousand dollars paid by said H. S. Bundy to said Ophir Iron Company, ... do hereby grant ... to the said H. S. Bundy, . . . all the right, title, interest and estate, legal and equitable, of the afore- said grantors in and to the following lands and tenements of the said Ophir Iron Company, . . ." [Then follows the condition that the deed shall be void if the Com- pany shall pay the notes indorsed by Bundy, and shall save Bundy harmless.] This mortgage deed is signed with the individual names and sealed with the individual seals of the nine persons named as grantors, by whom, as grantors, it is also acknowledged as their voluntary act and deed. It was recorded Dec. 5, 1874. On April 17, 1875, a second mortgage, on the same premises, was duly executed by the corporation, through its president, to secure all Its creditors except Bundy. The latter mortgage recites that it is made « subject, however, to a mortgage in favor of Hezekiah S. Bundy for the sum of $10,000, of record in said County," &c. ' 1 Statement abridged. Arguments and part of opinion omitted, -Ed, BUNDY V. OPHIR IRON CO. 43 In May, 1875, various creditors of the corporation (^who were also mortgagees in ttie second mortgage) obtained judgments against it, ■which took eflfect as liens upon the lands described in the mortgages. In August, 1875, Bundy, having paid the notes which he had indorsed, commenced an action to foreclose his mortgage, making various creditors of the corporation parties. The District Court found that the mortgage of Bundy was invalid as against the subsequent creditors of the Company. Bundy brought error. W. W. Johnson, with whom were John T. Moore, Porter Du Hadway, and J. B. Foraker, for plaintiff in error. Wilby & Wald, and C A. Atkinson, for certain creditors. White, J. The controversy in this case is between Bundy, claiming as first mortgagee, subsequent judgment creditors, and creditors claim- ing under the second mortgage. Two questions arise for consideration : (1) Whether the execution and record of the mortgage of December 5, 1874, to Bundy, give him prioritj'? and, (2) If not, does the recognition of the first mortgage in the second, of April 17, 1875, have that effect? . As to the first question : The consideration upon which Bundy indorsed the notes as surety of the corporation, was that the latter should give him a mortgage upon its property, conditioned that it would pay the notes at maturitj-, and save him harmless on account of his indorsements. The execution by the stockholders of the first mort- gage was the attempted fulfilment of the agreement on the part of the corporation. The Ophir Iron Company was incorporated under the act of April 12, 1858, providing for the creation and regulation of manufacturing com- panies. S. & C. 301, 304= Under that act the directors of the com- pany are required to be stockholders; and while it is declared "the directors shall have the general management of the affairs of the com- pany," 3-et they are made " subject always to the control of the stock- holders " in reference to such management. The mortgage to Bundy now in question, not being made in the name \ of the corporation, cannot, as against it, be regarded as a legal mort- ) gage; but it is a good, equitable mortgage against the corporation. And if such direction were necessary, it might be considered as equiva- lent to a direction by the stockholders to the proper oflScers to make a mortgage in the name of the corporation to Bundy. But such direc- tion was not necessary from the stockholders. The directors, under I the agreement by which they obtained Bundy's indorsements of the I notes of the corporation, were bound to secure him by ribe mortgage of J the corporation. This they failed to do, by sheer mistake, in the form ' of executing the mortgage, which it was competent for a court of equity to correct ; and which it was their duty to correct without the action of the court Clayton v. Freet, 10 Ohio St. 544. If it were not for our statute on the subject of mortgages, this equt 44 BUTTON V. HOFFMAN. table mortgage would prevail over all lien-holders and other claimants, except Soma ^'''^- ^ ' 88 SHELBY COUNTY V. UNION, &c. BANK. Stock in the hands of the shareholders, the exemption from furthei taxation applies to the subject which -was taxed under the charter, and is not of any greater scope, and that it would not, therefore, include the exemption from taxation of either the capital stock or the surplus, which is the property of the corporation itself. We come to this conclusion because of the fact, well established by the decisions of this as well as many state courts, that there is a clear distinction between the capital stock of a corporation and the shares of stock of such corporation in the hands of its individual shareholders. So A rate are these properties, and so distinct in their nature, that the tion of the one property is not the taxation of the other. This is no new doctrine, and the distinction between the two properties was recognized by the Supreme Court of Tennessee as long ago as in the case of the Union Bank v. State, 9 Yerger, 490, decided in 1836. It was held that, under the clause of the charter there under considerar tion, any furtlier tax on the capital stock than that which was pro- vided for in the charter itself was void, but that the State might tax the shares of stock in the hands of individuals notwithstanding the exemption from further taxation on the capital stock. [After commenting upon various cases, including Gordon v. Appeal Tax Court, 3 Howard, IT. S. 133.] Long after that case was decided this court in many cases, notably that of Van Allen v. Assessors, 3 Wallace, 573, and People v. Commissioners, 4 Wallace, 244, recognized the separate and distinct character of the two properties, the capital stock and the shares thereof in the hands of individual shareholders, and such separate property in our opinion is strong proof of the limi- tation of the exemption to the property which is taxed. We have found no case in this court which is authority for the proposition, that language, such as is under consideration in this case, exempts from further taxation both the capital stock of the corpora- tion and the shares of stock in the hands of individual shareholders. As the Farrington case decides that this language does import that the charter tax is laid upon the shares in the hands of individual shareholders, and that those shares are exempt from further taxation, that question is set at rest, and there being nothing in any case which extends that language to both properties, we hold that when it is made ( applicable to the separate shares in the hands of individual share- holders, it does not apply to or cover the case of the capital stock of the corporation, and that such stock is liable to be taxed, as the State may determine. f This determines the liability of the capital stock of the Union and Planters' Bank to taxation, and of course it overrules any claim on the part of that bank for exemption from taxation of its surplus or accumulated profits. The question whether such surplus could be taxed if the capital stock itself were to be regarded as exempt has SHELBY COUNTY V. UNION, &o. BANK. 89 also been decided in the preceding case of the Bank of Commerce. The decree of the Circuit Court must, therefore, be Reversed, and the cause remanded to that court with directions to dismiss the bill with costs. Me. Justice White dissented. The question whether the surplus could be taxed if the capital stock itself were to be regarded as exempt was answered affirmatively in the preceding case, Bank of Commerce v. Tennessee, 161 TJ. S. 134. While a similar exemption clause was in force, the legislature enacted, " that the surplus and undivided profits in such bank . . . shall be assessable to said bank . . . and the same shall not be considered in the assessment of the stock therein." The case came up on error to the Supreme Court of Tennessee. That court had held that the capital stock was exempt from taxation ; and the U. S. Supreme Court held that it had not power to review the decision of the State court on this point. (See, however, a decision on rehearing, 163 TJ. S. 416.) The Tennessee Court had also held, that the surplus was taxable ; and the correctness of that decision was open to review in the U. S. Supreme Court. The opinion of the Court upon this branch of the case was as follows : Pbckham, J. The corporation, plaintiff in error, demands the same exemption from taxation on its surplus that has been accorded it for its capital stock, and it bases its contention upon the same clause of exemption in its charter. We think it cannot be sustained as to the surplus, which we believe is taxable under the law above quoted. This whole demand of exemption from taxation made by the bank and its shareholders must be considered with reference to the general rule governing claims of that nature. It is well known, has long existed, and is undoubted. New Orleans City & Lake Railroad v. New Orleans, 143 U. S. 192, 195 ; Vickshurg & Pacific Railroad v. Dennis, 116 U. S. 665, and many cases there cited ; Farrington v. Tennessee, 95 U. S. 679, 686 ; West Wisconsin Railway v. Supervisors, 93 U. S. 595 ; Tucker v. Ferguson, 22 Wall. 527. These cases show the principle upon which is founded the rule that a claim for exemption from taxation must be clearly made out. Taxes being the sole means by which sovereignties can maintain their exist- ence, any claim on the part of any one to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded upon plain language. There must be no doubt or ambiguity in the language used upon which the claim to the exemption is founded. It has been said that a well founded doubt is fatal to the claim ; no implication will be in- dulged in for the purpose of construing the language used as giving the claim for exemption, where such claim is not founded upon the plain and clearly expressed intention of the taxing power. 90 SHELBY COUNTY V. UNION, &o. BANK. The capital stock of a corporation and the shares into which such stock may be divided and held by individual shareholders are two dis- tinct pieces of property. The capital stock and the shares of stock in the hands of- the shareholders may both be taxed, and it is not double taxation. Van Allen v. Assessors, 3 Wall. 673 ; People v. Commission- ers, 4 Wall. 244, cited in Warrington v. Tennessee, 95 U. S. 687. This statement has been reiterated many times in various decisions by this court, and is not now disputed by any one. In the case last cited, Mr. Justice Swayne, in delivering the opinion of the court, enumerated many objects liable to be taxed other than the capital stock of a corporation, and among them he instanced, (1.) the fran- chise to be a corporation ; (2.) the accumulated earnings ; (3.) profits and dividends; (4.) real estate belonging to the corporation and necessary for its business ; and he adds that " this enumeration shows the seaij'ching and comprehensive taxation to which such institutions are subjected where there is no protection by previous compact." And in Tennessee v. Whitworth, 117 U. S. 129, at page 136, Mr. Chief Justice Waite, in delivering the opinion of the court, says: " That in corporations four elements of taxable value are sometimes found. Pirst, the franchise ; second, the capital stock in the hands of the corporation ; third, the corporate property ; and, fourth, the shares of capital stock in the hands of the individual stockholders." The surplus belonging to this bank is " corporate property," and is distinct from the capital stock in the hands of the corporation. The exemption, in terms, is upon the payment of an annual tax of one half of one per cent upon each share of the capital stock, which shall be in lieu of all other taxes. The exemption is not, in our judgment, greater in its scope than the subject of the tax. Recognizing, as we do, that there is a different property in that which is described as capital stock from that which is described as corporate property other than capital stock, and remembering the necessity there is for a clear expression of the intention to exempt before the exemption will be granted, we must hold that the surplus has not been granted exemp- tion by the clause contained in the charter under discussion. The very name of surplus implies a difference. There is capital stock and there is a surplus over, above and beyond the capital stock, which surplus is the property of the bank until it is divided among stock- holders. The case of Bank v. Tennessee, 104 U. S. 493, does not hold to the contrary of this doctrine. This question was not therein discussed or decided. The question which was decided related only to the taxation of real property not used by the bank in its business, and it was held liable to taxation. The case is no authority for the proposition contended for here, namely, that the whole surplus of this bank is exempt from taxation. No individual shareholder has any legal right to claim any portion of this surplus ; until divided by the board of directors it remains the UNITED STATES V. WOLTEES. 91 property of the corporation itself, and in the sense in which the words " capital stock " are used in the exemption clause the surplus does not form any part thereof. It is said that the purpose of incorporating a bank is to enable the institution to accumulate profits and to make dividends out of them, and that the dividends cannot be made until the profits have been accumulated, and that under this ruling profits would come under the description of surplus to be taxed before dis- tribution in a dividend. It is true that dividends cannot rightfully be made until profits have accumulated ; but it is one thing to accu- mulate profits each six months or annually and then divide them among the stockholders by way of dividends, and quite another thing to ac- cumulate profits year after year, aqd, while still declaring dividends, accumulate a surplus which is not so divided. The sums accumulated by way of profit between the regularly recurring dividend days might not be regarded as surplus, provided those profits were regularly dis- tributed in dividends. The surplus in this case is clearly not of that kind which has been saved for the purpose of being distributed by dividends. It may be true that the general effect of a tax on this sur- plus might indirectly operate upon the shareholder by possibly lessen- ing the value of his shares to some extent, but that is not the same as if a tax had been laid upon those shares. In levying the charter tax it was conceded that the tax has always been measured by the par value of the shares of stock, while the actual value of such shares, because of the large surplus owned by the bank, may have been very much greater, and the statute under which the surplus is taxed pro- vides that such surplus must not be considered in the assessment upon the stock ; so that provision is made whereby a tax upon the surplus and the charter tax upon the shares of stock will neither be double nor unjust taxation. Although a surplus may be required by the national banking act, and also by the laws of good, and safe banking, yet we do not perceive that this fact has any material effect upon the question. We are, therefore, of opinion that the surplus was properly taxed, and that the bank's claim of exemption as to such surplus is without foundation in law. UNITED STATES v. WOLTEES. 1891. 46 Federal Reporter, 509. Eoss, J. This is a suit to recover of the holders of the stock of a corporation organized under the laws of California to engage in, and which did engage in, the business of distilling, a tax amounting to $20,124.40 on spirits distilled by it, and of which tax, it is alleged, the distiller defrauded the government. The action is based on that clause of section 3261 of the Eevised Statutes which declares that 92 UNITED STATES V. WOLTEKS. " every proprietor and possessor of, and every person in any manner interested in the use of, any still, distillery, or distilling apparatus, shall be jointly and severally liable for the taxes imposed by law on the distilled spirits produced therefrom." Demurrers to the complaint have been filed by some of the defendants, and in their support it is urged that the language of the statute in question is not broad enough to include the stockholders of a corporation engaged in the business of distilling ; that stockholders are neither proprietors nor possessors of the corporate property ; and that the words " interested in the use of " were inserted " to designate a class who might be using, or inter- ested in using," such distillery, although not interested in the pro- perty itself. , The language of the act does not admit of such limitation. Revenue laws are not, like penal laws, to be strictly construed, nor are they, like remedial statutes, to be construed with extraordinary liberality; but they should be so construed " as most effectually to accomplish the intention of the legislature in passing them." Taylor v. U. S., 3 How. 197. The provisions of the law are rigid, and in some instances perhaps arbitrary, in their operation. But they were designed to pre- vent frauds upon the government, and whoever engages in business by virtue of their provisions must be governed by them. The holder of stock in a corporation organized for and engaged in the business of distilling spirits, if not the proprietor or possessor of the distillery within the meaning of the statute, is certainly " interested in the use of" the distillery operated by the corporation of which he is a stock- holder. He has a direct, pecuniary interest in the business of distill- ing, — the purpose for which the distillery is used, — as well as in the property itself. The amount of such interest, whether large or small, is of no consequence. The statute declares that every person so interested shall be jointly and severally liable for the taxes im- posed by law on the distilled spirits produced therefrom. It is obvi- ous that the state statute regulating the liability of stockholders of corporations organized under its laws has no application here. The liability of the defendants is to be measured by the provisions of the statute under which, and by virtue of which only, the distilling was done. Demurrers overruled, with leave to defendants to answer within the iisual time. A similar result was reached by the Supreme Court of California in Richter v. Henningsan, 110 California, 630, decided in 1895. The Court said, in part : A stockholder in a private corporation for profit is not in any proper sense the owner of the property of the corporation as such. He has, however, a direct interest in the corporation. In Plimpton v. Bigelow, 93 N. Y. 592, it was said : " The right which a shareholder in a corpora- tion has, by reason of his ownership of shares, is a right to partioi- UNITED STATES V. WOLTEES. 93 pate according to tlie amount of his stock in the surplus profits of the corporation on a division, and ultimately on its dissolution, in the assets remaining after payment of its debts." Gibbons v. Mahon, 136 U. S. 549, and Kohl v. Lilienthal, 81 Cal. 378, are to like effect. A stockholder has an insurable interest in the property of the cor- poration. (Riggs V. Commercial Mut. Ins. Co., 125 N. Y. 7 ; 21 Am. St. Eep. 716 ; Warren t. Davenport etc. Ins. Co., 31 Iowa, 464 ; 7 Am. Eep. 160.) At common law a stockholder in a corporation, on account of his interest, was not a competent witness for the corporation in an action against it, or to serve as a judge or juror where the corporation was a party. We must not confound the liability of a stockholder in a corpora- tion, under the law of its creation, with that imposed upon him by the act of Congress. His liability under the latter is quite independ- ent of the former, and is just what the act of Congress has imposed upon him. That liability under the law applies not only to every proprietor and possessor of a still, but also to " every person in any manner interested in the use of any still, distillery, etc.," and makes them all jointly and severally liable for the tax. [The court refer to opinions of the Attorneys General ; vol. 15, p. 559 ; vol. 16, p. 10.^] 1 In Regina v. Arnaud, 9 Queen's Bench, 806, the Court decided that a British corpora- tion, whose shareholders were in part foreigners, was entitled to have a vessel owned by it registered under a statute limiting the right of registry to such vessels as "shall wholly belong and continue wholly to belong to her Majesty's subjects; " and further providing that no foreigner should be '* the owner, in whole or in part, directly or indirectly," of any vessel entitled to be registered. Lord Denman said: "It appears to us that the British corporation is, as such, the sole owner of the ship, and a British subject within the meaning of the fifth section, as far as such term can be applicable to a corporation, notwithstanding some foreigners may individually have shares in the company; and that such individual members of the corporation are not entitled, in whole or in part, directly or indirectly, te be owners of the vessel." [The above is quoted from 2 Morawetz on Corporations, s. 1091.] 94 BANK OF UNITED STATES V. DEVEAUX. SECTION III. The Distinction as applied to Jurisdiction of U. S. Court on the Cfround of Diversity of Citizenship. BANK OF UNITED STATES v. DEVEAUX et al. 1809. 5 Cranch, U. S. 61.1 Eeeor to the U. S. Circuit Court for the District of Georgia. The declaration describes the plaintiffs as " The President, Direc- tors and Company, of the Bank of the United States, . . . estab- lished under an act of congress. . . ." At the close of the declaration is the following allegation : " And your petitioners aver that they are citizens of the State of Pennsylvania, and the said Peter Deveaux and Thomas Eobertson are citizens of the State of Georgia." Plea in abatement, denying the jurisdiction of the U. S. Circuit Court. Demurrer. Judgment for defendants upon the demurrer. Binney and Harper, for plaintiffs in error. P. B. Key, and Jones, contra. Maeshall, C. J. Two points have been made in this cause. 1. That a corporation composed of citizens of one State may sue a citizen of another State in the federal courts. 2. That a right to sue in those courts is conferred on this bank by the law which incorporates it. The last point will be first considered. . . [The court holds, that no right is conferred on the bank, by the act of incorporation, to sue in the federal courts.] 2. The other point is one of much more difficulty. The jurisdiction of this court being limited, so far as respects the character of the parties in this particular case, " to controversies be- tween citizens of different States," both parties must be citizens to come within the description. That invisible, intangible, and artificial being, that mere legal entity, a corporation aggregate, is certainly not a citizen ; and, conse- quently, cannot sue or be sued in the courts of the United States, unless the rights of the members, in thijS respect, can be exercised in their corporate name. If the corporation bs considered as a mere faculty, and not as a company of individuals, who, in transacting their joint concerns, may use a legal name, they must be excluded from the courts of the Union. The duties of this court, to exercise jurisdiction where it is conferred, and not to usurp it where it is not conferred, are of equal obligation. The constitution, therefore, and the law, are to be expounded, without a leaning the one way or the other, according to those general principles which usually govern in the construction of fundamental or other laws. 1 Statement abridged. Arguments and part of opinion omitted Ed. BANK OF UNITED STATES V. DETEAUX. 95 A constitution, from its nature, deals in generals, not in detail. Its framers cannot perceive minute distinctions which arise in the pro- gress of the nation, and therefore confine it to the establishment of broad and general principles. The judicial department was introduced into the American constitu- tion under impressions, and with views, which are too apparent not to be perceived by all. However true the fact may be, that the tribunals of the States will administer justice as impartially as those of the nation, to parties of every description, it is not less true that the con- stitution itself either entertains apprehensions on this subject, or views with such indulgence the possible fears and apprehensions of suitors, that it has established national tribunals for the decision of controversies between aliens and a citizen, or between citizens of dif- ferent States. Aliens, or citizens of different States, are not less sus- ceptible of these apprehensions, nor can they be supposed to be less the objects of constitutional provisions, because they are allowed to sue by a corporate name. That name, indeed, cannot be an alien or a citizen ; but the persons whom it represents may be the one or the other ; and the controversy is, in fact and in law, between those per- sons suing in their corporate character, by their corporate name, for a corporate right, and the individual against whom the suit may be instituted. Substantially and essentially, the parties in such a case, where the members of the corporation are aliens, or citizens of a differ- ent State from the opposite party, come within the spirit and terms of the jurisdiction conferred by the constitution on the national tribunals. Such has been the universal understanding on the subject. Repeat- edly has this court decided causes between a corporation and an indi- vidual without feeling a doubt respecting its jurisdiction. Those decisions are not cited as authority ; for they were made without con- sidering' this particular point ; but they have much weight, as they show that this point neither occurred to the bar or the bench ; and that the common understanding of intelligent men is in favor of the right of incorporated aliens, or citizens of a different State from the defendant to sue in the national courts. It is by a course of acute metaphysical and abstruse reasoning, which has been most ably em- ployed on this occasion, that this opinion is shaken. As our ideas of a corporation, its privileges and its disabilities, are derived entirely from the English books, we resort to them for aid, in ascertaining its character. It is defined as a mere creature of the law, invisible, intangible, and incorporeal. Yet, when we examine the subject further, we find that corporations have been included within terms of description appropriated to real persons. There is a case, however, reported in 12 Mod. 669, which is thought precisely in point. The corporation of London brought a suit against Wood, by their corporate name, in the mayor's court. The suit was brought by the mayor and commonalty, and was tried before the 96 BANK OF UNITED STATES V. DEVEAUX. mayor and aldermen. The judgment rendered in this cause -waa brought before the court of king's bench and reversed, because the court was deprived of its jurisdiction by the character of the indi- viduals who were members of the corporation. In that case the objection thp,t a corporation was an invisible, intan- gible thing, a mere incorporeal legal entity, in which the characters of the individuals who composed it were completely merged, was urged and was considered. The judges unanimously declared that they could look beyond the corporate name, and notice the character of the indi- vidual. In the opinions, which were delivered seriatim, several cases are put which serve to illustrate the principle and fortify the decision. The case of The Mayor and Commonalty v. Wood is the stronger because it is on the point of jurisdiction. It appears to the court to be a full authority for the case now under consideration. It seems not possible to distinguish them from each other. If, then, the congress of the United States had in terms enacted that incorporated aliens might sue a citizen, or that the incorporated citizens of one State might sue a citizen of another State, in the fed- eral courts, by its corporate name, this court would not have felt itself justified in declaring that such a law transcended the constitution. The controversy is substantially between aliens, suing by a corpo- rate name, and a citizen, or between citizens of one State, suing by a corporate name, and those of another State. When these are said to be substantially the parties to the controversy, the court does not mean to liken it to the case of a trustee. A trustee is a real person capable of being a citizen or an alien, who has the whole legal estate in himself. At law, he is the real proprietor, and he represents him- self and sues in his own right. But in this case the corporate name represents persons who are members of the corporation. If the constitution would authorize congress to give the courts of the Union jurisdiction in this case, in consequence of the character of the members of the corporation, then the Judicial Act ought to be construed to give it. For the term citizen ought to be understood as it is used in the constitution, and as it is used in other laws. That is, to describe the real persons who come into court, in this case, under their corporate name. That corporations composed of citizens are considered by the legis- lature as citizens, under certain circumstances, is to be strongly in- ferred from the Eegistering Act. It never could be intended that an American registered vessel, abandoned to an insurance company com- posed of citizens, should lose her character as an American vessel ; and yet this would be the consequence of declaring that the members of the corporation were, to every intent and purpose, out pf view, and merged in the corporation. The court feels itself authorized by the case in 12 Mod. (on a ques- tion of jurisdiction), to look to the character of the individuals who compose the corporation, and they think that the precedents of this LOUISVILLE, &c. E. E. CO. V. LETSON. 97 court, though they were not decisions on argument, ought not to be absolutely disregarded. If a corporation may sue in the courts of the Union, the court is of opinion that the averment in this case is sufficient. Being authorized to sue in their corporate name, they could make the averment, and it must apply to the plaintiffs as individuals, because it could not be true as applied to the corporation. Judgment reversed; plea in abatement overruled, and cause remanded. [In 1806, the Supreme Court, in Strawhridge v. Curtiss, 3 Cranch (U. S.), 267, decided that, where there are two or more joint plaintiffs and two or more joint defendants, each of the plaintiffs must be capable of suing each of the defendants in the Ui S. courts, in order to support the jurisdiction. Strawbridge was a citizen of Massachu- setts. One of the defendants was a citizen of Vermont ; the other defendants were citizens of Massachusetts. Held, that the U. S. court had not jurisdiction. A logical application of the combined principles of Strawhridge v. Curtiss and Bank v. Deveaux was made in Commerci(tl, Sec, Bank of Vicksburg v. Slocomb (a. d. 1840), 14 Peters, 60. The plaintiffs, citi- zens of Louisiana, brought an action in the U. S. Circuit Court for the Southern District of Mississippi against a Mississippi corporation. The defendant pleaded that two of the members of the corporation were citizens of Louisiana. It was held, that, upon the facts thus pleaded, the court had not jurisdiction ; the court saying (in effect) that all the corporators must be citizens of a different State from the opposite party.] LOUISVILLE, CINCINNATI AND CHAELESTON E. E. CO. (Plaintiffs in Eeeob) v. LETSON. 1844. 2 Howard ( U. S.) 497.1 Action in the U. S. Circuit Court for the District of South Caro- lina, by Letson, a citizen of New York, against a railroad corporation chartered by South Carolina. A plea to the jurisdiction alleged (inter alia) that, although some of the members of the corporation were citizens of South Carolina, there were two members who were citizens of North Carolina. A demurrer to this plea was sustained. Defendant then pleaded the general issue. After trial and verdict for plaintiff, the defendant brought a writ of error. 1 Statement abridged. Arguments omitted. Only a small part of the opinion is given' -Ed. • 98 LOUISVILLE, &c. E. E. CO. V. LETSON. Ma»yoh, for plaintiffs in error. Pettigru, Lesesne, and Legare (Attorney General), for defendant in error. Wayne, J. The objection is equivalent to this proposition, that a corporation in a State cannot be sued in the circuit courbs of the United States by a citizen of another State, unless all the members of the corporation are citizens of the State in which the suit is brought. If it be right to look to the members to ascertain whether there be jurisdiction or not, the want of appropriate citizenship in some of them to sustain jurisdiction cannot take it away, when there are other mem- bers who are citizens, with the necessary residence to maintain it. After mature deliberation, we feel free to say that the cases of Strawbridge and Curtis, and that of the Bank and Deveaux, were car- ried too far. . . . The case of The CoTtimercial Bank of Vichsburg and SlocoTThb, 14 Peters, 60, was most reluctantly decided upon the mere authority of these cases. A corporation, 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, seems to us to be a person, though an arti- ficial one, inhabiting and belonging to that State, and therefore en- titled, for the purpose of suing and being sued, to be deemed a citizen of that State. [After asserting that the Act of Feb. 28, 1839, enlarged the juris- diction of the courts.] The case before iis might be safely put upon the foregoing reason- ing and upon the statute, but hitherto we have reasoned upon this case upon the supposition that, in order to found the jurisdiction in cases of corporations, it is necessary there should be an averment, which, if contested, was to be supported by proof, that some of the corporators are citizens of the State by which the corporation was created, where it does its business, or where it may be sued. But this has been done in deference to the doctrines of former cases in this court, upon which we have been commenting. But there is a broader ground, upon which we desire to be understood, upon which we altogether rest our present judgment, although it might be maintained upon the narrower ground already suggested. It is, that a corporation created by and doing busi- ness in a particular State, is to be deemed to all intents and purposes as a person, although an artificial person, an inhabitant of the same State, for the purposes of its incorporation, (53,pable of being treated as a citizen of that State, as much as a natural person. Like a citizen it makes contracts, and though in regard to what it may do in some ST. LOUIS, &c. K. CO. V. JAMES. 99 particulars it differs from a natural person, and in this especially, the manner in which it can sue and be sued, it is substantially, mthin the meaning of the law, a citizen of the State which created it, and where its business is done, for all the purposes of suing and being sued. Judgment affirmed. Geiek, J., m MAESHALL v. BALTIMOEE & OHIO E. CO. 1853. 16 Howard, 314, pp. 328-329. But it is contended that, notwithstanding the court, in deciding the question of jurisdiction, will look behind the corporate or collective name given to the party, to find the persons who act as the representa- tives, curators or trustees, of the association, stockholders, or cestui que trusts, and in such capacity are the real parties to the controversy ; yet that the declaration contains no sufficient averment of their citi- zenship. Whether the averment of this fact be sufficient in law is merely a question of pleading. If the declaration sets forth facts from which the citizenship of the parties may be presumed or legally in- ferred, it is sufficient. The presumption arising from the habitat of a corporation in the place of its creation being conclusive as to the resi- dence or citizenship of those who use the corporate name, and exercise the faculties conferred by it, the allegation that the " defendants are a body corporate by the act of the general assembly of Maryland," is a sufficient averment that the real defendants are citizens of that State. Shieas, J., IN ST. LOUIS, &c. E. CO. v. JAMES. 1896. 161 U. 8. 545, pp. 562-565. There is an indisputable legal presumption that a state corpora- tion, when sued or suing in a Circuit Court of the United States, is composed of citizens of the State which created it, and hence such a corporation is itself deemed to come within that provision of the Con- stitution of the United States which confers jurisdiction upon the Federal courts in " controversies between citizens of different States." We are now asked to extend the doctrine of indisputable citizen- ship, so that if a corporation of one State, indisputably taken, for the purpose of Federal jurisdiction, to be composed of citizens of such State, is authorized by the law of another State to do business therein, and to be endowed, for local purposes, with all the powers and priv- ileges of a domestic corporation, such adopted corporation shall be deemed to be composed of citizens of the second State, in such a 100 ST. LOUIS, &c. K. CO. V. JAMES. sense as to confer jurisdiction on the Federal courts at the suit of a citizen of the State of its original creation. We are unwilling to sanction such an extension of a doctrine which, as heretofore established, went to the very verge of judicial power. That doctrine began, as we have seen, in the assumption that State corporations were composed of citizens of the State which created them ; but such assumption was one of fact, and was the subject of allegation and traverse, and thus the jurisdiction of the Federal courts might be defeated. Then, after a long contest in this court, it was settled that the presumption of citizenship is one of law, not to be defeated by allegation or evidence to the contrary. There we are content to leave it. It is true that by the subsequent act of 1889, by the proviso to the second section, it was provided that every railroad corporation of any other State, which had theretofore leased or purchased any railroad in Arkansas, should, within sixty days from t£e passage of the act, file a certified copy of its articles of incorporation or charter with the secretary of state, and shall thereupon become a corporation of Arkansas, anything in its articles of incorporation or charter to the contrary notwithstanding; and it appears that the defendant com- pany did accordingly file a copy of its articles of incorporation with the secretary of the state. But whatever may be the effect of such legislation, in the way of subjecting foreign railroad companies to control and regulation by the local laws of Arkansas, we cannot con- cede that it availed to create an Arkansas corporation out of a for- eign corporation fn such a sense as to make it a citizen of Arkansas within the meaning of the Federal Constitution so as to subject it as such to a suit by a citizen of the State of its origin. In order to bring such an artificial body as a corporation within the spirit and letter of that Constitution, as construed by the decisions of this court, it would be necessary to create it out of natural persons, whose citizenship of the State creating it could be imputed to the corporation itself. But it is not pretended in the present case that natural persons, resi- dent in and citizens of Arkansas, were by the legislation in question created a corporation, and that therefore the citizenship of the indi- vidual corporators is imputable to the corporation. HANCHETT v. BLAIE. 101 ' HAKCHETT t. BLAIR. 1900. 100 Federal Reporter, 817.1 Blaie, alleging himself to be a citizen of New Jersey, brought suit in the U. S. Circuit Court for the District of Nevada, against the Silver Peak Mines, a New York corporation, to foreclose a mortgage on real estate in Nevada. L. J. Hanchett, a citizen of California, was made a co-defendant. The answer of Hanchett alleged, in effect, that Blair was the owner of all the capital stock of the corporation, save a nominal number of shares standing in the name of his agents for the purpose of permitting them to be oflcers thereof. Judgment was rendered for Blair in the U. S. Circuit Court, and Hanchett appealed to the Circuit Court of Appeals for the Ninth Circuit. MoKKOw, Circuit Judge. It would appear from the foregoing that the citizenship of the com- plainant, as alleged in the bill of complaint, was sufficiently estab- lished by the proofs. But the appellant further attacks the allegation of diverse citizenship upon the ground that the evidence disclosed the fact that the complainant 4Sfca stockholder of the defendant corpo- ration, and must therefore be presumed to be a citizen of the same state as the corporation. It is claimed that authority for this doc- trine is found in the case of Railroad Co. v. Letson, 2 How. 497, 11 L. Ed. 353 ; In Railroad Co. v. Wheeler, 1 Black, 286, 296, 17 L. Ed. 130 ; and in Shaw v. Mining Co., 145 U. S. 444, 461, 12 Sup. Ct. 935, 36 L. Ed. 768. The question under consideration in those cases was not the citizenship of individuals, but the status of a corporation under the constitution and laws of the United States relating to jurisdic- tion of circuit courts over controversies between citizens of different states. It was conceded that a corporation was not a citizen, but courts had in certain cases recognized the real persons who composed the corporation, and hence, for the purpose of jurisdiction, the su- preme court would consider a corporation created by the laws of a state as an organization similar to a partnership composed of individ- uals having citizenship ; and thus it followed that if all the members of a corporation were citizens of one state, and the party on the other side was a citizen of a different state, the court had jurisdiction. But another difficulty arose. There were many cases of large corpora- tions, where the' members or stockholders were citizens of different states, and sometimes of foreign countries ; and in such cases, the legal entity of the corporation not being recognized, the suit was necessarily between the individual members of such corporation and the opposing party. With the rapidly growing number of corpora- tions, however, and the increasing volume of business transacted by 1 Only so much of the case is given as relates to a single point. — Ed. 102 HANCHETT V. BLAIR. means of corporate association, with interests extending, not only through many states, but over the entire •world, and the holdings of stock naturally scattered, it became apparent that the effort to brinp individual members, either personally or by representation, into th( courts, would result in the most cumbersome and tedious litigation with unnecessary annoyance to the stockholders, and in some in stances accomplish the final defeat of the jurisdiction of the court, when based upon the lack of diverse citizenship between some of the members of the corporation on one side and parties on the other side of the controversy. To meet this difficulty the supreme court deter- mined that, " where a corporation is created by the laws of a state, the legal presumption is that its members are citizens of the state in which alone the corporate body has a legal existence." It was further determined " that a suit by or against a corporation in its cor- porate name must be presumed to be a suit by or against citizens of the state which created the corporate body, and that no averment or evidence to the contrary is admissible for the purpose of with- drawing the suit from the jurisdiction of a court of the United States." Railroad Co. v. Wheeler, supra. These presumptions preserved the jurisdiction of the United States courts over corporations in accord- ance with the evident spirit and purpose of the constitution, but such presumptions had no relation to the citizenship of individuals as parties to a controversy in their own right, and it would manifestly be an unauthorized extension of their scope and effect to so construe the I decisions of the supreme court. It follows that there is no legal pre- 1 sumption that the individual complainant, who is also a stockholder of the defendant corporation, is a citizen of the same state as the cor- poration.^ 1 As to the "inhabitancy," or "residence," of a corporation, see Curtis on Jurisdiction of U. S. Courts, 2d edition, 152-154; Shaw v. Quincy Mining Co , 145 U. S. 444; Galveston, ^■c. B. Co. V. Gonzales, 151 U. S. 496; also criticisms in 6 Thompson on Corporations, ss. 7488, 7489. A corporation is not a "citizen " within the clause in the U. S. Constitution which pro- vides that " the citizens of each state shall be entitled to all the privileges and immunities of citizens in the several states." Paul v. Virginia, 8 Wallace, 168. A corporation is a " person " within the 14th Amendment to the U. S. Constitution. Santa Clara County v. Southern Padjic S. Co., 118 U. S. 394. — Ed. JBAHKLIN BBIDGE CO. V. WOOD. 103 CHAPTER III. CREATION OF CORPORATION. SECTION I. By what Authority, and in what Method. FRANKLIN BEIDGE CO. v. WOOD. 1853. 14 Georgia, 80. Assumpsit in Heard Superior Court. Tried before Judge Hill, Term, 1853. The Franklin Bridge Company was incorporated under the Act of the Legislature of 1843, to prescribe the mode of incorporating com- panies for certain purposes, by an order of the Inferior Court of Heard County, The company sued the defendant, Wood, for his subscription to their stock. The defendant pleaded that the company was not legally incorpo- rated ; contending that the act of the Legislature, referred to, was unconstitutional and void. Upon argument, the court held that the act aforesaid was unconstitu« tional, and nonsuited the plaintiffs. To this decision plaintiff excepted. Mabry, for plaintiff in error. Featherston, for defendant. £y the Court, Lumpkin, J. , delivering the opinion : — Is the Act of 184.3 and that of 1845, amendatory thereof, pointing out the manner of creating certain corporations and defining their rights, privileges, and liabilities, unconstitutional? By the first section of the Act of 1843, it is provided " That when the persons interested shall desire to have any church, camp-ground, manufacturing company, trading company, ice company, fire companj*, theatre company, or hotel company, bridge company, and ferry com- pany, incorporated, they shall petition in writing the Superior or Infe- rior Court of the county where such association may have been formed, or may desire to transact business for that purpose, setting forth the 104 FKANKLIN BRIDGE CO. V. WOOD. object of their association, and the privilege they desire to exercise, together with the name and style by which they desire to be incorpo- rated ; and said court shall pass a rule or order, directing said petition to be entered of record on the minutes of said court." Section 2 enacts " That when such rule or order is passed, and said petition is entered of record, the said companies or associations shall have power respectively, under and by the name designated in their petition, to have and use a common seal; to contract and be con- tracted with ; to sue and be sued ; to answer and be answered unto in any court of law or equity ; to appoint such of33cers as they may deem necessary ; and to make such rules and regulations as they may think proper for their own government ; not contrary to the laws of this State ; but shall make no contracts or purchase or hold any property of any kind, except such as may be absolutelj' necessary to carry into effect the object of their incorporation. Nothing herein contained shall be so construed as to confer banking or insurance privileges on any company or association herein enumerated ; and the individual members of such manufacturing, trading, theatre, ice, and hotel com- panies, shall be bound for the punctual payment of all the contracts of said companies, as in case of partnership." The third section declares that "No company or association shall be incorporated under this act, for a longer period than fourteen j-ears ; but the same may be renewed whenever necessary, according to the provisions of the first section of this act." The fourth section confers upon the Superior and Inferior Courts respectivelj', the power to change the names of individuals. Section fifth. " For entering any of said petitions and orders, and furnishing a certified copy thereof, the clerk shall be entitled to a fee of five dollars ; except in cases of applications by individuals for the change of names, — in which case, the clerk of said court shall be en- titled to the fee of one dollar. And that such certified copy shall be evidence of the matters therein stated in any court of law and equity in this State." Cobb's Digest, 542, 543. By the Act of 1845 the provisions of the Act of 1843 are extended to all associations and companies whatever, except banks and insurance companies ; and the individual members of all such incorporations are made personally liable for all "the contracts of said associations or companies. Ibid. The argument against the validity of the charter of the Franklin Bridge Companj', created under these statutes, is this : — 1. That in England, corporations are created and exist by prescrip- tion, by Eoyal Charter, and by Act of Parliament. "With us thej' are created by authority of the Legislature, and not otherwise. That to establish a corporation is to enact a law ; and that no power but the legislative body can do this. 2. That legislative power is vested under our Constitution, in the General Assembly, to consist of a Senate and House of Representa- FRANKLIN BEIDGE CO. V. WOOD. 105 lives, to be elected at stated periods by the citizens of the respective counties. 3. And that the General Assembly is bound to exercise the poweri of mailing laws thus conferred upon them by the people in the prir mordial compact, in the mode therein prescribed, and in none other ; » and that a law made in any other mode is unconstitutional and void. That the Legislature is but the agent of their constituents ; and that ' they cannot transfer authority delegated to them to any other body, \ corporate or otherwise, — not even to the Judiciary', a co-ordinate J department of the government, unless expressly empowered by the , Constitution to do so. That to do this would be to violate one of the fundamental maxims of jurisprudence as well as of political science, namely, ddegata. potestas non potest delegari. That to do this would not onljr be to disregard the constitutional inhibition which is binding upon the representative, but by shifting responsibility introduce inno- vations upon our system, which would result in the overthrow and ultimate destruction of our political fabric. The constitutional inquiry thus presented is an exceedingly grave one. It reaches far beyond the case made in the bill of exceptions, and extends to the whole range of topics which fall under legislative cognizance. In the view we take however of the statutes before us, no such proposition as that which has been discussed is presented for our adjudication. And we rejoice that it is so, not onl^^ on account of the delicacy of the task, in pronouncing an act of Legislature uncon- stitutional and void, — one which is never justifiable unless the case is clear and free from doubt ; and even then one might almost be for- given for shrinking from the performance of a duty which would be productive of such incalculable mischief and confusion. Bridges have been built at a heavy expense ; manufacturing and innumerable other associations have been formed in Georgia, and are in full operation, under charters incorporated under this law. And in view of the con- sequences any court might hesitate, unless the repugnance between the statute and the Constitution was so palpable as to admit of no doubt, and produce a settled conviction of their incompatibility with each other. 4. It was formerly asserted that in England the act of incorpora- tion must be the immediate act of the king himself, and that he could not grant a license to another to create a corporation. 10 Reports, 27. But Messrs. Angell and Ames, in their Treatise on Corporations, state that the law has since been settled to the contrary- ; and that the king may not only grant a license to a subject to erect a particular corporation, but give a general power by charter to erect corporations indefinitely, on the principle that quifacitper aliumfacit per se; that the persons to whom the power is delegated of establishing corpora- tions, are only an instrument in the hands of the government. 1 Kyd, 50 ; 1 Black. Com. ; Ang. & Am. 63. Before the revolution, charters of incorporation were granted by the 106 FRANKLIN BRIDGE CO. V. ■WOOD. proprietaries of Pennsylvania under a derivaljve authority from the Crown ; and those charters have since been recognized as valid. 3 Wil- son's Lectures, 409. A similar power has been delegated by the Legislature of Pennsylvania with regard to churches. 7 S. & E. 517. The acts of the instrument in these cases become the acts of the mover, under the familiar maxim above mentioned. See also I Missouri E. 5. 5. Our opinion is that no legislative power is delegated to the courts] by the acts under consideration. There is simply a ministerial act to/ be performed, — no discretion is given to the courts. The duty of passing the rule or order directing the petition of the corporators to be entered of record on the minutes of the court, setting forth to the public the object of the association and the privilege they desire to exercise, together with the name and style bj- which they are to be called and known, is made obligatory upon the courts ; and should they refuse to discharge it, a mandamus would lie to coerce them. It is true the Legislature has seen fit to use the courts for the purpose of giving legal form to these companies. But it might have been done in any other way. Under the Free Banking Law of 1838, instead of petitioning the court, and having the order passed and entered upon its minutes, the certificate specifying the name of the association, its place of doing business, the amount of its capital stock, the names and residence of the shareholders, and the time for which the com- pany was organized, is required merely to be proven and acknowl- edged, and recorded in the oflSce of the clerk of the Superior Court, where any office of the association is established, and a copy filed with the Comptroller General. Cobb's Digest, 107, 108. And so under the Act of 1847, authorizing the citizens of this State, i and such others as they may associate with them, to prosecute the I business of manufacturing with corporate powers and privileges. The persons who propose to embark in that branch of business are required to draw up a declaration specifying the objects of their association and the particular branch of business they intend carrying on, together with the name by which they will be known as a corporation, and the amount of capital to be employed by them ; which declaration is re- quired to be first recorded in the clerk's office of the Superior Court of the county where such corporation is located, and published once a week for two months in the two nearest Gazettes ; which being done, it is declared that said association shall become a body corporate and politic, and known as such, without being specially pleaded, in all courts of law and equity in this State, to be governed by the provi- sions and be subject to the liabilities therein specified. Cobb's Digest, 439, 440. In these two instances, and others which might be cited, the Legis- lature have dispensed with the action of the courts, or of any other agency, to carry out their enactments with regard to these various associations which have become the usual and favorite mode of con- ducting the industrial pursuits of the civilized world in modern times. FRANKLIN BRIDGE CO. V. WOOD. 107 All these Statutes were complete as laws when they came from the hands of the Legislature, and did not depend for their force and effi- cacy upon the action or will of any other power. It is true that they could only take effect upon the happening of some event, such as the filing the petition or declaration, and giving publicity to the purpose of tne association in the mode prescribed by the act. But if this were a good reason for regarding these statutes as invalid, then how few corporations could abide the test!. For it Teqnlres the acceptance ot the charter to create a corporate body ; for the government cannot compel persons to become an incorporated body without their consent. And this consent, either express or implied, is generally subsequent in point of time to the creation of the charter. And yet, no charter that we are aware of has been adjudged invalid, because the law cre- ating it and previously defining its powers, rights, capacities, and lia- bilities, did not take effect until the acceptance of the corporate bodj-, or at least a majority of them, was signified. The result therefore of our deliberation upon this case is, that the Acts of 1843 and 1845, vesting in all associations, except for banking and insurance, the power of self-incorporation, do not impugn the Constitution, and that the charter of the Franklin Bridge Company and all others created under them, and in conformity to their provi- sions, are legal and valid. "With the policy of these Statutes we have nothing to do. The province of this and all other courts is Jus dicere, not Jus dare. Judgment reversed. Under the common law of England and the United States a cor- poration cannot be formed, like a partnership, merely by a contract between the individuals composing it. The right of forming a cor- poration and of acting in a corporate capacity must be treated as a franchise, or special privilege, which may not be assumed without a grant of authority from some governing power. In England the right of forming a corporation may be granted either by the king alone or by act of Parliament. . . . In the United States, where written constitutions define the powers of the several branches of the government, the power of chartering corporations belongs to the legislature only. It is a power which be- longs to the legislature, unless expressly taken away by the Constitu- tion, and is incidental to the general power of making laws for the welfare of the State. Congress has power to grant a charter of incorporation whenever this is an appropriate measure for carrying out any of the authorized purposes of the Federal government. . . . In many of the States the legislature is prohibited by constitutional provision from granting corporate franchises except in accordance with certain prescribed rules. Thus it is provided, in many instances, that no charter of incorporation shall be granted by special act, and 108 FRANKLIN BRIDGE CO. V. -WOOD. that corporations shall be formed only in accordance with general laws. 1 Morawetz on Private Corporations, 2d edition, ss. 8, 9, and 10. For a collection of constitutional provisions, restraining the legis- lature from granting special charters or from passing special acts con- ferring corporate powers ; see 1 Thompson on Corporations, ss. 539, 540. A charter is the instrument which creates the corporation. It formerly was granted by the king. Later it was granted by an act of the legislature — a separate act being passed for each charter. At present the constitutions of many of the states require that in all possible cases the legislature shall pass general acts whereby, by the simple filing of a prescribed instrument, persons may form a corpora- tion without applying to the legislature at all. These general acts specify the contents of the instrument to be filed, and specify also the powers of the corporation. A charter is special where a spe- cial act of the legislature creates the corporation. A charter is under the general act, when it consists of a certificate of incorpora- tion filed with the public authorities in accordance with a general act of the legislature allowing corporations to be formed in that manner. Cook on Corporations, 4th edition, s. 2. The differences between an enabling statute and a charter are, how- ever, mainly differences in form. A charter as well as an enabling statute prescribes rules for conduct ; the difference being 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 j only in the case of an enabling statute the terms are offered to the citizens of the state at large, any sufiicient number of whom may accept them and incorporate themselves -by complying with them. Taylor on Private Corporations, 3d ed. s. 451. At the present day corporations are usually formed by the adoption of articles of association and the subscription of capital, in pursuance of general incorporation laws enacted by the legislature. The articles of association of a company thus organized, taken in connection with the laws under which the organization takes place, form the constitu- tion of the association, and answer the same purposes as a special charter. 1 Morawetz on Private Corporations, 2d ed. s. 318. General incorporation laws are now almost universal, and their utility is so manifest that few corporations are created by specinl STATE V. DAWSON. 109 acts, even in states where such, legislation is not forbidden. In fu- ture tlie law of the creation of corporations will be the law of the formation of corporations under general laws. The same is true as to the law of corporate existence. Note in 12 Lewis' Amer. E. E. & Corporation Eeports, p. 474^75. No form of words is required in order to create a corporation. A grant of the power to perform corporate acts, implies a grant of cor- porate powers. . . . Lewis, J., iu Com. v. Westchester B. Co., 3 Grant's Cases, Pa. 200, p. 202. . . . this word incorporo, or any derivative thereof, is not in law requisite to create a corporation ; but other equivalent words are sufficient. . . . ... to the creation of an incorporation the law had not restrained itself to any prescript and incompatible words. The Case of Sutton's Hospital, 10 Coke's Eeports, 23, pp. 30 a, 30 i. SECTION II. Acceptance of Charter. STATE V. DAWSON et als. 1861. 16 Indiana, 40. Appeal from the Clark Circuit Court. Perkins, J. Information against the defendants, charging that they are pretending to be a corporation, and to act as such, when they are not a corporation. It charges that in January, 1849, the Legislature of the State of Indiana enacted a special charter of incorporation, (which is set out at length,) for a railroad from Fort Wayne, Indiana, to Jeffersonville, to be called the Fort Wayne and Southern Railroad ; that the persons named in the charter as directors did not accept said charter till June 2, 1862, when they did meet and accept the same, and organize under it. It is alleged that the defendants are assuming to act under said charter, never having organized under any other. The court below sustained a demurrer to the information ; thus hold- ing the defendants to be a legal corporation. The present Constitution of Indiana took effect on November 1, 1851. It contains these provisions : — " All laws now in force and not inconsistent with this Constitution, shall remain in force, until they shall expire or be repealed." Sched. (1 sub. sec.) of Const. J no STATE V. DAWSON. " Corpoi^ations, other than hanking, shall not be created by special \ act, but may be formed under general laws." Art 11, § 13. " All acts of incorporation for municipal purposes shall continue in \ force under this Constitution, until such time as the General Assembly j shall, in its discretion, modify or repeal the same." Sched. svjpra, sub. sec. 4. The charter for the Fort "Wayne and Southern Railroad was not a charter for municipal purposes, and, hence, was not specially continued m existence. Art. 11, § 13, above quoted, prohibits the creation of a corporation by special act or charter, that is, as we construe the pro- I hibition, through, or by virtue of, such special act or charter, after [ November 1, 1851. The policy that induced the prohibition, as well as its literal import, demands this construction. It is necessary for us to) ascertain, then, when the defendants, if ever, were created a corpora-^ tion. The simple enactment of the charter for the corporation, by the Legislature, did not create the corporation. It required one act on the part of the .persons named in the charter to do that, viz : acceptance> of the charter enacted. Sa3-s Ghant, in his work on corporations, vide p. 13 : " Nor can a charter be forced on any body of persons who do not choose to accept it." And again, at page 18, he says, " The fundamental rule is this: no charter of incorporation is of anj' effect until it is accepted by a majority of the grantees, or persons who are to be the corporators un- der it. Bagge's case, 2 Brownl. & G. 100 ; S. C. 1 Roll. Rep. 224 ; Dr. Ashew's case, 4 Burr. 2200 ; Butter v. Chapman, 8 M. & W. 25 ; per Wilmot, J., Hex v. Vice- Chancellor of Cambridge, 3 Burr, 1661. This is analogous to the general rule that a man cannot be obliged to accept the grant or devise of an estate. Townson v. Tickell, 3 B. & Aid. 31." See, also, Ang. & Am. § 83, where it is said, if a charter is granted to those who did not apply for it, the grant is said to be in Heri till acceptance. We need not inquire whether this rule extends to municipal corporations in this country. As to what may constitute an acceptance we are not here called on to decide, as the information ex- pressly shows that there was none in this case till June, 1852, which fact is admitted by the demurrer. The grant of the charter in question, then, to those who had not ap-| plied for it, was but an offer, on the part of the State ; a consent that > the persons named in the charter might become a corporation, might be ' created such an artificial being, bj^ accepting the charter offered. But I an offer, till accepted, may be withdrawn. In this case, the offer made I by the State, in 1849, was withdrawn by the State, November 1, 1851, J by then declaring that no corporation, after that date, should be ere- | ated except pursuant to regulations which she, in future, through her / Legislature would prescribe. This pretended corporation, then, was not created before November 1, 1851 ; and it could be created afterward only by the concurrent con- sent of the State and the corporators. But, at that date, the Constitu-^ EEX V. WESTWOOD. • 111 tion prohibited both the State and corporators from giving consent to such a corporation, to wit : one coming into existence through a special charter ; and hence necessarily prohibited the creation thereof. This decision accords with that of the Supreme Court of the United States in Aspinwall v. Daviess County, 22 How., p. 364 ; where it was held that the new Constitution prohibited a subscription of stock to the Ohio and, Mississippi Railroad Company, authorized by the charter of the corporation, granted under the former Constitution, and actually voted by the people of the county, under that Constitution. Whether, as a matter of fact, the charter in this case was accepted under the old Constitution, must be determined on a trial of the cause below. Had the provision in our Constitution, like that on this subject in the Constitution of Ohio, ordained that the Legislature should " pass no special act conferring corporate powers," the restraint would clearly have been imposed alone upon future legislative action ; but, in our Constitution, the restraint is plainly imposed upon the creation, the organization, of the corporation itself. See Tfie State v. Jioosa, H O. St. E. 16. J'er Curiam. The judgment is reversed, with costs. Cause re- manded for further proceedings in accordance with this opinion. C. B. Smith, J. W. Gordon, and Watt J. Smith, for the appellant. a. Crawford, for the appellees.^ EEX V. WESTWOOD. 1825. 4 Barnewall^ Cresswell, 781. 1830. 7 Bingham, 1.2 Quo Warranto for usurping the office of burgess of the borough of Chepping Wycombe. It was admitted on the pleadings that the cor- poration of Chepping Wj'combe has existed from time immemorial. Plea, alleging, inter alia, defendant's election by a select body of the burgesses, according to the custom from time immemorial. Eeplica- j tion, setting out a charter granted by the Crown in 15 Charles II., fl wherebj' it was granted that the entire body of burgesses should and might be able to elect new burgesses. Eejoinder, that said charter was not accepted by the then burgesses as to that part thereof which ordained the mode of electing new burgesses. Demurrer. Scarlett, in support of demurrer. Tindal, contra. 1 Citations of counsel for appellees are omitted. — Ed. 2 Statement abridged. Arguments omitted. Only so much of the case is given as lelates to one point. — Ed. iiS • BEX V. WESTWOOD. LiTTLEDALB, J. . . . But then the rejoinder says the charter was not accepted in th at part wh ich relates to the election of the burgesses. 1 think that rejoinder is bad, because I think_a co rporation c annot acceptacharter in part only. When a charter is given by the crown, it is considered as forming a whole scheme formed upon deliberation for the good government of the borough. Some parts of this may not be what the corporation may like in themselves ; but the crown, on the other hand, may have granted them other valuable privileges as a sort of compensation for the inconvenience and trouble they might suffer from other parts. But the corporation would never have, had the valu- able parts unless they had had some of the troublesome ones also. In The King v. 2'he Vice Chancellor of Cambridge, 3 Burr. 1647, it was considered hy Lord Mansfield, that a corporation might accept a char- ter in part. In page 1656, he says, " but there is a vast deal of difference between a new charter granted to a new corporation (who must take it as it is granted) and a new charter given to a corporation already in being, and acting either under a former charter, or under prescriptive usage. The latter, a corporation already existing, are not obliged to accept the new charter in toto, and to receive either all or none of it ; they may act partly under it, and partly under their old charter or prescription.'' And Mr. Justice Wilmot, 3 Burr. 1661, says, " It is the concurrence and acceptance of the university that give the force to the charter of the crown, and they may take and accept the body of statutes or code of laws separatel}' and distinctly ; the}' are not bound to take all, or leave all." But though such is the law laid down it was not necessary to do so, because the office of High Steward was an ancient office existing long before the statutes of Queen Elizabeth, and from the language of those statutes, it is plain, the crown did not mean to interfere with the mode of electing the ancient officers in the university, except such as were particularly men- tioned ; and a question lately arose in this court upon the construction of one of those statutes, whether a particular professorship fell within the meaning of it, viz., that all officers where the mode of election was not pointed out, should be elected as the Vice-Chancellor. That was not a. general charter given to the university to form the whole consti- tution of it, but a selection of statutes for the election of particular officers, and it is by the aggregate of different statutes given at differ- ent times by the crown, that the university is governed. In The King V. Amery, 1 T. R. 589, Buller, J., says, " The averment proceeds on a mistake by supposing that a charter may be accepted in part and rejected as to the rest. The only instance in which I have ever heard it contended that a charter could be accepted in part only, is where the king has granted two distinct things, both for the benefit of the grant- ees ; there I know that some have thought that the grantees may take one, and reject the other. However that may be, it cannot extend to this case. This corporation must either have accepted in toto, or not at all. If they could have accepted a part only of the charter, they \ EEX V. WEST WOOD. 113 would have been a corporation created by themselves, and not by the ) Iving. If a charter directed that tlie corporation should consist of a mayor, aldermen, and twenty-four common councilmeii, they could not accept the charter for the mayor and aldermen only, omitting the com- mon councilmen." There not being anj' case where I consider the point as having distinctly come in judgment, there are only the oppo- site dicta of judges to guide us, and then I must give my judgment in that way which appears most consonant to the general principle of law as applicable to grants of the crown, that the grantees must take the whole of one entire thing which the crown grants, or none at all. Therefore, the rejoinder is no answer to the replication to the first and second pleas, and judgment must be for the crown on that part of the record. [Omitting other opinions. J Judgment for the Crown on the first two pleas. For the de- fendant upon the third plea. [A writ of error was brought to the House of Lords, where it was argued that the judgment ought to be reversed upon another point. LoKD Tenterden delivered an opinion, from which the following is an extract.] Two questions of law, therefore, have arisen upon this record ; the first, whether it is competent to an existing corporation, to whom a charter of the crown is offered, to accept that charter in part and reject it in part ; or if it accept it in part, whether that must not be taken to be an acceptance of the whole ? Upon that point there never has been any difference of opinion among the learned Judges. There are, indeed, to be found some expressions of Judges in former times im- porting that a corporation might accept part of a charter and reject the remainder ; but of late times all Judges have been of opinion that it is not open to a corporation ; otherwise a corporation might reject the obligation which was imposed, and accept the benefit which was I conferred upon them ; and accordingly there was judgment in the court I below for the crown upon that point, namely, that the allegation that ' the charter was accepted in part was a bad allegation. (•••••■•a Judgment affirmed. 114 ELLIS V. MARSHALL. ELLIS V. MARSHALL. 1807. 2 Massachusetts, 269.1 Ejectment. The plaintiff claimed under a sale by the " Front Street Corporation in the town of Boston" established by a law of the Commonwealth, passed March 6, 1804.'' By this statute sundry per- sons, and amongst them the defendant, Marshall, described as "being owners and proprietors of the lands and flats over which the said street will pass, and of the lands and flats adjoining thereto," are incorpo- rated for the purpose of making a street in the town of Boston. By the third section of the statute, the corporation are authorised to as- sess upon all the owners and proprietors of said land and flats, accord- ing to the proportion they severally hold therein, such sums of money as shall be agreed upon by the said proprietors, or the major part of such of them as shall be assembled at any legal meeting to be called for that purpose ; and if any of the said proprietors shall neglect or refuse to pay the sums of money duly assessed upon him therefor, for the space of three months, the proprietors are authorized to sell, at public auction, so much of such delinquents share of said lands and flats as shall be sufiicient to pay the sums so assessed, and the charges of sale : and the said proprietors may, by their clerk or committee, execute a good deed to the purchaser in fee simple. Marshall was not one of the petitioners for the act of incorporation ; never assented to the petition ; and never attended a meeting of the corporation. It was agreed, " that, on the tenth day of October last, the land de- manded in this action, being part of the said Marshall's estate adjoin- ing said street, was sold at public auction, according to the rules and regulations of the Corporation, and the powers granted in said act, for the purpose of raising the amount of the assessment taxed on him by said Corporation, as being towards his proportionate part of the ex- pence of making said street, which, though often requested, he had refused to pay, and a deed of conveyance thereof was accordingly given by said Corporation to said Ellis, to hold the premises demanded, to him in fee simple." " If on the foregoing facts the court should be of opinion that the said Corporation could, by virtue of the said act, legally assess the said Marshall, and sell his lands for non-payment thereof, then it was agreed that the defendant should be defaulted, and judgment should be rendered for the plaintiff ; otherwise the plaintiff was to become nonsuit, and judgment be rendered for the defendant." Parsons and Dexter, for plaintiff. The Attorney General, Sullivan, and Amory, for defendant. 1 Statement abridged. Arguments and part of opinion omitted. — Ed. 2 3 Mass. Special Laws, 375. ELLIS V. MARSHALL. 115 Paekee, J. Erom the foregoing facts and the arguments thereon by the counsel, it appears that all the proceedings of the corporation relative to the assessment and sale were correct ; so that if Marshall were, at the time thereof, a member of the corporation, the title to the demanded premises in Ellis could not be disputed. We are therefore necessarily brought to the question, indeed the only one in the case, whether Marshall, by virtue of the act aforesaid, became a member of the said corporation, subject to its rules and regulations, and liable to be assessed for the purpose of building said street. The counsel for the plaintiff have contended 1st. That by virtue of the act itself, Marshall being named thereLi, he became ipso facto a member of the corporation, the Legislature having competent power to compel him thereto : 2dly. That should this not be the case, the foregoing facts contain sufficient evidence of his consent, tacit at least, to the passing of said act, and the insertion of his name therein. The determination of the first point requires that we should ascer- tain the true nature and character of this legislative proceeding. If it were a public act, predicated upon a view to the general good, the question would be more difficult. If it be a private act, obtained at the solicitation of individuals, for their private emolument, or for the improvement of their estates, it must be construed, as to its effect and operation, like a grant. We are all of opinion that this was a grant or charter to the individuals who prayed for it, and those who should associate with them ; and all incorporations to make turnpikes, canals and bridges must be so considered. Can then one, whose name is by mistake or misrepresentation in- ^ serted in such an act, refuse the privileges it confers, and avoid the ) burthens it imposes ? If he cannot, then the Legislature may, at all times, press into the service of such corporations those whose lands may be wanted for such objects, whenever they may be prevailed on '^ to insert the names of such persons, by the intrigue or mistake of those more interested in the success of the object. ISTo apprehension exists in the community that the Legislature has such power. That the land of any person, over or through which a turnpike or canal may pass, may be taken for that purpose, if the Legislature deem it proper, is not doubted. The constitution gives power to do this, provided compensation is made. But it was never before known, that they have] power over the person, to make him a member of a corporation, and subject him to taxation, nolens volens, for the promotion of a private/ enterprise. That a man may refuse a grant, whether from the government or an individual, seems to be a principle too clear, to require the support of authorities. That he may decline to improve his land, no one will doubt. Although the Legislature may wisely determine that a certain use of his property will be highly beneficial to him, he has a right to 116 STATE II. BULL. judge foT himself on points of this nature. The fact therefore in the case, that Marshall is benefitted equally with the other owners by the making of this street, is of no importance. It being then the opinion of the court that this act is of a nature to require the assent of Marshall, either express or implied, before it can operate upon him, it is necessary to enquire into the second point, viz., whether the facts agreed on in this case furnish evidence of such assent. Upon the whole, therefore, we are of opinion that the act under which the plaintiff sets up his title, could not bind Marshall without his assent : that he having uniformly, whenever opportunity occurred, signified his dissent, is not a member of the corporation it created, was not liable to their assessments, and therefore that the sale of his land was without authority of law and is void. Plaintiff nonsuit. STATE V. BULL. 1844. 16 Connecticut, 179.1 Information in the nature of a quo warranto, to test the right to exercise certain corporate franchises. In 1833, the legislature passed an act to authorize the formation of a corporation to carry on the business of insurance. Among the pro- visions of the act are the following : the capital is to be $100,000, divided into shares of $20 each ; subscriptions to the stock shall be opened under the superintendence of seven commissioners, named in the act, at such times and places as they shall appoint ; there shall be paid to the commissioners at the time of subscription f 1.00 on each share subscribed ; the subscriptions shall continue open three days ; in case the subscriptions shall not amount to $100,000, the subscriptions to complete said sum may remain open, or be opened anew, at some subsequent time or times as the commissioners shall determine, and further subscriptions may then be made to complete the amount; after the stock shall have been fully taken up, the subscribers, their successors and assigns, shall be, and are hereby, created a corporation by the name of the Connecticut Life and Eire Insurance Company. In June, 1833, the commissioners opened subscriptions, giving due notice of the time and place, and the subscriptions were kept open for the time prescribed in the act. The subscriptions amounted to only $15,000. The subscriptions were thereupon closed; and the commissioners then, or soon after, refunded to the subscribers the sum of one dollar which they had paid on each share. 1 Statement abridged. Arguments and part of opinion omitted. — Ed. STATE V. BULL. 117 Nothing further was attempted to be done under the act, until March 16, 1844, when the commissioners, without giving any public notice, opened subscriptions anew. Three persons then subscribed for the entire capital stock. Thereafter the holders of the shares so last subscribed met, elected directors, claimed to be a corporation, and proposed to engage in the business of insurance. To the information setting out, in substance, the foregoing facts, there was a general demurrer. T. G. Perkins, in support of the demurrer. Hungerford and Touoey, contra. Chuech, J. The commissioners appointed under this charter) to receive subscriptions to the stock of the proposed Insurance Com- pany, were the agents of the state, empowered to offer an act of in- corporation to such as would accept it, upon the terms and conditions proposed. The legislature was influenced in granting the charter, by what it supposed the public interest, at that time, required. We cannot pre- sume, that it was enacting a supernumerary charter, to be laid away among the state records, to await either the convenience or necessity of future times. Nor can we, without great disrespect, suppose it intended to give opportunity for the exercise of favouritism, or to prevent competition in subscriptions. [The learned Judge then held, that public and general notice should have been given whenever the books for subscription were opened anew. The opinion then proceeds.] The foregoing considerations are decisive of our opinion on this subject. But there are others, which confirm it. The commission' ers, who had been appointed, in view of the state of things then existing, performed the duty required of them. They offered the charter for public acceptance ; and it was declined. They restored to the subscribers all they had advanced, and abandoned the project. In the meantime, perhaps, other corporations may have been created, to supply the public necessities, which once were supposed to exist ; and the legislature have not again spoken on the subject. Under these circumstances, and because this charter was not accepted within a reasonable time, we think the trust conferred upon the commission- ers must be considered as having been surrendered ; and that it can- not be resumed, now, without a renewed expression of the will of the legislature. We hold the information to be suf&cient. Demurrer overruled. 118 PEOPLE V. MONTECITO -WATEE CO. SECTION" III. Conditions precedent to Incorporation De Jure. " One Man Company." PEOPLE V. MONTECITO WATEE CO. 1893. 97 California, 276. [In Department Two.^] Appeal from a judgment of the Superiol Court of Los Angeles Countj'. The facts are stated in the opinion. John J. £oyce, Richards tfc Carrier, and George S. Gould, for appellant. W. O. Stratton, for respondents. Temple, C. Plaintiff appeals from a judgment entered upon demur- rer to complaint. The demurrer was general, aud on the ground of insuflSciency of the facts. It is a proceeding taken by the attorney general of the state, in the nature of a quo warranto, to deprive the defendant corporation of its corporate charter, and procure its dissolu- tion on two grounds — First, for want of a substantial compliance with the statutory requirements in its formation ; and second, for abandon- ment and misuse of its corporate franchise and powers, and for alleged violations of law. In answer to the first point the respondent raises the preliminary objection that, by making the corporation a defendant, its corporate character is admitted, and cannot be questioned in this proceeding. As authority for this proposition the case of the People v. Stanford, 77 Cal. 360, 18 Pac. Rep. 85, and 19 Pac. Eep. 693, is chiefly relied upon. In that case it was alleged in the complaint that the assumed corpora- tion had never been a corporation. If it were not a corporation of any character, it had no legal existence, and could not be sued. By mak- ing it a party, plaintiff conceded that it was a person that could be sued. It was said that the corporation could not be treated as a person which could be sued simply to obtain a judgment ; that it was not and never had been such a person. There is no such inconsistency here. It is averred that the corporate defendant is a corporation de facto, but it is claimed that it did not become a corporation de jure, because the per- sons who attempted the incorporation did not comply with the condi- tions which the statute makes conditions precedent to its rightful incorporation. Under such circumstances, although the association is a legal entity, which may be sued, its right to corporate exist- ence may be questioned by the state in a proceeding of this character. Section 358, Civil Code. This court said in People v. La Rue, 67 1 As to the Departments of the Supreme Court, and as to Supreme Court Commi» lioners, see Preface to 97 California, pp. v-viL PEOPLE V. MONTECITO WATEK CO. 119 Cal. 530, 8 Pac. Eep. 84, and repeated the language in First Bap- tist CJiurch V. Branham, 90 Cal. 22, 27 Pac. Rep. 60 : "A corpo- ration de facto may legally do and perform every act and thing which the same entity could do or perform were it a de jure corpora- tion. As to all the world, except the paramount authority under which it acts, and from which it receives its charter, it occupies the same posi- tion as though in all respects valid ; and even as against the state, except in direct proceedings to arrest its usurpation of power, it is submitted its acts are to be treated as efficacious." Under such cir- cumstances it seems clear that the corporation is not only a proper, but a necessary party. People v. Flint, 64 Cal. 49, 28 Pac. Rep. 495 ; People V. Gunn, 85 Cal. 244, 24 Pac. Rep. 718. It is contended that the corporation is not rightfully such because, while five incorporators signed the articles of incorporation, only four ac- knowledged the same. Section 292 of the Civil Code reads as follows ; " The articles of incorporation must be subscribed by five or more per- sons, a majority of whom must be residents of this state, and acknowl edged by each before some officer authorized to take and certify acknowledgments of conveyances of real property." It was said in People V. Selfridge, 52 Cal. 331 : " The right to be a corporation is in itself a franchise ; and, to acquire a franchise under a general law, the prescribed statutory conditions must be complied with." Still, a substantial, rather than a literal, compliance will suffice. People v. Stockton & V. R. Co., 45 Cal. 313. Was there substantial compli- ance in this case? Because a substantial compliance will do, it does not follow that anj' positive statutory requirement can be omitted, on the ground that it is unimportant. They are conditions precedent to acquiring a statutory right, and none can be dispensed with by the court. What is a substantial, rather than a literal, compliance, may be illustrated from the cases. In Ex parte Spring Valley Waterworks, 17 Cal. 132, the certificate stated the place of business, but did not describe it as the " principal place of business," as required. The court said : " The statement that San Francisco was the place of busi- ness would seem to imply that it was not only the principal, but the only, place of business." In People v. Stockton & V. R. Co., 45 Cal. 306, the affidavit required in such cases to be attached to the certificate stated that 10 per cent of the amount subscribed had been actually paid in, omitting the words " in good faith," which the statute required. In the certificate it was stated that more than 10 per cent had been actually in good faith paid in. It was held sufficient, and it would seem that, if it was actually paid in cash, it must have been paid in good faith ; and it was further lield that payment by checks drawn against sufficient funds in a bank, which was ready to accept and pay the checks, was substantially payment in cash. In People v. Cheese- man, 7 Colo. 376, the acknowledgment taken by the notary omitted to state that the persons whose acknowledgments were taken were person- ally known to the notary. The certificate did state that the persons 120 PEOPLE V. MONTECITO WATER CO. , who signed appeared before him and acknowledged it. The statute did not prescribe what the acknowledgment should contain, and it was held a substantial compliance with the requirement, although the form pre- scribed for acknowledgments to deeds was not followed. It was ac- knowledged. In all these cases it will be seen that the thing required was done, but not literallj' as directed ; but there was no omission of anj- requirement. No case has been cited where the entire omission of a thing prescribed has been excused, unless it be the case of Larrabee V. Baldwin; 35 Cal. 155. That was not an action instituted by the state to disincorporate on the ground of noncompliance. As we have seen, unless the state complains, a de facto corporation must be consid- ered, under our Code, as possessing a corporate character ; and the stockholders, when sued upon their individual liability, should not be allowed to make the point that they did not comply ^ith the law. In that case the certificate was signed by five directors, but two failed to acknowledge it. Other questions are discussed at great length in the opinion, but in regard to the point made on the certificate it was simply remarked : " It is not clear that anj' fatal defect exists in the certifi- cate of incorporation. If so, it is cured by the act of April 1, 1864." Plainly it was unnecessary to consider the question. The curative act re- ferred to declares : " All associations or companies heretofore organized, and acting in the form and manner of corporations, and that have filed certificates for the purpose of being incorporated, but whose certificates are in some manner defective, or have been improperly acknowledged before a person not authorized by law to take such acknowledgments, are hereby declared to be, and to have been, corporations from the date of the filing of such certificates, in the same manner and to the same effect and intent as if such certificates were without fault, and properly acknowledged before the proper ofllcer ; and all such certifi- cates are hereb3' validated, and declared to be legal, and shall have the same force and effect as if such certificates were free from all fault or defect, and were properly acknowledged," etc. St. 1863-64, p. 303. Section 292 of the Civil Code requires the articles to be subscribed and acknowledged by each. As this is an express condition precedent to a valid incorporation, it is not of consequence to the court whether it be a wise or necessarj- requirement or not. Still, it is easy to see a reason for it. The certificate secures the state, and all concerned, against the possibilitj' of any fictitious names being subscribed to the articles, and furnishes proof of the genuineness of the signatures. If the acknowledgment can be dispensed with as to one, why not as to two or three, or all? Ordinarily, no doubt, the state would not be expected to institute a proceeding of this character for such a defect alone, and we must presume that the attorney general would not have instituted this inquiry if he were not convinced that there were reasons sufficient to justify it. Other reasons are alleged ; but, as the statute authorizes a proceeding to forfeit the charter where the statute has not been com- plied with, although the corporation is acting in good faith, and is a NEWCOMB V. EEED. 121 de facto corporation, the complaint must be held to state a cause of action, acd the demurrer should be overruled. The judgment should be reversed, and the cause remanded, with directions to overrule the demurrer. Hatnes, C, and Belcher, C, concurred. For the reasons given in the foregoing opinion, the judgment is re- versed, and the cause remanded, with directions to overrule the demurrer. De Haven, J., McFarland, J., Fitzgerald, J. NEWCOMB V. REED. 1866. \2AUen,Z&2. Contract, in which the plaintiff sought to charge the officers of the Boston Mechanical Bakery Company with a debt contracted in the name of the corporation, in consequence of their neglect to file cer- tificates and statements of the condition of the corporation. At the trial in the superior court, before Ames, J., without a jury, the judge found for the defendants upon facts which are stated in the opinion ; and the plaintiff alleged exceptions. C. B. Goodrich & E. Avery, for the plaintiff. M Merwin, for the defendants. Hoar, J. The defence to this action rests wholly upon the assump- tion that the corporation, whose officers the plaintiff seeks to charge with a statute liability for its debts, never had a legal existence. The only defect suggested in the organization of the corporation is, that the call for the first meeting was signed by only one of the persons named in the act of incorporation, and not by a majoritj' of them, as required by St. 1855, c. 140. The case of Utley v. Union Tool Company, 11 Gray, 139, is the authority' on which the defendants chiefly rely. That case decided that in order to charge as stockholders of a manufacturing corporation persons who had been summoned in an action against it under St. 1851, c. 315, the plaintiff must prove the legal existence of the cor- poration. The alleged corporation had no charter or act of incorpora- tion from the legislature, but was an association which had undertaken to assume corporate powers under a general act for the formation of joint stock companies, St. 1851, c. 133. That statute authorized three or more persons who had entered into " articles of agreement in writ- ing" for the transaction of certain kinds of business, to organize in a manner prescribed, and therebj' to become a corporation ; and the court were of opinion that written articles of agreement were essential to constitute a corporation, and that these articles must fix the amount of the capital stock, and set forth distinctly the purpose for which ani? 122 NKWCOMB V. EEED. the place in which the corporation was established. The court say, " There is an obvious reason for making such organization by written articles of agreement a condition precedent to the exercise of corpo- rate rights. It is the basis on which all subsequent proceedings are to rest, and is designed to take the place of a charter or act of incorpora- tion, by which corporate rights and privileges are usually granted." And they add that " it is not a case of a defective organization under a charter or act of incorporation, nor of erroneous proceedings after the necessary steps were taken to the assumption of corporate powers, but there is an absolute want of proof that any corporation was ever called into being, which had the power of contracting debts or of ren- dering persons liable therefor as stockholders.'' "We think these reasons have no application to the case now before us. In this, there was an act of incorporation from the legislature. There is no question that the corporate powers which it conferred were assumed b}' the persons by whom it was intended that they should be enjoyed, so far as they chose to avail themselves of them. The organ- ization was not strictly regular, but can hardly be considered even as defective. And if the object of the statute is regarded, by which it is required that the first meeting shall be called by a majority of the persons named in the act of incorporation, it will be evident that it is directory merely, and only designed to secure the rights conferred by the charter to those to whom it was granted, among themselves, by providing an orderly method of organization. Thus, if all the persons interested should come together without any notice or call whatever, and proceed to accept the charter, and do the other acts necessary to constitute the corporation, we cannot doubt that their action would be valid, and that neither the public, nor any persons not belonging to the association, would have any interest to question their proceedings. The purpose of the statute was probably to avoid such difficulties as were disclosed in the case of Lechmere Bank v. Soynton, 11 Cush. 369, where two parties had attempted to organize separately under the same charter, each claiming to be the corporation. There is nothing in the facts found and reported to show that all persons interested were not actually notified of the meeting for organ- ization. On the contrary, it would seem that thej' were. No one has questioned the regularity of the proceedings, or claimed, as in Lech- mere Bank v. Boynton, a right to organize in a different manner. The evidence was ample to show that the persons named in the act of incorporation with their associates, or at least all of them who desired to do so, have accepted the act, organized under it, issued stock, elected officers who have acted and served in that capacit}-, carried on business, contracted debts, and exercised all the functions of corporate existence. It is therefore too late to deny that the corporation ever had any legal existence, or for these officers to avoid the liabilities which the statutes of the Commonwealth impose. CHEEAW AND CHESTER KAILEOAD CO. V. WHITE. 123 The defendant Brackett, who was treasurer in February 1861, ap- pears to have been liable with the directors under the provisions of Gen. Sts. c. 60, §§ 18, 20, 31. Exceptions sustained. CHEEAW & CHESTER R CO. v. WHITE. 1880. 14 South Carolina, 51.1 WiLLARD, C. J. This action was brought to recover the amount of a subscription to the capital stock of the plaintiff company, alleged to have been made by the defendant, and not duly complied with on his part. The defendant demurred to the complaint on various grounds. This demurrer was overruled by the Circuit Court, and leave to answer granted on terms. From this decision the defendant now appeals. The first ground of demurrer is, that the plaintiff has no capacity to sue. Several propositions are stated under this ground of demurrer that, in substance, involve the general proposition that the plaintiffs have received, by law, only authority to become a corporation upon the performance of certain conditions precedent, and that the com- plaint contains no allegations showing that such conditions have been performed. The act to charter the plaintiff company, passed February 27th, 1873, (15 Stat. 442,) confers corporate powers on the corporators named, in terms importing an immediate grant, with the following proviso annexed : " Provided that said persons shall commence opera- tions upon said road within two years after the passage of this act, and complete the same within five years." The period of completion is stated by Section 6 at seven years, but this conflict of time is not material to the present question. The question is whether the proviso can have the effect to convert a grant of the corporate franchise, made in terms that import an immediate grant, into one taking effect only upon the happening of a certain contingency. If the purpose intended by the proviso cannot be fullj' accomplished without a limitation of the broad sense of the language conferring the franchise, then such effect can be accomplished consistently with the rules of construction, for, in that case, the proviso would be necessarily interpreted as a condition in substance and effect. As a condition subsequent this is undoubt- edly the effect of the proviso, but does it contain, in itself, anything that imports a necessity that it should operate as a condition preced- 1 Statement omitted. Only so much of opinion is given aa relates to one point. — Ed. 124 CHEEAW AND CHESTER KAILEOAD CO. V. WHITE. dent? Two things are to be considered in this respect: First. What is essential to the full eflScacy of the matter of the proviso itself? Second. What would be the eflfect of allowing it to stand as a condition precedent on the completeness of the powers granted for the purpose intended by the grant, and to which the terms of the proviso stand as a condition? It certainly was intended that the corporators should have all the powers and capacitj' properh' incident to a railroad corpo- ration for the purpose of enabling it to commence and complete the road in the times prescribed by the law, for it must be assumed that the construction of the road was deemed a public benefit, and that the acqui- j sition of that benefit to the public W9,s the true consideration of the grant, \ and, in this light, the proviso must be regarded as directly intended as I a means of hastening its construction. This view also excludes the idea that the proviso was intended to limit the capacitj- or powers of the company to construct the road within the times prescribed for that purpose. It must certainly be assumed that the possession of corpo- rate powers during the time that the company was organizing and acquiring the capital and credit requisite to construct the road was a material aid toward the accomplishment of that result. It is fair, then, ' to assume that the grant, in terms importing immediate corporate capacity, was intended to operate as such for the purpose of conferring on the corporation the most perfect means for accomplishing that which it was the purpose of the proviso to secure. So far then from its being essential to the efficacy of the proviso that the sense of the terms grant- ing, directly, the corporate franchise should be narrowed, the purpose of the proviso is best subserved by holding these powers intact accord- ing to the terms in which they were granted. If, at the end of two years, the corporation had not commenced to construct the road, every object intended to be secured to the state and to the public, hj the limitation, would be fully attained, even if the company had at once, upon the granting of the charter, become a corporation. The ex- tinguishment of the franchise of building and operating a railroad would have followed, and the right to exercise the functions of a cor- poration would have fallen with it as an accessory. On the other hand if the grant is held to be subject to a condition precedent, b}- reason of the limitation as to commencing work in two years, the argu- ment that would produce that result would go a step further and make the completion of the road a condition precedent. In that case the anomalj"- would be presented of a company undertaking the construc- tion and completion of a work of such magnitude without the powers of a corporation, and only hoping to obtain such powers when the work had been accomplished. Such an intention cannot be ascribed to the statute. It is clear that the demurrer was properly overruled as it regards the ground just considered. Judgment affirmed. JOHNSON V. KESSLEE. 125 JOHNSON V. KESSLEE, 1888. 76 Iowa, 411. Appeal from Bremer District Court. Action in chancery to restrain the collection of a tax voted by the electors of a township in aid of the construction of a railroad. Upon a trial on the merits plaintiffs' petition was dismissed. They now appeal to this court. Boies, Husted & Boies, for appellants. Gihson & Dawson, for appellees. Beck, J. I. Counsel for plaintiffs insist that the tax voted is void for the reason that, as the stock authorized by the articles of in- corporation of the company to whom the tax was voted was not all subscribed or taken, the corporation was not in fact in existence. Counsel's position, expressed in their own language, is this : " It was not in law a corporation until its required capital stock was sub- scribed." The ready answer to this objection is found in the statute. The purposes and objects of an incorporation is to clothe persons who associate themselves together for that purpose with authority and power to do lawful business as an individual. Code, sec. 1058. It is enacted that an incorporation may commence business as soon as its articles of incorporation are filed in the recorder's office. Id. sec. 1064. The corporation may, then, lawfully commence business, — that is, exercise its corporate authority and power, — when its articles of incorporation are filed. Nowhere is there an intimation in the statute that this authority and power cannot be exercised until all of its stock has been subscribed. There is nothing in the articles of in- corporation of the railroad company to which the aid was voted, pro- viding that the company shall not begin business until a prescribed amount of stock shall have been subscribed. Peoria & R. I. By. Co. V. Preston, 35 Iowa, 115, cited by plaintiffs' counsel, interprets the power of an Illinois corporation, in the absence of any statute simi- lar to our own, authorizing corporations to commence business upon filing articles of incorporation, or upon the happening of any othei prescribed event. [Omitting opinion on other points.] Affirmed. 126 ASPEN WATER AND LIGHT CO. V. CITY OF ASPEN. Gaines, J., in NATIONAL BANK OF JEFFEKSON v. TEXAS INVESTMENT CO. 1889. 74 Texas, 421, pp. 435^36. But it is also insisted that the company was never legally incorpo- rated because the capital stock was not subscribed and paid for by the promoters of the enterprise. That the Legislature contemplated that corporations organized under the statute under consideration should be conducted as stock companies, having their capital stock divided! into shares, we think there can be no doubt. The law requires that the articles of incorporation shall show " the amount of capital stock, if any, and the number of shares into which [it] is divided." Eev. Stats., art. 667 ; see also arts. 590, et seq. Article 591 provides that the stock subscribed for shall be paid in such manner and in such installments as the board of directors may order. But we find no pro- vision in the law making the existence of the corporation dependent upon the subscription to its stock or the payment therefor. On the contrary it is expressly provided that " the existence of the corpora- tion shall date from the filing of the charter in the office of the Secre- tary of State." Eev. Stats., art. 570. It follows, we think, that when the company filed its articles of incorporation with the Secretary of State, it became a corporation in law, and that the owners of its stock and the managers of its busi- ness can not be held liable as partners for debts contracted by it. This ruling is supported by authority. Laflin & Rand Powder Co. v. Sinsheimer, 46 Md. 315 ; Society Purim v. Cleaveland, 43 Ohio St., 481 ; First Nat. Bank v. Almy, 111 Mass. 476. ASPEN WATEE AND LIGHT CO. v. CITY OF ASPEN. 1894. 5 Colorado Appeals, 12.1 Appeal from District Court of Pitkin County. The statutes of Colorado provide that any three or more persona who may desire to form a company for carrying on any lawful business, may make, sign and acknowledge certificates in writing in which shall be stated certain specified things including the amount of capital stock, the number of shares into which it is divided, the number of the directors or trustees and the names of those who are to manage the affairs of the company for the first year of its existence. Such 1 The statement is taken from a note in 12 Lewis' Amer. E. R. & Corp. Reports, page 51S. Only part of the opinion is given. — Ed. ASPEN WATER AND LIGHT CO. V. CITY OF ASPEN. 127 certificate is to be filed in each county in -which the corporation does business and in the office of the secretary of state. 1 Mill's Stats. § 473. The next section in the original act provides that when the certificates have been filed as aforesaid, the secretary of state shall record and preserve the same and that a copy thereof duly certified I by the secretary shall be evidence of the existence of such company. ' 1 Mill's Stats. § 475. A subsequent section provides that the corpo- rate powers shall be exercised by a board of directors or trustees of not less than three nor more than thirteen, vrho shall respectively be stockholders in said company, and who shall (except the first year) be annually elected by the stockholders. The statute is silent as to how or when the subscription to the stock is to be taken and also as i te any further organization of the company, except that provision is 1 made for the election of a president by the directors and for such j other of&cers as may be provided for in the by-laws. Proceedings were taken to form the Aspen Water and Light Company, and the statute appears to have been complied with so far as its positive re- quirements were concerned. But no stock was ever subscribed for or issued. The company obtained a grant of a franchise from the city of Aspen and some attempt was made to enter upon the construction of the works. But the city attempted to revoke or annul its franchise and forcibly prevented the company from proceeding with its work. Thereupon the company brought suit for damages. James M. Downing, Porter JPlumb, and Joseph W. Taylor, for ap- pellants. William O'Brien and B,. G. Withers, for appellee. BissBLL, P. J. ... " It only remains to determine the legal con- \ sequenceswhieh fiow from the failure to complete the organization by 1 the preparation, issue and sale of stock. In some states the General ' Incorporation Act provides that upon the filing of the certificate the persons who sign it, and their successors, shall become a body cor- porate, and be invested with certain powers. But even in a case like that the authorities hold that it only thereby becomes a quasi cor- poration, invested possibly with certain powers for certain limited purposes. In reality it becomes a corporation only in name. It is universally agreed that a corporation cannot exist without stockholders or members. As said by the learned Commissioner Pattison in Arkan- sas River, Town & Canal Co. v. Farmers' Loan & Trust Co., 13 Col. 587 ; 32 Pac. Eep. 954, ' without organization and members, without officers and stockholders, a corporation is but a naked body.' 1 Mor. Priv. Corp. § 33. We are thus confronted with this situation : Con- ceding, ex gratia, that the Aspen Water and Light Company had an existence on the 27th of February, 1885, and was possessed of suf- ficient corporate capacity to render the grant contained in the ordi- nance operative to vest in that company the rights expressed when the organization should be complete, it remains true that at the time of the alleged breach, and the bringing of the suit, the grant had not 128 PALMEE V. LAWKENCE. become operative. . . . The company never had any legal president and never had any legal secretary, and consequently the so-called eon- tract was never executed. The statute provides (Gen. St. 1883, §§ 242-244) that the corporate powers shall be exercised by a board of directors or trustees, who must be stockholders of the company, and from which body a president may be elected. . This is a statutory limitation upon the corporate power, and the governing body must, according to that statute, be composed of shareholders, and the presi- dent can only be rendered competent by possessing the same statutory qualification. Since it is true that no stock was ever subscribed for or issued by this company, and no agreement was established which obli- gated the promoters for the stock of the company so that they might be taken to be joint owners of all of it, it follows that there never was any board of directors competent to make a contract, nor any persons who could execute an agreement for the company. Under these cir- cumstances, one of the first essentials of a valid contract is absolutely wanting. There was not at the date of the alleged breach, and there is not at the present time, any such corporation as the Aspen Water and Light Company. What the rights of the promoters may be, if any, is not before us for consideration. The suit was not brought by them, or in their behalf, but in the name and on behalf of a corpora tion without a legal existence." [Remainder of opinion omitted.] Affirmed. DuEE, J., IN PALMEE V. LAWEENCE. 1849. 3 Sandford's New York Superior Court, 161, pp. 172-174. DuER, J. . . . We proceed now to the direct consideration of the objections that are relied on ; not that it is at all necessary that these objections should be answered, in order to justify the decision that we propose to make, but that the same, or similar objections, may not be raised in any future case that we may be required to determine. The construction of the general banking law, upon which the first objection^ i proceeds, namely, that the actual payment of the capital must precede the making and filing of the certificate, we have no dif&culty in reject- 1 ing. It is as unreasonable as it is novel. It is not required by the ] terms of the statute, and is inconsistent with several of its provisions.^ The third subdivision of the fifteenth section declares, that the certifi- cate of the associates " shall specify the amount of the capital stock of such association ; " and it is upon these few words — this narrow foundation — that the ingenious argument of the defendant's counsel was exclusively built; yet these words are so far from necessarily im- plying that the capital has been paid when the certificate is made, that it is only by a strained and violent interpretation that such a meaning PALMER V. LAWRENCE. 129 can be attributed to them. The terms " such association " are used throughout the law, as designating, not the individuals who agree to form the association, but the association itself when formed ; an asso- ciation clothed with all the powers and attributes that the stg,tute con- fers ; and we, therefore, cannot understand how such an association can have a capital before it exists. If the payment of its capital is to \ precede its existence, when, how, and to whom is it to be paid ? From I whom is the authority to receive it to be derived ? Whose property is it until the association is organized ? How is it to be secured in this interval ? When, how, and to whom is it to be paid over ? Not one of these questions is answered by the law as it stands, but we find it impossible to believe that any one of them would have been left un- answered, had the legislature intended that the payment of the entire capital should be a condition precedent to the existence of the asso- ciation. We find it impossible to believe that such an intention, in- stead of being plainly and fully expressed, would have been left to be gathered, by a remote and doubtful implication. There are numerous acts of incorporation, many of which were quoted by the defendant's counsel, as showing the general policy of the state, in which the pay- ment of a portion of the capital is made a condition precedent to the existence of the corporation ; but, in every one of these acts, the per- sons to whom the payment is to be made are named or designated, and the time and mode of payment, and the disposition to be made of the moneys paid, are carefully prescribed ; nor can we doubt that specific regulations of such manifest propriety would have been found in the general banking law had the legislature meant that the pay- ment of the whole, or of any portion of the capital of an association, should precede its organization. We have said that the interpretation we reject is inconsistent with several provisions in the law ; and it plainly is so. It is inconsistent with the provision in section 19th, that every person to whom shares of stock are transferred, shall suc- ceed to the rights and liabilities of the original stockholder. It would be absurd to suppose that any liabilities are here meant, except such as directly relate to the shares themselves ; and if the shares have al- ready been fully paid for, none such can exist. It is inconsistent with the provision in section 26th, that the semi-annual statement to be made to the comptroller shall "specify the amount of the capital paid in, or secured to be paid ; " for if the whole capital has been paid, no portion can remain for which security is to be given. If the whole capital has been paid, and then loaned by the company, each loan is an investment of capital paid, not a security for its future payment ; and every such investment would appear, in the statement to the comptroller, among the debts due to the association, not as a part of its unpaid capital. We do not doubt that the whole capital of an as- • sociation must be paid, or secured to be paid, when it is organized ; \ but it is secured to be paid, in the sense of the law, by force of the | subscriptions of the associates, just as certainly as if each associate 130 PEOPLE V. CHAMBERS. ^ had given his note or bond for the amount of his shares. The security may not be adequate, but it exists ; and of its adequacy the public has been wisely left to judge. PEOPLE V. CHAMBERS. 1871. 42 California, 201.1 Appeal from District Court. Decision below for defendants. Action of quo warranto against the defendants, claiming to com- pose the " Oroville and Virginia City Railroad Company," in which the defendants are charged with usurping the functions of a railroad company, without having been duly and properly incorporated as .such. Section 1, of Act of May 20, 1861 (Statutes of 1861, p. 607), requires as a preliminary to the organization of the company, that stock to the amount of at least f 1000 per mile of the proposed road shall be sub- scribed " and ten per cent .in cash so required to be subscribed shall be actually and in good faith paid to a Treasurer to be named and appointed by said subscribers from among their number." In the present case, the greater .part of the ten per cent was not paid in cash, but was paid in a check drawn by one Bolinger on the Bank of California. Bolinger had not sufficient funds on deposit in that Bank to meet the check, and the check never was presented for payment. Van Clief & Gear, for appellant. Haymond & Stratton, for respondents. Crockett, J. [After discussing the facts and holding that the check could not be considered as payment in cash, even though it be conceded that the check would have been paid had it been presented.] Counsel insist, however, that the provision in respect to the prior subscription of stock, and the payment of the ten per cent, is direc- tory only, and that the payment is not a condition precedent, the per- formance of which is essential to the validity of the act of incorpora- tion, and in support of this proposition we are referred to the case of Commonwealth v. Westchester Railroad Company, 3 Grant, Pa. 200. But that decision was founded on a special statute, in many respects essentially different from ours, and does not sustain the position here contended for. But if it was directly in point, we would not be in- clined to follow it. On the other hand, I think it is apparent that without a substantial compliance with this provision the subscribers acquired no jurisdiction to organize themselves into a corporate body, and this view of the law is supported by the following authorities : Eaton V. Aspinwall, 19 N. Y. 119 ; People y. Troy House Company, 44 1 Statement abridged. Arguments and part of opinion omitted. — Ed. BKODEEIP V. SALOMON. 131 Barb. 634 ; Haviland v. Chase, 39 Barb. 283 ; Taggart v. Western. Md. Railroad Coryi,pany, 24 Md. 688 ; People v. Rensselear Insurance Gom- fany, 38 Barb. 323 ; Patterson v. Arnold, 45 Pa. St. E. 415. If these views be correct, the act of incorporation is invalid, and the defendants are not entitled to exercise corporate powers. Judgment reversed and cause remanded, with an order to the Dis- trict Court to enter judgment for the plaintiff on the findings. Mr. Justice Temple did not participate in the foregoing decision. BEODEEIP V. SALOMON. 1895. Law Reports (1895), 2 Chancery, 323. SALOMON V. SALOMON & CO., LIMITED. 1896. Law Reports (1897), Appeal Cases, 22.1 In 1892, Aron Salomon was carrying on business as a leather mer- chant, &c., and was solvent. July 28, 1892, a Limited Company was registered, under the Companies Act of 1862, for the ostensible pur- pose of taking over and carrying on the business then conducted by Salomon. The Act of 1862 provides (Section 6), that " any seven or more per-i sons, associated for a lawful purpose may, by subscribing their namesl to a memorandum of association, and otherwise complying with the provisions of the Act in respect of registration, form a company withi or without limited liability." " No subscriber shall take less than one share " (Section 8). The Act prescribes no minimum value for shares, and hence the shares may be of as small a value as those who form the company may please. Nor does the Act impose any limit upon the number of shares which a single member may subscribe for. Section 30 provides that no notice of any trust shall be entered on the register. Upon the registration of the memorandum of association, and of the articles (where required), the registrar shall certify that the company is incorporated. " The subscribers of the memorandum of association, together with such other persons as may from time to time become members of the company, shall thereupon be a body corporate by the name contained in the memorandum of association, capable forthwith of exercising all the functions of an incorporated company, and hav- ing perpetual succession and a common seal, with power to hold lands." . . .'(Section 18.) The name of the company was Aron Salomon & Co., Limited. The nominal capital was 40,000Z., divided into 40,000 shares, of 11. each. The memorandum of association was subscribed by Salomon, his wife, his daughter, and his four sons, each subscribing for one) 1 Statement rewritten. Arguments omitted ; also portions of opinions. — Ed. 132 BEODEEIP V. SALOMON. share. Salomon then conveyed his business and its assets to the company for an agreed price of about 39,000Z. In consideration of this conveyance, he received from the company some payments in cash, also debentures (a charge on the assets) for 10,000Z., and shares for the par value of 20,000Z.^ No other shares were ever allotted ; and it was never intended that any shares should be allotted to any person except Salomon and the six members of his family. The practical result was, that Salomon owned |8.^S4' °^ the allotted shares ; and also held the company's debentures for 10,000Z." Subsequently, Salomon, upon the security of his aforesaid deben- tures, obtained from Broderip a loan of 6000Z., which sum Salomon re- loaned to the company. Thereafter, in Feb. 1893, the original deben- tures, which had been issued to Salomon for 10,000Z., were returned to the company and were cancelled. In lieu thereof, with the consent of Salomon as beneficial owner, fresh debentures of the company to the same amount were issued to Broderip in order to secure the pay- ment of his aforesaid loan of 50001. Default having been made in the payment of his interest, Broderip, in the autumn of 1893, instituted au action, on behalf of himself and all the debenture holders, to enforce his security. Thereafter a wind- ing up order was made and a receiver appointed. The company put in a defence and counter-claim, making Salomon a party to the counter-claim. At the time of the company's going into liquidation, 11,264Z. was due to unsecured creditors whose debts had been contracted since the formation of the company. About 7733Z. of this was due to trade creditors, the rest to Salomon. The liquidator has realized the assets, by arrangement without prejudice to any question on the counter-claim. He has paid Broderip's "mort- gage debt on the debentures," and the rest of the proceeds will not be sufficient to satisfy what remains due on the debentures. Salomon claims whatever there may be as owner of the debentures. The action was tried before Vaughan Williams J. [The follow- ing is an abridgment of the opinion of the learned Judge.] There was no fraud on the shareholders, inasmuch as they were all perfectly cognizant of the conditions under which the company was formed, and as there was no intention to allot further shares at a later period to outsiders. But the company was a mere nominee of Salo- mon's ; and the case is to be dealt with as if the nominee, instead of 1 According to a statement in the opinion of Lord Macnaghten, it would seem that, as cash came in to tlie company from the business, the company went through the form of handing this cash over to Salomon, and then immediately receiving the same cash back from Salomon in exchange for the 20,000 shares allotted to him as iuUy paid shares. — Ed. 2 The charge given to the debenture-holder by the company on its property did not operate to prevent the company, while solvent, from using assets to pay current debts ; but it gave the debenture-holder a preference over unsecured creditors in the event of in- solvency. See 14 Law Quarterly Review, 339; Davey v. Williamson, L. R. (1898), 2 Q. B. 194. Buckley on Companies Acts, 7th edition, 186; ELat, L. J, in L. E. (1895), 2 Chan. p. 343. — Ed. BKODEEIP V. SALOMON. 133 being the company, had been some individual agent of Salomon's to \ whom he had purported to sell this business. In that ease the trustee | in bankruptcy of the agent would have had a right to make Salomon I indemnify the agent against the debts that he had contracted by the direction of his principal. The right of the liquidator in the present case is precisely the same, notwithstanding the debentures which were a mere form, intended to give an appearance of reality to a sale which, in fact, was no sale at all, because it was a sale by a man to an agent for his own profit. This business was Salomon's business, and no one else's. The creditors of the company could, in my opinion, have sued Salomon. Their right to do so would depend on the circumstances of the case, whether the company was a mere alias of the founder or not. , The relationship of principal and agent existed between Salomon andv the company. The moment the creditors succeed in establishing the' identity of Salomon with the company, the creditors of the company thereupon are shown to be the creditors of Salomon ; and although it is necessary, in order to get rid of the priority given to Salomon by these debentures, that one should fall back upon the lien of the com- pany as his agent, whom he was bound to indemnify, I do not mean to exclude from my judgment that the debentures were given to Salo- mon by his agent, the company, and that the necessary effect of Salo- mon as principal, taking these debentures from his agent, the com- pany, was that his creditors — for, according to my view, the creditors of the company were his creditors — were defeated and delayed by the debentures. His Lordship made the following order : — Declare that the plaintiffs, A. Salomon & Co. Limited, or the liqui- dator thereof are, or is entitled to be indemnified by the defendant A. Salomon against the sum of 7733Z. 8s. Zd. . . . Order and adjudge that the plaintiffs, A. Salomon & Co. Limited, do recover against defendant A. Salomon the said sum of 7733Z. 8s. Zd. Declare that plaintiffs, A. Salomon & Co. Limited, are entitled to a lien for the said sum of 7733Z. 8s. dd., upon all sums which would be payable to defendant A. Salomon out of the assets of the plaintiffs A. Salomon & Co. Limited, in respect of the debentures issued by the said company to the defendant E. Broderip in the pleadings men- tioned or otherwise, and that the defendant A. Salomon is not enti- tled to make any claim against the assets of the plaintiffs A. Salomon & Co. Limited, until the said sum of 7733Z. 8s. Zd. has been satisfied. Aron Salomon gave notice of appeal. The company gave a counter- notice of contention that [inter alia'] they were entitled to have the agreement for the sale of Salomon's business and property to the company rescinded. Buckley, Q. C. and Muir Mackensie (McCall, Q. C. with them), for Salomon. Farwell, Q. C. and Theobald, for the company. .134 BEODERIP V. SALOMON. LiNDLET L. J. This is an appeal by Mr. Aron Salomon against' an order made by Vaughan Williams J., and which, in effect, directs Mr. A. Salomon to indemnify a limited company formed by him against the unsecured debts and liabilities incurred by or in the name of the company whilst it carried on business. The appeal raises a question of very gMat importance, not only to the persons immediately affected by the decision, but also to a large number of persons who form what are called " one-man companies." Such companies were unheard of until a comparatively recent period, but have become very common of late years. The material facts of this case are as follows : [His Lordship, after stating the facts of the case to the same effect as above, and adding that as to the 20,000 shares allotted to Aron Salomon he (Aron Salo- mon) contended he had paid for them though no call had ever been made ; that the liquidator, on the other hand, claimed 20,000Z. from A. Salomon in respect of these shares ; that A. Salomon had received moneys from the company, but that it did not appear whether he had paid the company for his shares, and that this was a matter which it "was unnecessary to pursue further on the present occasion, proceeded as follows : — ] I proceed to examine the legal aspect of this case, which, as I have said, is one of great general importance. There can be no doubt that in this case an attempt has been made to use the machinery of the Com- panies Act, 1862, for a purpose for which it never was intended. The legislature contemplated the encouragement of trade by enabling a comparatively small number of persons — namely, not less than seven — to carry on business with a limited joint stock or capital, and with- out the risk of liability beyond the loss of such joint stock or capital. But the legislature never contemplated an extension of limited lia- v bility to sole traders or to a fewer number than seven. In truth, the J legislature clearly intended to prevent anything of the kind, for s. 48 takes away the privilege conferred by the Act from those members of limited companies who allow such companies to carry on business with less than seven members ; and by s. 79 the reduction of the number of members below seven is a ground for winding up the company. Al- though in the present case there were, and are, seven members, yet it is manifest that six of them are members simply in order to enable the seventh himself to carry on business with limited liability. The object of the whole arrangement is to do the very thing which the legislature intended not to be done ; and, ingenious as the scheme is, it cannot have the effect desired so long as the law remains unaltered. This was evidently the view taken by Vaughan Williams J. The incorporation of the company cannot be disputed. (See s. 18 of the Companies Act, 1862.) Whether by any proceeding in the na- ture of a scire facias the Court could set aside the certificate of incor- poration is a question which has never been considered, and on which I express no opinion ; but, be that as it may, in such an action as this BEODEEIP V. SALOMON. 133 the validity of the certificate cannot be impeached. The company I must, therefore, be regarded as a corporation, but as a corporation \ created for an illegitimate purpose. Moreover, there having always ' been seven members, although six of them hold only one 11. share \ each, Mr. Aron Salomon cannot be reached under s. 48, to which I have already alluded. As the company must be recognized as a cor- poration, I feel a difficulty in saying that the company did not carry on business as a principal, and that the debts and liabilities contracted in its name are not enforceable against it in its corporate capacity. But it does not follow that the order made by Vaughan Williams J. is wrong. A person may carry on business as a principal and incur debts \ and liabilities as such, and yet be entitled to be indemnified against j those debts and liabilities by the person for whose benefit he carries / on the business. The company in this case has been regarded by'^ Vaughan Williams J. as the agent of Aron Salomon. I should rather/ liken the company to a trustee for him — a trustee improperly brought \ into existence by him to enable him to do what the statute prohibits. J It is manifest that the other members of the company have practically no interest in it, and their names have merely been used by Mr. Aron \ Salomon to enable him to form a company, and to use its name in j order to screen himself from liability. This view of the case is quite' consistent with In re George Newman & Co} In a strict legal sense the business may have to be regarded as the business of the company; but if any jury were asked. Whose business was it ? they would say Aron Salomon's, and they would be right, if they meant that the bene- ficial interest in the business was his. I do not go so far as to say \ that the creditors of the company could sue him. In my opinion, 1 they can only reach him through the companjr. Moreover, Mr. Aron^ Salomon's liability to indemnify the company in this case is, in my view, the legal consequence of the formation of the company in order to attain a result not permitted by law. The liability does not arise simply from the fact that he holds nearly all the shares in the com- pany. A man may do that and yet be under no such liability as Mr. Aron Salomon has come under. His liability rests on the purpose for which he formed the company, on the way he formed it, and on the use which he made of it. There are many small companies which will be quite unaffected by this decision. But there may possibly be some , which, like this, are mere devices to enable a man to carry on trade with limited liability, to incur debts in the name of a registered com- \ pany, and to sweep off the company's assets by means of debentures which he has caused to be issued to himself in order to defeat the claims of those who have been incautious enough to trade with the company without perceiving the trap which he has laid for them. . It is idle to say that persons dealing with companies are protected by s. 43 of the Companies Act, 1862, which requires mortgages of lim- ited companies to be registered, and entitles creditors to inspect the 1 [1895] 1 Ch. 674. 136 BRODEEIP V. SALOMON. register. It is only when a creditor begins to fear he may not be paid that he thinks of looking at the register ; and until a person is a cred- itor he has no right of inspection. As a matter of fact, persons do not ask to see mortgage registers before they deal with limited companies ; and this is perfectly well known to every one acquainted with the actual working of the Companies Acts and the habits of business men. Mr. Aron Salomon and his advisers, who were evidently very shrewd people, were fully alive to this circumstance. If the legislature thinks it right to extend the principle of limited liability to sole traders it will no doubt do so, with such safeguards, if any, at it may think necessary. But until the law is changed such attempts as these ought to be defeated whenever they are brought to light. They do infinite mischief ; they bring into disrepute one of the most useful statutes of modern times, by perverting its legitimate use, and by making it an instrument for cheating honest creditors. Mr. Aron Salomon's scheme is a device to defraud creditors. Agreeing as I do in substance with Vaughan Williams J., I do not think it necessary to investigate the question whether the so-called sale of the business to the company ought to be set aside. The only object of setting it aside is to obtain assets wherewith to pay the cred- itors, and this object can be attained on sound legal principles by the order which he has made. In the event, however, of this case going further, I will add that I regard the so-called sale of the business to the company as a mere sham, and that in my opinion it might, if neces- sary, be set aside by the company in the interest of its creditors, al- though all the shareholders, such as they were, knew of and assented to the arrangement. They were simply assisting Mr. Aron Salomon to carry out his scheme. I cannot regard In re British Seamless Pa^ fer Box Co} as an authority against a rescission of such a transaction as this. We have carefully considered the proper form of order to be made on this appeal, and the order of the Court will be as follows : The Court, being of opinion that the formation of the company, the agree- ment of August, 1892, and the issue of debentures to Aron Salomon pursuant to such agreement, were a mere scheme to enable him to carry on business in the name of the company with limited liability, contrary to the true intent and meaning of the Companies Act, 1862, and, fur- ther, to enable him to obtain a preference over other creditors of the company by procuring a first charge on the assets of the company by means of siich debentures, dismiss the appeal of Aron Salomon with costs ; and, it being unnecessary to make any order on the liquidators' cross-notice of appeal, discharge the order directing the liquidator to pay costs of the counter-claim, and give him those costs. LoPBS L. J. This is a case of very great importance, and I wish shortly to state my reasons for concurring in the judgment just de- livered. I do not propose to restate the facts so fully and clearly 1 17 Ch. D. 467. BEODERIP V. SALOMON. 137 detailed by Lindley L. J. : I shall content myself with shortly stating the impression they have produced on my mind. The incorporation of the company was perfect — the machinery by which it was formed was in every respect perfect, every detail had been observed ; but, not- \ withstanding, the business was, in truth and in fact, the business of j Aron Salomon ; he had the beneficial interest in it ; the company was a mere nominis umbra, under cover of which he carried on his business as before, securing himself against loss by a limited liability of 11. per share, all of which shares he practically possessed, and obtaining a \ priority over the unsecured creditors of the company by the deben-J tures of which he had constituted himself the holder. It would be lamentable if a scheme like this could not be defeated. If we were to permit it to succeed, we should be authorizing a perver- sion of the Joint Stock Companies Acts. We should be giving vi- tality to that which is a myth and a fiction. The transaction is a device to apply the machinery of the Joint Stock Companies Act to a state of things never contemplated by that Act — an ingenious device to obtain the protection of that Act in a way and for objects not au- thorized by that Act, and in my judgment in a way inconsistent with and opposed to its policy and provisions. It never was intended that > the company to be constituted should consist of one substantial person \ and six mere dummies, the nominees of that person, without any real / interest in the company. The Act contemplated the incorporation of seven independent bon§, fide members, who had a mind and a will of their own, and were not the mere puppets of an individual who, adopt- ing the machinery of the Act, carried on his old business in the same way as before, when he was a sole trader. To legalize such a trans^ action would be a scandal. But to what relief is the liquidator entitled ? In the circumstances of this case it is, in my opinion, competent for the Court to set aside the sale as being a sale from Aron Salomon to himself — a sale which had none of the incidents of a sale, was a fiction, and therefore in- valid ; or to declare the company to be a trustee for Aron Salomon, whom Aron Salomon, the cestui que trust, was bound to indemnify ; or to declare the formation of the company, the agreement of August, 1892, and the issue of the debentures to Aron Salomon pursuant to such agreement, to be merely devices to enable him to carry on busi- ness in the name of the company with limited liability, contrary to the true intent and meaning of the Companies Act, 1862, and further, to enable him to obtain a preference over other creditors of the company by obtaining a first charge on the assets of the company by means of such debentures. I wish to add that I am inclined to think that a scire facias would go to repeal the certificate of incorporation ; but I express no decided opinion on the point. The appeal will be dismissed with costs. [Kat L. J. delivered a concurring opinion.] \ ) 188 BRODEEIP V. SALOMON. From tlie above decision, Salomon appealed to the House of Lords. His appeal was brought in forma pauperis. The company brought a cross appeal against the part of the order refusing rescission of the contract for the sale of Salomon's business to the company. [The decision on these appeals is reported under the name of Salomon v. Salomon & Co. Limited.'] Cohen, Q. C, Buehley, Q. C, McCall, Q. C, and Muir Mackenzie, for Aron Salomon. Farwell, Q. C, and Theobald, for the company. LoED Halsbuet, Loed Chakcellok. My Lords : The important question in this case, and I am not certain that it is not the only ques- tion, is whether the respondent company was a company at all; whether, in truth, that artificial creation of the Legislature had been validly con- stituted in this instance ; and, in order to determine that question, it is necessary to look at what the statute itself has determined in that respect. I have no right to add to the requirements of the statute, nor to take from the requirements thus enacted. The sole guide must be the statute itself. I must pause here to point out that the statute enacts nothing as to the extent or degree of interesfwhich may be held by each of the seven, or as to the proportion of interest or influence possessed by one or the majority of the shareholders over the others. One share is enough. Still less is it possible to contend that the motive of becoming share- holders, or of making them shareholders, is a field of inquiry which the statute itself recognizes as legitimate. If they are shareholders they are shareholders for all purposes, and, even if the statute was silent as to the recognition of trusts, I should be prepared to hold that if six of them were the cestui que trusts of the seventh, whatever might be their rights inter se, the statute would have made them /lareholders to all intents and purposes with their respective rights and liabilities ; and dealing with them in their relation to the company, the only rela- tions which I believe the law would sanction would be that they were corporators of the corporate body. I will, for the sake of argument, assume the proposition that the Court of Appeal lays down, that the formation of the company was a mere scheme to enable Aron Salomon to carry on business in the name of the company. I am wholly unable to follow the proposition that this was contrary to the true intent and meaning of the Com- panies Act. I can only find the true intent and meaning of the Act from the Act itself, and the Act appears to me to give a company a legal existence with, as I have said, rights and liabilities of its own, whatever may have been the ideas or schemes of those who brought it into existence. I observe that the learned judge (Williams, J.,) held that the busi- ness was Mr. Salomon's business and no one else's, and that he chose BEODEEIP V. SALOMON. 139 to employ as agent a limited company. And he proceeded to argue that he was employing that limited company as agent, and that he ■was bound to indemnify that agent — the company. I confess it seems to me that that very learned judge becomes involved by this argument in a very singular contradiction. Either the limited company was a legal entity or it was not. If it was, the business belonged to it and not to Mr. Salomon ; if it was not, there was no person and no thing to be an agent at all ; and it is impossible to say at the same time that there is a company and there is not. The learned judges appear to me not to have been absolutely certain in their own minds whether to treat the company as a real thing or not. If it was a real thing, if it had a legal existence, and if, conse- quently, the law attributed to it certain rights and liabilities in its constitution as a company, it appears to me to follow as a consequence that it is impossible to deny the validity of the transactions into which it has entered. Williams, J. appears to me to have disposed of the argument that the company, which for this purpose he assumed to be a legal entity, was defrauded into the purchase of Aron Salomon's business, because, assuming that the price paid for the business was an exorbitant one, as to which I am myself not satisfied, but assuming that it was, the learned judge most cogently observes that when all the shareholders are perfectly cognizant of the conditions under which the company is formed and the conditions of the purchase, it is impossible to contend that the company is being defrauded. The truth is that the learned judges have never allowed in their own mind the proposition that the company has a real existence. They have been struck by what they considered the inexpediency of permitting one man to be, in influence and authority, the whole com- pany, and assuming that such a thing could not have been intended by the Legislature, they have sought various grounds upon which they might insert into the Act some prohibition of such a result. Whether such a result be right or wrong, politic or impolitic, I say, with the utmost deference to the learned judges, that we have nothing to do with that question if this company has been duly constituted by law, and, whatever may be the motives of those who constitute it, I must decline to insert into that Act of Farliamenl Llimitations which are> not to be foundtherg^ 1 Have aeait wirn this matter upon the narrow hypothesis pro- pounded by the learned judges below, but it is, I think, only justice to the appellant to say that I see nothing whatever to justify the imputations which are implied in some of the observations made by more than one of the learned judges. The appellant, in my opinion, V is not shown to have done, or to have intended to do, anything dis- I honest or unworthy, but to have suffered a great misfortune without 1 any fault of his own. 140 BEODEEIP V. SALOMON, The result is that I move your Lordships that the judgment ap- pealed from be reversed, but as this is a pauper case I regret to say it can only be with such costs in this House as are appropriate to that condition of things, and that this appeal be dismissed with costs to the same extent. Lord Watson. The allegations of the company, in so far as they have any relation to the amended claim, their pith consisting in the averments made on amendment, were meant to convey a charge of fraud, and it is unfortu- nate that they are framed in such loose and general terms. A relevant charge of fraud ought to disclose the specific facts necessitating the inference that a fraud was perpetrated upon some person specified. "Whether it was a fraud upon the company and its members, or upon persons who had dealings with the company, is not indicated, although there may be very different considerations applicable to those two cases. The res gestaa which might, imply that it was the appellant, and not the company, who actually carried on its business are not set forth. Any person who holds a preponderating share in the stock of a limited company has necessarily the intention of taking the lion's share of its profits, without any risk beyond loss of the money which , he has paid for or is liable to pay upon his shares, and the fact of his acquiring and holding debentures secured upon the assets of the com- pany does not diminish that risk. What is meant by the assertion that the company " was the mere nominee or agent " of the appellant, I cannot gather from the record, and I am not sure that I understand precisely in what sense it was interpreted by the learned judges whose decisions we have to consider. The Lords Justices of Appeal, in disposing of the amended claim, have expressly found that the formation of the company, with limited liability, and the issue of 10,O0OZ. worth of its debentures to the ap- pellant, were " contrary to the true intent and meaning of the Com- panies Act 1862." I have had great difficulty in endeavouring to interpret that finding. I am unable to comprehend how a company, which has been formed contrary to the true intent and meaning of a statute, and (in the language of Lindley, L. J.) does the very thing which the Legislature intended not to be done, can yet be held to have been legally incorporated in terms of the statute. " Intention of the Legislature " is a common, but very slippery phrase, which, popularly understood, may signify anything from intention embodied in positive enactment to speculative opinion as to what the Legislature probably would have meant, although there has been an omission to enact it. In a court of law or equity, what the Legislature intended to be done or not to be done can only be legitimately ascertained from that which it has chosen to enact, either in express words or by reasonable and necessary implication. Accordingly, if the words " intent and mean- BEODEKIP V. SALOMON. 141 ing," as they occvir in the finding of the Appeal Court, are used in their proper legal sense, it follows, in my opinion, that the company has not been well incorporated ; that, there being no legal corporation, there can be no liquidation under the Companies Acts, and that the counter- claim preferred by its liquidator must fail. In that case its creditors would not be left without a remedy, because its members, as joint traders without limitation of their liability, would be jointly and sever- ally responsible for the debts incurred by them in the name of the com- pany. I can conceive that there might be a limited company formed and registered by a person who had the sole interest in it, the other subscribing members being persons who were his aliases, and having no real existence ; and in that case also (which does not occur here) there would be no legal company, and the real owner of the concern would be liable for its debts to the full extent of his means. It seems doubtful whether a liquidator, as representing and in the name of the company, can sue its members for redress against a fraud which was committed by the company itself and by all its sharehold- ers. However, I do not- think it necessary to dwell upon that point, because I am not satisfied that the charge of fraud against creditors has any foundation in fact. Lord Heeschbll. [After stating the facts, and reciting the pre- vious proceedings.] It is to be observed that both courts treated the company as a legal i entity distinct from Salomon and the then members who composed it, j and therefore as a validly constituted corporation. This is, indeed, I necessarily involved in the judgment which declared that the company was entitled to certain rights as against Salomon. Under these cir- cumstances, I am at loss to understand what is meant by saying that A. Salomon and Company Limited is but an alias for A. Salomon. It is \ not another name for the same person ; the company is ex hypothesi a '■ distinct legal persona. As little am I able to adopt the view that the , company was the agent of Salomon to carry on his business for him. In a popular sense a company may in every case be said to carry on business for and on behalf of its shareholders, but this certainly does not in point of law constitute the relation of principal and agent be- tween them or render the shareholders liable to indemnify the company against the debts which it incurs. Here, it is true, Salomon owned all the shares except six, so that if the business were profitable he would be entitled substantially to the whole of the profits; The other share- holders, too, are said to have been " dummies," the nominees of Salo- mon. But when on ce it is conceded that they were individ ual memb er s nf t.he cnmTia.nv distinct from Salomon, ana suftlciently so to bring into e xisien cy^^jn-caaj ^ i ncrion with nim a validly const'iliut ed corporation_._I.. "am unab le to see how ihe facts "to which' 1 h&Ve jtis t refer red can a ffec t,.. _ ggiOT^, or ^iye ii,.ng.ii!rfrai:ai^£3SS^ bers which it would not _opSJ3BSe,.p«Qi§giSSS.._.,- 142 BRODEEIP V. SALOMON. The Court of Appeal based their judgment on the proposition that the formation of the company, and all that followed it, was a mere scheme to enable the appellant to carry on business in the name of the company, with limited liability, contrary to the true intent and meaning of the Companies Act 1862. The conclusion which they drew from this premiss was, that the company was a trustee and Salomon their cestui que trust. I cannot think that the conclusion follows even if the premiss be sound. It seems to me that the logical result would be that the company had not been validly constituted, and therefore had no legal existence. But, apart from this, it is necessary to ex- amine the proposition on which the court have rested their judgment, as its effect would be far reaching. Many industrial and banking concerns of the highest standing and credit have, in recent years, been, to use a common expression, converted into joint stock compa- nies, and often into what are called " private " companies, where the whole of the shares are held by the former partners. It appears to me that all these might be pronounced "schemes to enable" them "to carry on business in the name of the company, with limited liability," in the very sense in which those words are used in the judgment of the Court of Appeal. The proiits of the concern carried on by the company will go to the persons whose business it was before the transfer, and in the same proportions as before, the only difference being that the liability of those who take the profits will no longer be unlimited. The very object of the creation of the company, and the transfer to it of the business, is that, whereas the liability of the part- ners for debts incurred was without limit, the liability of the members for the debts incurred by the company shall be limited. In no other respect is it intended that there shall be any difference ; the conduct of the business and the division of the profits are intended to be the same as before. If the judgment of the Court of Appeal be pushed to its logical conclusion all these companies must, I think, be held to be trustees for the partners who transferred the business to them, and those partners must be declared liable, without limit, to discharge the debts of the company. For this is the effect of the judgment as re- gards the respondent company. The position of the members of a company is just the same whether they are declared liable to pay the debts incurred by the company, or by way of indemnity to furnish the compa,ny with the means of paying them. I do not think that the learned judges in the court below have contemplated the applica- tion of their judgment to such cases as I have been considering, but I can see no solid distinction between those cases and the present one. It is said that the respondent company is a " one-man " company, and that in this respect it differs from such companies as those to which I have referred. But it has often happened that a business transferred to a joint stock company has been the property of three or four persons only, and that the other subscribers of the memo- randum have been clerks or other persons who possessed little or no BEODEEIP V. SALOMON. 143 interest in the concern. I am unable to see how it can be lawful for three or four or six persons to form a company for the purpose of em- ploying their capital in trading, with the benefit of limited liability, and not for one person to do so, provided in each case the require- ments of the statute have been complied with, and the company has been validly constituted. How doe s i t „cffl aaa»B»»itba«ie««diifaai»MhafcheJL,. the ca pital of the cor njf|.i[)v is^ nw'™ h T^gpvp^p j'lf^rsnTis in equal sjiares., wlHi the rignt to an equal shar e of the profits, or whet her it is almost profits c 'i'he creditor has notice that he is dealing wim T company Lh« liability of the members of which is limited, and the register of shareholders informs him how the shares are held, and that they are substantially in the hands of one person, if this be the fact. The creditors in the present case gave credit to and contracted with a / limited company ; the effect of the decision is to give them the benefit as regards one of the shareholders, of unlimited liability. I have said that the liability of persons carrying on business can only be limited provided the requirements of the statute be complied with, and this leads naturally to the inquiry what are those requirements ? The Court of Appeal has declared that the formation of the respond- ent company and the agreement to take over the business of the appel- lant, were a scheme " contrary to the true intent and meaning of the Companies Act." I know of no means of ascertaining what is the intent and meaning of the Companies Act except by examining its provisions and finding what regulations it has imposed as a condition of trading with limited liability. The memorandum must state the amount of the capital of the company and the number of shares into which it is divided, and no subscriber is to take less than one share. The shares may, however, be of as small a nominal value as those who form the company please ; the statute prescribes no minimum, and though there must be seven shareholders, it is enough if each of them holds one share, however small its denomination. The Legislature^ therefore clearly sanctions a scheme by which all the shares, except j six, are owned by a single individual, and these six are of a value ' little more than nominal. It was said that in the present case the six shareholders other than the appellant were mere dummies, his nominees, and held their shares in trust for him. I will assume that this was so. In my opinion it makes no difference. The statute forbids the entry in the register of any trust, and it certainly contains no enactment that each of the seven persons subscribing the memorandum must be beneficially en- titled to the share or shares for which he subscribes. The persons who subscribe the memorandum or who have agreed to become mem- bers of the company, and whose names are on the registe r;^ are alone ygjded as. and, in fact, are. t.Vip. RliaTP,1ji^ij|](^pjH. They aresubjeci; to thpji n i bililry- v ->"'fr'^ attfl'^h'ia f^.thi^ t ,];)q ]| [ j jpgjj,^ rt tio share. They can be Compelled to make any payment which the ownership of a share 144 BKODEEIP V. SALOMON. involves. Whether they are beneficial owners or bare trustees is a matter with which neither the company nor creditors have anything to do>-it concerns only them and their cestui que trust if they have any. (If, then, in the present case all the requirements of the statute were complied with, and a company was effectually constituted, and this is the hypothesis of the judgment appealed from, what warrant is there for saying that what was done was contrary to the true intent and meaning of the Companies Act i) It may be that a company constituted like that under consideration was not in the contemplation of the Legislature at the time when the Act authorizing limited liability was passed ; that if what is possible under the enactments as they stand had 'been foreseen, a minimum sum would have been fixed as the least denomination of share per- missible, and it would have been made a condition that each of the seven persons should have a substantial interest in the company. But we have to interpret the law, not to make it ; and it must be remem- bered that no one need trust a limited liability company unless he so please, and that before he does so he can ascertain, if he so please, what is the capital of the company, and how it is held. Lord Macnaghten. My Lords : I cannot help thinking that the appellant, Aron Salomon, has been dealt with somewhat hardly in this case. [The opinion then discusses the evidence as to the formation of the company.] The company had a brief career ; it fell upon evil days. Shortly after it was started there seems to have come a period of great depres- sion in the boot and shoe trade. There were strikes of workmen too, and in view of that danger, contracts with public bodies, which were the principal source of Mr. Salomon's profit, were split up and divided between different firms. The attempts made to push the business on behalf of the new company crammed its warehouses with unsaleable stock. Mr. Salomon seems to have done what he could ; both he and his wife lent the company money, and then he got his debentures can- celled and reissued to a Mr. Broderip, who advanced him 5000^, which he immediately handed over to the pompany on loan. The temporary relief only hastened ruin. Mr. Broderip's interest was not paid when it became due. He took proceedings at once and got a receiver ap- pointed. Then, of course, came liquidation and a forced sale of the \\ company's assets. They realized enough to pay Mr. Broderip, but J not enough to pay the debentures in full, and the unsecured creditors 1 were consequently left out in the cold. i The order of the learned judge appears to me to be founded on a misconception of the scope and effect of the Companies Act, 1862. In order to form a company limited by shares, the Act requires that a memorandum of association should be signed by seven persons, who BEODEEIP V. SALOMON. 145 are each to take one share at least. If those conditions are complied with, what can it matter whether the signatories are relations or stran- gers ? There is nothing in the Act requiring that the subscribers to the memorandum should be independent or unconnected, or that they or any one of them should take a substantial interest in the undertak- ing, or that they should have a mind and will of their own, as one of the learned Lords Justices seems to think, or that there should be any- thing like a balance of power in the constitution of the company. In almost every company that is formed, the statutory number is eked out by clerks or friends, who sign their names at the request of the promoter of promoters without intending to take any further part or interest in the matter. When the memorandum is duly signed and registered, though there be only seven shares taken, the subscribers are a body corporate " capable forthwith," to use the words of the enactments, " of exercis- ing all the functions of an incorporated company." Those are strong words. The company attains maturity on its birth. There is no period of minority ; no interval of incapacity. I cannot understand how a body corporate thus made " capable " by statute can lose its individuality by issuing the bulk of its capital to one person, whether he be a subscriber to the memorandum or not. The company is at law a different person altogether from the subscribers to the memorandum, and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as mem- bers liable in any shape or form, except to the extent and in the man- ner provided by the Act. That is, I think, the declared intention of the enactment. If the view of the learned judge were sound, it would follow that no common law partnership could register as a company limited by shares without remaining subject to unlimited liability. Among the principal reasons which induce persons to form private companies as is stated very clearly by Mr. Palmer in his treatise on the subject, are the desire to avoid the risk of bankruptcy, and the in- creased facility afforded for borrowing money. By means of a private company, as Mr. Palmer observes, a trade can be carried on with limited liability and without exposing the persons interested in it in the event of failure to the harsh provisions of the bankruptcy law. A company too can raise money on debentures, which an ordinary trader cannot do ; any member of a company acting in good faith is as much entitled to take and hold the company's debentures as any outside creditor. Every creditor is entitled to get and to hold the best secur- ity the law allows him to take. If, however, the declaration of the Court of Appeal means that Mr. Salomon acted fraudulently or dishonestly, I must say that I can find nothing in the evidence to support such an imputation. The purpose 146 BEODEEIP V. SALOMON. for which Mr. Salomon and the other subscribers to the memorandum ■were associated was "lawful." The fact that Mr. Salomon raised 5000^. for the company on debentures that belonged to him seems to me strong evidence of his good faith and of his confidence in the company. The unsecured creditors of A. Salomon and Co. Limited may be entitled to sympathy, but they have only themselves to blame for their misfortunes. They trusted the company, I suppose, because they had long dealt with Mr. Salomon and he had always paid his way ; but they had full notice that they were no longer dealing with an individual, and they must be taken to have been cognisant of the memorandum and of the articles of association. It has become the fashion to call companies of this class " one-man companies." That is a taking nickname, but it does not help one much in the way of argument. If it is intended to convey the mean- ing that a company which is under the absolute control of one person is not a company legally incorporated, although the requirements of the Act of 1862 may have been complied with, it is inaccurate and misleading ; if it merely means that there is a predominant partner possessing an overwhelming influence and entitled practically to the whole of the profits, there is nothing in that that I can see contrary to the true intention of the Act of 1862, or against public policy, or detrimental to the interests of creditors. If the shares are fully paid up, it cannot matter whether they are in the hands of one or many. If the shares are not fully paid it is as easy to gauge the sol- vency of an individual as to estimate the financial ability of a crowd. Lord MoEEis. My Lords : I quite concur in the judgment which has been announced, and in the reasons which have been so fully given for it. Lord Da VET. My Lords : It is possible, and (I think) probable, that the conclusion to which I feel constrained to come in this case may not have been contemplated by the Legislature, and may be due to some defect in the machinery of the Act. But, after all, the inten- tion of the Legislature must be collected from the language of its enactments ; and I do not see my way to holding that if there are seven registered members, the association is not a company formed in compliance with the provisions of the Act, and capable of carrying on business with limited liability either because the bulk of the shares are held by some only, or even one of the members, and the others j, are what is called " dummies,'' holding, it may be, only one share of 1 11. each ; or because there are less than seven persons who are benefi-^ cially entitled to the shares. I think that this result follows from the absence of any provision fixing a minimum nominal amount of a share, the provision in sect. 8, that no subscriber shall take less than one share, and the provision in sect. 30, that no notice of any trust shall be entered on the register. BKODEEIP V. SALOMON. 147 With regard to the latter provision, it would, in my opinion, be im- possible to ■work the machinery of the Act on any other principle, and to attempt to do so would lead only to confusion and uncertainty^, The learned counsel for the respondents (wisely, as I thinEJ, "dldTnot lay any stress on the members, other thati the appellant, being trus- tees for him of their shares. Their argument was that they were " dummies," and did not hold a substantial interest in the company — i. 6., what a jury would say is a substantial interest. In the lan- guage of some of the judges in the court below, any jury, if asked the question, would say the business was Aron Salomon's, a nd no on e else's. It was not argued in this case that there was no association of seven persons to be registered, and that the registration therefore operated nothing, or that the so-called company was a sham and might be disregarded. And, indeed, it would have been difficult for the learned counsel for the respondents appearing, as they did, at your Lordships' bar for the company who had been permitted to liti- gate in the courts below as actors on their cpunter-claim, to contend that their clients were non-existent. I do not say that such an argu- ment ought to or would prevail ; I only observe that, having regard to the decisions, it is not certain that sect. 18, making the certificate of the registrar conclusive evidence that all the requisitions of the Act in respect of registration had been complied with, would be an answer to it. We start, then, with the assumption that the respondents have a corporate existence with power to sue and be sued, to incur debts and be wound-up, and to act as agents or as trustees, and I suppose, there- fore, to hold property. I am at a loss to see how in either view taken in the courts below the conclusion follows from the premises, or in what way the com- pany became an agent or trustee for the appellant, except in the sense in which every company may loosely and inaccurately be said to be an agent for earning profits for its members, or a trustee of its profits for the members amongst whom they are to be divided. There was certainly no express trust for the appellant, and an implied or con- structive trust can only be raised by virtue of some equity. I took the liberty of asking the learned counsel what the equity was, but got no answer. By an alias is usually understood a second name for one individual, but here, as one of your Lordships has already ob- served, we have, ex hypothesi, a duly formed legal persona, with cor- porate attributes, and capable of incurring legal liabilities. Nor do I think it legitimate to inquire whether the interest of any member is substantial when the Act has declared that no member need hold more than one share, and has not prescribed any minimum amount of a share. If, as was said in the Court of Appeal, the company was formed for an unlawful purpose, or in order to achieve an object not 148 BEODEEIP V. SALOMON. permitted by the provisions of the Act, the appropriate remedy (if any) would seem to be to set aside the certificate of incorporation, or to treat the company as a nullity, or, if the appellant has committed a fraud or misdemeanor (which I do not think he has), he may be proceeded against civilly or criminally ; but how either of these states of circumstances creates the relation of cestui que trust and trustee, or principal and agent, between the appellant and respondents, is not apparent to my understanding. 1 am, therefore, of opinion that the order appealed from cannot be supported on the grounds stated by the learned judges. But Mr. Farwell also -relied on the alternative relief claimed by his pleadings, which was quite open to him here, viz., that the contract for purchase of the appellant's business ought to be set aside for fraud. The fraud seems to consist in the alleged exorbitance of the price, and the fact that there was no independent board of directors with whom the appellant could contract. I am of opinion that the fraud was not made out. I do not think the price of the appellant's business (which seems to have been a genuine.one, and for some time a prosperous business) was so excessive as to afford grounds for re- scission, and as regards the cash portion of the price it must be observed that as the appellant held the bulk of the shares, or (the respondents say) was the only shareholder, the money required for the payment of it came from himself in the form either of calls on his shares or profits which would otherwise be divisible. Nor was the absence of any independent board material in a case like the pre- sent. I think it an inevitable inference from the circumstances of tl:e case that every member of the company assented to the puich ase,t / . and the company is bound in a matter intra vires by the unanimousj agreement of its members. In fact, it was impossible 'to say wh(|| was defrauded. In the original appeal, order appealed from reversed. In the cross appeal, order appealed from affirmed. FINNEGAN V. NOEEENBEEG. 149 CHAPTER IV. COEPOEATIONS DE FACTO. FINNEGAN v. NOEEENBEEa. 1893. 52 Minnesota, 289.1 GiLFiLLAN, C. J. Eight persons signed, acknowledged, and caused to be filed and recorded In the office of the city clerk in Minneapolis, articles assuming and purporting to form, under Laws 1870, ch. 29, a corporation, for the purpose, as specified in them, of " buying, own- ing, improving, selling, and leasing of lands, tenements, and heredita- ments, real, personal, and mixed estates and property, including the construction and leasing of a building in the city of Minneapolis, Minn., as a hall to aid and carry out the general purposes of the organization known as the ' Knights of Labor.' " The association received sub- scriptions to its capital stock, elected directors and a board of man- agers, adopted by-laws, bought a lot, erected a building on it, and, when completed, rented different parts of it to different parties. The plaintiff furnished plumbing for the building during its construction, amounting to $599.50, for which he brings this action against several subscribers to the stock, as copartners doing business under the firm name of the " K. of L. Building Association." The theory upon which the action is brought is that, the association having failed to become a corporation, it is in law a partnership, and the members liable as partners for the debts incurred by it. It is claimed that the association was not an Incorporation because — .First, the act under which it attempted to become incorporated, to wit. Laws 1870, ch. 29, is void, because its subject is not properly expressed in the title ; second, the act does not authorize the formation of corporations for the purpose or to transact the business stated in the articles ; third, the place where the business was to be carried on was not distinctly stated in the articles, and they had, perhaps, some other minor defects. It is unnecessary to consider whether this was a dsjure corporation, so that it could defend against a quo warranto, or an action in the 1 Statement and arguments omitted. — Ed. 150 FINNEGAN V. NOEEENBEEG. nature of quo warranto, in behalf of tlie state ; for, although, an asso- ciation may not be able to justify itself when called on by the state to show by what authority it assumes to be, and act as, a corporation, it may be so far a corporation that, for reasons of public policy, no one | but the state will be permitted to call in question the lawfulness of its f organization. Such is what is termed a corporation de facto, — thatj is, a corporation from the fact of its acting as such, though not in law J or of right a corporation. What is essential to constitute a body of men a de facto corporation is stated by Selden, J., in Methodist, etc., Church, V. Pickett, 19 N. Y. 482, as " (1) the existence of a charter or some law under which a corporation with the powers assumed might lawfully be created ; and (2) a user by the party to the suit of the rights claimed to be conferred by such charter or law." This states ment was apparently adopted by this court in East Norway Church v. Froislie, 37 Minn. 447, (35 N. W. Rep. 260 ;) but, as it leaves out of account any attempt to organize under the charter or law, we think the statement of what is essential defective. The definition in Taylor on Private Corporations (page 145) is more nearly accurate : " When a body of men are acting as a corporation, under color of apparent organization, in pursuance of some charter or enabling act, their author- ity to act as a corporation cannot be questioned collaterally." To give a body of men assuming to act as a corporation, where there has been no attempt to comply With the provisions of any law authoriz- ing them to become such, the status of a de facto corporation might open the door to frauds upon the public. It would certainly be impoli- tic to permit a number of men to have the status of a corporation to any extent merely because there is a law under which the3' might have become incorporated, and they have agreed among themselves to act, and they have acted, as a corporation. That was the condition in Johnson v. Corser, 34 Minn. 355, (25 N. W. Rep. 799,) in whicb it was held that what had been done was ineffectual to limit the individ- ual liability of the associates. They had not gone far enough to become ft de facto corporation. They had merely signed articles, but had not attempted to give them publicity by filing for record, which the statute required. " Coloi; of apparent organization under some charter or enabling act " does not mean that there shall have been a full compliance with what the law requires to be done, nor a substantial compliance. A t substantial compliance will make a corporation de jure. But there / must be an apparent attempt to perfect an organization under the law. There being such apparent attempt to perfect an organization, the | failure as to some substantial requirement will prevent the body being r, a corporation de jure ; but, if there be user pursuant to such attempted organization, it will not prevent it being a corporation de facto. [The Court then held, that the subject of the act was properly expressed in the title, and that the statute authorized the formation of corporations for the purposes stated in the articles signed by these JONES V. ASPEN HARDWARE CO. 151 defendants. The opinion then proceeds as follows :] The omission to state distinctly in the articles the place within which the business is to be carried on, though that might be essential to make it a de jure corporation, would not prevent it becoming one de facto. The foundation for a de facto corporation having been laid by the attempt to organize under the law, the user shown was sufficient. Judgment [for defendants] affirmed. JONES V. ASPEN HAEDWAEE CO. 1895. 21 Colorado, 263.1 Ekroe to the District Court of Pitkin County. The Aspen Hardware Company- instituted this suit in the court below for the purpose of recovering a stock of goods seized by the United States marshal under a writ of attachment issued out of the circuit court of the United States at the suit of Joseph A. Thatcher, plaintiff, against one A. B. Bads. The only question in the case has reference to the corporate capacity of defendant in error, it not hav- ing filed, prior to the attachment levy, its ^cestifi£atfijj£Jncorpor-a- tion with the se cretary of state, as requi re d by statii te^ Session Laws of 1887, p. 4067^ In the district court judgment was entered in favor of the company. The statute reads as follows : " Every corporation . . . incorporated by or under any general or special law of this state, . . . shall pay to the secretary of state for the use of the state, a fee [proportioned to the amount of capital stock]. . . . The said fee shall be due and payable upon the filing of the certificate of incorporation, articles of association, or charter of said corporation, ... in the office of the secretary of state ; and no such corporation . . . shall have or exercise any corporate powers or be permitted to do any business in this state until the said fee shall have been paid ; and the secretary of state shall not file any certifi- cate of incorporation, articles of association, charter or certificate of the increase of capital stock, . . . until said fee shall have been paid to him. . . ." In 1889, Bowles, Eads, and Kettler formed an organization known as the Aspen Hardware Company. They intended that the company should be legally incorporated. To this end they caused to be exe- cuted articles of incorporation, on Nov. 16, 1889, in due form ; and immediately filed the same with the clerk and recorder of Pitkin County. Eor some reason not explained by the evidence, the articles were not filed in the office of the secretary of state until after the levy of the writ of attachment hereinafter referred to, and not until the day upon which this suit in replevin was instituted, but whether 1 Statement abridged. Part of opinion omitted. —Ed. ISa JONES V. ASPEN HARDWARE CO. before or after the commencement of this action does not clearly appear from the evidence. After the articles were filed with the county clerk, the directors therein named, of whom Eads was one, held a meeting, elected offi- cers, caused capital stock to be issued, &c. Eads, thereupon, for a valuable consideration, sold and transferred to the new organization the stock in trade of a hardware business ; and Bowles from that time conducted the business for the Aspen Hardware Company, selling goods and purchasing new goods in the corporate name. The business was thus continued until July 31, 1890, when a suit was commenced by Thatcher against Eads, and the property in ques- tion levied upon as the property of the defendant in that suit ; and this action of replevin was immediately instituted to recover posses- sion of the property, or its value. A. B. MeKinley, Hugh Butler, and Wilson & Salmon, for plaintiff in error. H. W. Clark, and W. W. Cooley, for defendant in error. Hatt, C. J. . . . The controversy in this case is narrowed to the single question of the capacity of defendant in error to take title to the property in controversy as a corporation at the time of the attempted transfer by Eads, it not having at that time filed its articles of incor- poration with the secretary of state, or paid the fee for such filing, as provided by the statute of 1887. Session Laws of 1887, p. 406. The language of the act is plain and unambiguous. It reads, " no such corporation . . . shall have or exercise any corporate powers. . . ." The taking of title to property was certainly the exercise of a y corporate power, and as such prohibited by the express terms of the statute. This is not controverted by counsel for appellee, but it is contended that Eads having assisted in the organization of the cor- poration, and having sold to it the hardware stock, is estopped from denying the corporate existence of the company, and that the attach- ing creditor took the property subject to the same estoppel. The doctrine of estoppel cannot be successfully invoked, we think, unless the corporation has at least a de facto existence. The rule is stated as follows by Morawetz on Private Corporations, sec. 760, it having been first announced in the case of Brouwer v. Appld)y, 1 Sandf. 168 : " A defendant who has contracted with a corporation de facto is never permitted to allege any defect in its organization as V affecting its capacity to contract or sue, but that all such objections, if valid, are only available on behalf of the sovereign power of the state." It is also well settled that to constitute a de facto corporation there must be either a charter or a law authorizing the creation of such a corporation, with an attempt in good faith to comply with its terms, and also a user or attempt to exercise corporate powers under it. Buggan v. The Colo. Mort. & Imv. Co., 11 Colo. 113 ; Bates et al. v. Wilson et al, 14 Colo. 140. JONES V. ASPEN HAKDWARE CO. 153 [A de facto corporation can never be recognized in violation of a positive lawrv This principle, which seems to be supported by all the authorities, As thus stated by Morawetz on Private Corporations, sec. 758 : " If the formation of a corporate association is not only prohibited by this general rule of the common law, but is also in vio- lation of some principle of morality or public policy, or a positiv e statutory prnhihition. the parties forming such association will not be legally bound by their agreement of membership, and the courts will not recognize the association, either as among its members or against third parties." To recognize the defendant as a de facto corporation, would, as we have seen, be in direct conflict with the express language of the act, which declares that without the payment of the fee the corporation shall have no corporate power. One object of this statute is to restrict the organization of "wild- cat '' corporations, it being supposed that the increased fee required by the act would, in a measure at least, prevent the overcapitalization of companies. The legislature being of the opiniod that this purpose would be advanced by requiring the fee to be paid as a condition precedent to the exercise of any corporate power, it is the duty of the courts to give effect to this intent as the same is manifest from the plain language of the act. The taking of title to the property in controvery being the exercise of a corporate power, and, as such, forbidden until the fee for filing has been paid, it follows that the title of The Aspen Hardware Com- pany as a corporation cannot be upheld. Having failed to comply with the statute, The Aspen Hardware Company at the time of the ■, transfer was neither a de jure nor a de facto corporation, but simply a \ voluntary association of individuals in the nature of a copartnership. There is a broad distinction between those acts made necessary by the statute as a prerequisite to the exercise of corporate powers and those acts required of individuals seeking incorporation, but not made prerequisites to the exercise of such powers. " In respect to the former, any material omission will be fatal to the existence of the corporation, and may be taken advantage of collat- erally, in any form in which the fact of incorporation can properly be called in question. In respect to the latter, the incorporation is responsible only to the government in a direct proceeding to forfeit the charter.'' Abbott v. Omaha Smelting & Refining Company, 4 Neb. 416. The omission in this ease is of acts of the former class, and consequently there was no corporation in esse at the time of the levy I of the writ, while the evidence leaves it in doubt if this omission 1 had been supplied prior to the institution of the present action. But although it could not at the time exercise any corporate power, this did not prevent The Aspen Hardware Company from taking title to the property as a copartnership. In other words, under the con- ceded facts, the company was not at the time a corporation, but this will not preclude it from maintaining the action as a copartnership. 154 Mclennan v. hopkins. The plaintiff sues as The Aspen Hardware Company, and the facts alleged show that such company was a copartnership and not a corpo- ration. There is nothing in the name of the association to conflict with this, as at common law partners may carry on business under any name they choose. They are bound rather by their acts than by the style which they give to themselves. Cook on Stock and Stock- holders, sec. 233 ; Chaffee v. Lvdeling, 27 La. Ann. 607. This principle has been applied in many cases where parties have set up the defense of individual nonliability by reason of having directed an incorporation to be had, but where none in fact was con- summated. Cook on Stock and Stockholders, sees. 233, 234; Abbott V. Omaha Smelting & Refining Co., supra ; Empire Mills v. Alston Grocery Co., 15 S. W. Eep. 505 (Texas). The law having cast this liability upon the members of the associ- tion, we think they must be given the advantages accorded a copart- nership. So, in this case, while we feel compelled under the statute to deny plaintiff's right of recovery as a corporation, we think they may maintain the action as a copartnership. The cause will accordingly be reversed and remanded, with directions to the district court to allow the parties to amend their pleadings as they may be advised. Reversed, Gabveb, J. IN McLEKNAl^ v. HOPKINS. 1895. 2 Kansas Court of Appeals, 260, pp. 265-268.1 Gaever J. . . . The question still remains, was the Bank of Dorrance a corporation de facto ? We think not. It is difficult, and perhaps unnecessary, to attempt to reconcile the many decisions bearing on this question. Between some of them there is an irreconcilable conflict, so that, when we come to determine what is a de facto corporation, we are met by a diversity of authority. The rule recognized by the Supreme Court of this state is thus stated by Mr. Justice Brewer in Pape v. Capital Bank, 20 Kan. 440 : " When parties have associated themselves to-\ gether for the purpose of organizing a corporation under a general law, and have proceeded in good faith to take all the steps supposed necessary to complete such incorporation, and on the faith thereof engage in business as a corporation for a series of years, a party who has repeatedly dealt with them as such corporation will not, when sued on a note and mortgage held by it, be permitted to show, as a defense to the action, that there was some mere technical omission in the steps prescribed for incorporation. The corporation is one de ) facto ; and only the state can then inquire — and that in a direct pro- 1 The extracts from the opinion are reprinted from 41 Pacific Reporter, pp. 1062, 1063. ^Ed. Mclennan v. hopkins. 155 eeeding — whether it be one de jure. . . . There must in such cases be a law under which the incorporation can be had. There must also be an attempt in good faith on the part of the incorporators to incor- porate under such law. And when, after this, there has been for a se- ries of years an actual, open, and notorious exercise, unchallenged by the state, of the powers of a corporation, one who is sued on a note held by such corporation will not be permitted to question the validity of the incorporation as a defense to the action. No mere matters of technical omission in the incorporation, no acts of forfeiture from misuser after the incorporation, are subjects of inquiry in such an action." The attempt to incorporate, referred to in that case, must be something more than the mere physical organization, or formal arrangement into a working force, of the promoters of the enterprise. Something must be done beyond the mere transaction of business in the manner and form usually adopted by corporations. There must also be something more tangible and effective than a mere mental operation in the direction of what is intended. The steps taken and the attempt made must, to some extent and in some degree, have re- sulted in the eifecting of those things which the law designates as a prerequisite to a corporate existence, however informal and irregular such proceedings and results may be. Had the articles of incorpora-. tion been prepared and recorded or filed as required by the statute, and the organization had been otherwise effected as shown in this case, no question could be thus raised as to the fact of a corporate existence because of defects and irregularities in the attempted organization, or in the articles of incorporation. But, an entire failure on the part of the officers of the bank to prepare and exe- cute the certificate or articles of incorporation required by law, and an entire failure to file a certificate or statement of any kind whatever in the office of the register of deeds of the county, or in the office of the secretary of state, left the organizers of this bank without a shadow of legal corporate existence. There was no sub- stantial compliance with the law, and there could be no de facto cor- poration. We are supported in this conclusion by the following cases : Bigelow v. Gregory, 73 111. 197 ; Kaiser v. Bank, 56 Iowa, 104, 8 N. W. 772 ; Shehle v. Strong, 128 Pa. St. 315, 18 Atl. 397 ; Hill v. Beach, 12 N. J. Eq. 31 ; Stout v. Zulick, 48 N". J. Law, 599, 7 Atl. 362 ; Abbott V. Smelting Cy., 4 Neb. 416 ; Society Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357; Railroad Co. v. Cary, 26 N. Y. 77; Hurt v. Salisbury, 55 Mo. 310 ; Smelting Co. v. Bichards, 95 Mo. 106, 8 S. W. 246 ; Whipple v. Parker, 29 Mich. 369. In the cases cited, there was a failure on the part of the organizers of the claimed corporation to\ do some act, generally the neglect to file the articles of association or \ incorporation, made by the statute a prerequisite to corporate exist- ence ; and the rule clearly and forcibly laid down is that in such case / there is no de facto corporation, and that the claimed corporate exist-/ ence may be attacked collaterally. An exception to this rule exists 156 DAVIS V. STEVENS. in cases where one is sued by the alleged corporation upon a contract in which the corporate capacity is recognized. To this effect are Jones v. Foundry Co., 14 Ind. 89 ; Meikel v. Fund Sac, 16 Ind. 181 ; Irrigation Co. v. Warner, 72 Cal. 379, 14 Pac. 37 ; Masse]/ v. Building Ass'n, 22 Kan. 379. In those cases another principle is invoked, wliich does not permit a party to avoid the obligation of his contracts upon the mere technical objection that the party with whom he con- tracted had not the legal capacity to enter into the contract of which he has had the benefit. The distinction between that class of cases and the case under consideration is obvious. It is equally well set^ tied that a substantial, though imperfect and irregular, compliance with the law, in a bona iide attempt to incorporate, followed by a user of corporate rights, will create a de facto corporation, and the corpo- rate existence cannot be collaterally questioned by one dealing with it as a corporation. To this effect are Baker v. Heff, 73 Ind. 68 ; Wil- liamson v. Ass'n, 89 Ind. 389 ; Rice v. Railroad Co., 21 111. 93 ; Rail- road Co. V. Cary, 26 N. Y. 75 ; Mining Co. v. Woodbury, 14 Cal. 424 ; Oroville, etc., R. Co. v. Plumas Co., 37 Cal. 361 ; Swartwout v. Rail- road Co., 24 Mich. 389. We think the facts shown by the record justified the trial court in holding the plaintiffs in error liable as partners for the debts of the bank. DAVIS V. STEVENS. 1900. 104 Federal RepoHer, 235.1 In the U. S. District Court for the District of South Dakota. On March 21, 1900, creditors of the Bank of Plankinton filed a pe- tition, praying that the Bank of Plankinton be adjudged bankrupt, as a private banking institution, and a co-partnership consisting of the above-named defendants. In their answer defendants deny generally the allegations of the petition, and, further answering, allege that the Bank of Plankinton was during the times alleged in the petition, and now is, a corporation duly organized under the laws of the territory of Dakota and the state of South Dakota. It appears from the testi- mony and admission of the parties to this proceeding that on the 27th day of November, 1885, articles of incorporation, duly signed and ac- knowledged by Edwin S. Eowley, Pred L. Stevens, Charles A. John- son, Joseph D. McCormick, and William M. Smith, were duly filed in the office of the secretary of the territory of Dakota, wherein it was stated that the business of the proposed corporation, which was to be 1 Statement abridged. Only eo much of the opinion is given as relates to a single point -Ed. DAVIS V. STEVENS. 157 called the Bank of Plankinton, should be a general banking, real estate, and loan business. Upon the filing of said articles there was issued by the secretary of the territory of Dakota a certificate of cor- porate existence to the parties above named, wherein it was certified that said parties, their associates and successors, had become a body politic and corporate under the corporate name of Bank of Plankinton. ... It further appears that the Bank of Plankinton did business as a banking corporation from the time of its alleged incorporation until about Jan. 10, 1900, when it closed its doors and ceased to do business. Oakland, District Judge. . [After stating the case, j It is claimed by the petitioners that, as there was no law 'of the territory of Dakota which authorized the incorporation of individuals to do a banking business, the defendants in this proceeding, who are alleged to have owned stock in this corporation, were simply partners, and as such were doing business as a private bank, and thus subject to be adjudi- cated a bankrupt as a private bank. It is contended by the defend- ants that whether or not the Bank of Plankinton was a corporation cannot be inquired into collaterally, and that the state of South Da- kota is the only power which could, by proceedings in the nature of a quo warranto, inquire into the legal organization of this corporation. If the Bank of Plankinton was a de facto corporation, this position would be unassailable. But, in order that there may be a defaoto cori poration, it must have been possible for the territory of Dakota to havai chartered a dejure corporation, and as there was no law of the terri-'| tory of Dakota permitting the incorporation of banking corporations j at the time the Bank of Plankinton received its certificate of corporate | existence, it results that there cannot be a de facto corporation. The limitation of the doctrine that the validity of corporate existence can- not be litigated collaterally is that, where there is no law under which a corporation might exist, then the validity of corporate existence may be attacked collaterally. Heastonv. Railroad Co., 16 Ind. 275; Krutz V. Town Co., 20 Kan. 397 ; Eaton v. Walker, 76 Mich. 579, 43 N. W. 638, 6 L. E. A. 102 ; 1 Thomp. Corp. § 505. As is said in section 502, 1 Thomp. Corp. : " We must not get too far away from the primal proposition that the legislature alone can create a corporation, and that a collection of in- dividuals cannot make themselves a corporation by merely resolving to be such, or calling themselves such. The three tailors of Tooley street did not make themselves the people of England by passing a resolution in which they styled themselves such. There must be some basis for the operation of the rule, and accordingly we find a better ~ statement of it in the proposition that where a corporation exists de facto, and in fact exercises corporate powers, the question whether it exercises such powers lawfully cannot be litigated in a collateral pro- ceeding between private parties, or between a private party and the corporation. The question can only be litigated between the corpora- tion and the state." 158 MONTGOMEEY V. FORBES. Defendants invoke section 2892 of the Compiled Laws of Dakota, which is in the following language : « The due incorporation of any company claiming in good faith to be a corporation under this chapter and doing business as such, or its right to exercise corporate powers, shall not be inquired into collater- ally in any private suit to which such de facto corporation may be a party, but such inquiry may be had and action brought at the suit of the territory in the manner prescribed in the Code of Civil Procedure." This section, as I understand it, simply declares the law in the same manner that the courts declare it. It presupposes that there is a de facto corporation, which cannot exist if there could have existed no de jure corporation. In the case of Oroville & V. H. Co. v. Supervisors of Plumas Qo., 37 Cal. 364, it was held by the Supreme Court of Cali- fornia that a similar provision in the laws of that state did not go to the extent of precluding private persons from denying the existence dejure or de facto of the alleged corporation. As the claims of the creditors who are petitioners in this action arise from simply depositing money with the Bank of Plankinton, there is no such relation between the bank and the creditors as would allow the principle of estoppel to be urged. I, therefore, am of the opinion that the parties interested in the Bank of Plankinton were co- partners. [Petition dismissed for other reasons.] ^ w MONTGOMEEY v. POEBES. 1889. 148 Mass. 249. Contract, to recover the price of goods sold and delivered. At the trial in the Superior Court, before Dewey, J., the only ques- tion was whether the goods were sold to a corporation called the Forbes Woolen Mills, or to the defendant as doing business under that name. The plaintiffs introduced evidence tending to show that subsequently to May, 1885, they received an order for the goods by a letter, written upon paper with the printed heading, " Incorporated 1885. Porbes 1 If the statute which purports to authorize incorporation, and under which there has been a honAJide attempt to organize, is subsequently held to be unconstitutional, doe^ this prevenfr the organization from occupying the position of a de facto corporation ? (vovA ^ For an afBrmative answer, see Eaton v. Walker, 76 Michigan, 679 (and compare Sranden- stein V. Hoke, 101 California, 131; the case of a Levee District). For cases holding that shareholders and persons contracting with such an organization are precluded from denying its corporate existence, see Winget v. Quincy, ^c. Association, 128 Illinois, 67, p. 84; Building, fc. Association v. Chamberlain, 4 South Dakota, 271; Rich- ards V. Minnesota Savings Bank, 75 Minn. 196, pp. 205-206, ; Gardner v. Minneapolis, ^c R. Co. 73 Minn. 517, pp. 526-528. — Ed. ^y MONTGOMEKY V. FOKBES. 169 Woolen Mills. George E. Forbes, Treasurer," and signed, "Forbes Woolen Mills by Geo. E. Forbes, Treasurer" ; that tliej' thereupon shipped the goods to the Forbes Woolen Mills and received in paj-ment therefor three promissorj' notes, together equal to the price of the goods, signed "Forbes Woolen Mills b}- Geo. E. Forbes, Treasurer"; that when they sold the goods and took the notes, thej' understood from their correspondence with the defendant, as well as from information gained from a commercial agency, that the Forbes Woolen Mills were a corporation, and made all charges on their books against them as a corporation, and took the notes from the defendant as the notes of a corporation ; and that after they sold the goods and received the notes they became satisfied there was no such corporation as the Forbes Woolen Mills ; and contended that they were entitled to recover the price of the goods from the defendant personally. The defendant contended that the Forbes Woolen Mills was a cor- poration, and testified that he purchased the goods as treasurer of the Forbes Woolen Mills, but admitted that they had not been paid for except by the notes, which themselves had not been paid ; that in May, 1885, for the purpose of limiting his personal responsibility, and because the tax laws of New Hampshire were more favorable to corporations than the Massachusetts laws, he went to Nashua, New Hampshire, to form a corporation for the manufacture of woollen goods ; that he em- ployed an attorney at law of Nashua to incorporate the company in a legal and proper manner, under the laws of that State, and subse- quently paid him for his services and disbursements in the premises ; that he went to Nashua again, and with the attorney and three other persons, selected and secured by the attorney, signed and executed an agreement of association, which was dated May 6, 1885, and was duly recorded in the ofBce of the Secretary of State of New Hampshire on May 12, 1885, and in the office of the clerk of the city of Nashua on May 13, 1885, and recited that the subscribers associated themselves for the purpose of forming a corporation, to be called the Forbes Woolen Mills, the amount of the capital stock to be twenty thousand dollars, divided into four hundred shares of fifty dollars each ; and that the object of the corporation was to manufacture and sell woollen and other goods, and the places of business were Nashua in New Hamp- shire, and East Brookfield in Massachusetts. The defendant further testified that, subsequently to the execution of the agreement of association, one or more meetings were held by the signers, at which he was elected president and treasurer of the cor- poration, and such other officers and directors were elected as were necessary under the laws of New Hampshire ; that the attorney had been recommended to him as a reputable and reliable man and attorney, and he left everything in his hands, and supposed he did everything necessary and proper to establish the corporation in a legal manner ; that records of the meetings were kept by the attorney, and that there was a stock-book and certificates of stock were issued ; that all the 160 MONTGOMERY V. FORBES. stock was issued to the defendant, and that no other person was inter- ested in it ; that fifty per cent of the capital stock of the corporation was actually paid in by him in cash and supplies ; that after the or- ganization of the corporation he hired, as treasurer of the corporation, a mill in East Brookfleld belonging to his mother, Roxanna Forbes, and himself, and began the manufacture of woollen goods ; that he pur- chased the necessary supplies, including those named in the plaintiffs account, and placed them under the direction of a superintendent, era- ployed to supervise the raanufaicture of the goods ; that there was no manufacturing done in Nashua, nor any other business except the holding of corporate meetings, and possibly the sale now and then of a bill of goods in the ordinary course of business ; and that the prin- cipal place of business of the corporation was in East Brookfleld ; that he, as president and treasurer of the corporation, continued to manu- facture woollen goods for about four months, and sent the goods to commission houses in New York to be sold ; and that at the end of said four months he was unable to continue the business and gave it up, and no further business was done by him or by the corporation. The following sections of chapter 152 of the General Laws of New Hampshire of 1878, were introduced in evidence : " Sect. 1. Any Ave or more persons of lawful age may, by written articles of agreement, associate together, for agricultural, educational, or charitable purposes, or for carrying on any lawful business, except banking and the construction and maintenance of a railroad ; and when such articles have been executed and recorded in the office of the clerk of the town in which the principal business is to be carried on, and in that of the Secretary of State, they shall be a corporation, and such corporation, its officers and stockholders, shall have all the rights and powers, and be subject to all the duties and liabilities of similar cor- porations, their officers and stockholders, except so far as the same are limited or enlarged by this chapter. " Sect. 2. The object for which the corporation is established, the place in which its business is to be carried on, and the amount of capi- tal stock to be paid in, shall be distinctly set forth in its articles of agreement." Upon this evidence, the defendant asked the judge to rule that the plaintiffs were not entitled to recover, that the account in question had been paid by the notes of the Forbes Woolen Mills as a corporation, and that there was no evidence to authorize the jury to find for the plaintiffs. The judge declined so to rule, and submitted the following questions to the jury : " 1st. Did the Forbes Woolen Mills and the members of said alleged corporation, including said Forbes, at the time of its at- tempted organization, intend to carry on its business as a manufactur- ing corporation (other than holding meetings of its members and officers) in whole or in part in the city of Nashua, New Hampshire? 2d. Was there an attempt in good faith on the part of the defendant, MONTGOMERY V. FORBES. ^ 161 fortes, to organize the corporation of the Forhes Woolen Mills? 3d. Did said Forbes, at and prior to the time the goods in controversy were ordered, namely, at all times after May 12, 1885, during his deal- ings with the plaintiff, believe that the organization of said Forbes Woolen Mills was a valid corporation?" The jury answered the first two questions in the negative, and the third in the affirmative. The judge, being of the opinion that, upon the findings of the jury and the uncontradicted evidence in the case, the plaintiffs were entitled to recover, directed the jury to return a verdict for the plaintiffs, and reported the case for the determination of this court. W. B. Harding S H. F. Harris, for the plaintiffs. B. W. Potter <& M. M. Taylor, for the defendant. C. Allen, J. The apparent corporation was not a corporation. Tlie statute of New Hampsliire requires five associates, and the articles of agreement must be recorded in the town in which the principal business is to be carried on, and the place in whicli the business is to be carried on must be distinctl}- stated in the articles ; otherwise there is no corporation. The defendant's pretended associates were asso- ciates only in name ; he alone was interested in the enterprise. The articles of agreement were recorded in Nashua, and stated that the business was to be carried on there ; but it was not in fact carried on there, and was not intended to be. The defendant took all the shares of the capital stock, and paid in to himself as treasurer only fifty per cent of the amount thereof. This is not a case where there has been a defective organization of a corporation which has a legal existence under a valid charter. Here there was no corporation. It was just the same as if the defendant had done nothing at all in the way of establishing a coi'poration, but had conducted his business under the name of the Forbes Woolen Mills, calling it a corporation. Tlie busi- ness was his personal business, which he transacted under that name. Fuller V. Hooper, 3 Gray, 334, 341. Bryant v. Eastman, 7 Cush. 111. The jury found that he did not in good faith attempt to organize the corporation, but that he believed it to be a valid corporation. His belief, in view of the facts of the case, is immaterial. Under this state of things, the defendant bought goods of the plaintifl!'s for his own sole benefit, adopting the name of the apparent corporation, which had no real existence, and which represented nobody but himself. He cannot escape responsibility for his purchases by the device of putting such a mere name between himself and the plaintiffs. The purchase was in substance by and for himself alone. The plaintiffs might have repudi- ated the transaction, and maintained replevin, if they had learned the facts in time. They may also treat the transaction as a sale to the defendant personally. Fay v. Noble, 7 Cush. 188, 194. Kelner v. Baxter, L. E. 2 C. P. 174, 183, 185. 2 Kent Com. (13th ed.) 630. Since the notes represented nothing, the plaintiffs were at liberty to 162 INDIANAPOLIS FURNACE CO. V. HEEKIMEB. treat them as void, and recover on the original contract for goods sold. Melledge v. Boston Iron Go. 5 Cush. 158, 171. Verdict to stand. INDIANAPOLIS FURNACE CO. v. HERKIMER. 1873. 46 Indiana, 142.1 Feom the Marion Circuit Court. Hendricks, Hard & Hendricks and Test, Burns & Wright, for appellant. J. JE. McDonald and J. M. Butler, for appellee. "VVoRDEN, J. Complaint by the appellant against the appellee on the following paper subscribed by the defendant. "Articles of association of the Indianapolis Furnace and Mining Company, organized for the purpose of operating in the counties of Marion and Claj', in the State of Indiana. " Article First. The name of said companj' shall be the Indianapolis Furnace and Mining Company. " Article Second. The capital stock of said company shall be one hundred thousand dollars, and be divided into shares of fifty dollars each, to be paid for in such amounts and at such times as may be ordered by the board of directors. " Article Third. The stockholders shall elect directors, who shall from their number elect a president, secretary, and treasurer, who shall hold their office for one year and until their successors are elected and qualified. " Article Fourth. The board of directors shall have the control and management of the business of the companj-, except as they may ap- point some one or more persons to take charge of the same, in which case the record of the action of the board in appointing them shall be evidence of their authority to act for said compan3^ "Article Fifth. The board of directors shall have power to make assessments on stoclt, collect the same, issue cei'tificates therefor, and declare and pay dividends, which shall be at least twice a year. "Article Sixth. All the expense incurred by the companj- shall be paid, and all the indebtedness of the same shall likewise be discharged before any dividends shall be paid to the stockholders, unless the direc- tors shall direct otherwise. " Article Seventh. We, the undersigned, hereby subscribe to all the foregoing articles, provisions, conditions, and stipulations, and agree to the organization of a company as therein stated, binding ourselves to take and pay for the number of shares of stock set opposite our names respectively, and pay for the same at such times and in such 1 Only part of the opinion is given. — Ed. INDIANAPOLIS FUENACE CO. V. HERKIMER. 163 amounts as the board of directors may order the same to be paid for, without relief from valuation or appraisement laws. " Subscribers' Names. No. of Shares. " J. D. Herkimer, by D. Root, 100." There were three paragraphs in the complaint, each counting upon the same instrument, in each of which it was alleged that at the time of the execution of the instrument by the defendant, the plaintiff was a duly organized corporation ; but it is not alleged in either paragraph that after the execution of the instrument any steps were taken to per- fect the organization. The defendant demurred to each paragraph, assigning for cause the want of a statement of sufflcieAt facts, but the demurrers were over- ruled, and the defendant excepted. The defendant then answered, 1. By general denial. 2. Nul tiel corporation. 3. Nul tiel corporation, setting out specially the omission of the per- formance of the acts required by the statute, in order to perfect the corporate organization. 4. A denial of the execution of the instrument, sworn to. Trial by the court, finding and judgment for the defendant, the plaintiff having unsuccessfullj- moved for a new trial. We may properly here notice another proposition, which, though not perhaps directly involved, is in some measure connected with the motion for a new trial. We are of opinion that a radical error was committed in overruling the demurrers to the several paragraphs of the complaint. The articles of association signed hy the defendant, includ- ing his subscription for stock, were very clearly mere preliminaty articles, contemplating a future perfection of the organization as a cor- poration. The defendant's contract did not purport to be with an exist- ing corporation, but with one to be brought into existence in the future. The averment in the complaint that the plaintiff was, at the time the subscription was made, an existing corporation, cannot change the nature and legal effect of the defendant's contract. That contract was, in legal effect, that the defendant would take and pay for the stock subscribed for, in case the organization should be perfected and the corporation brought into legal existence, and not otherwise. Such\ preliminary subscriptions seem to enure to the benefit of the corporation when formed. Heaston v. The Cincinnati, etc., Railroad Co., supra. But unless the subsequent steps, necessary to bring into existence the corporation, were taken, there was no corporation to whose benefit the contract could enure, and the defendant could not be liable ; and it should have been averred in the complaint that such steps had been taken. Wert v. The Crawfordsville and Alamo Turnpike Co., 19 164 INDIANAPOLIS FURNACE CO. V. HERKIMER. Ind. 242 ; Williams v. The Franklin Township Academical Associa- tion, 26 Ind. 310. In sucli case, the estoppel growing out of a contract with a party as an existing corporation does not apply. In the case last cited, the court say : " This rule of estoppel does not apply to a suit brought on a sub- scription made with a view to the organization of a corporation, and as preliminary thereto, where other acts are required by the law as a con- dition precedent to the exercise of corporate powers." [The court then held, that, under the statute, it was an indispensable prerequisite to the legal existence of the corporation that a certificate should be filed in the office of the Sfecretary of State, which was not done in the present case.] Now, although the complaint was held good, the pleas of nul tiel corporation put in issue the existence of the corporation ; and we think, under the issues, the plaintiff was bound to prove such existence by showing a compliance with tlie statutory requisites. The burthen was on the plaintiff, because the defendant was not estopped by his con- tract to dispute the existence of the corporation, and because the per- I fection of the organization was a condition precedent to the plaintiff's I right to recover. We now proceed to consider the ground, upon which it is claimed that a new trial should have been granted. There were six reasons assigned for a new trial. [One reason was, the refusal of the court to hear the tes- timony of Horace W. Hibbard, to the effect that the defendant told him that he had five thousand dollars of the stock of said company, and offered to trade the same to him. As to this Worden, J., said] : The evidence of Hibbard was properly rejected, because such recognition by the defendant of the existence of the corporation could not estop him to controvert the fact ; nor could it supply the omission of an act which the law requires to be performed before the corporation can be called into being. • ■•••I ■• Judgment bdow affirmed. 1874. ON PETITION FOE A REHEARING. WoRDBN, C. J. The appellant has filed a petition for a rehearing in this case, claiming, as we understand the argument, that as it was shown bj' averment and proof, that the defendant's contract was made with an existing corporation, it should be treated as such ; and therefore it was unnecessary for the plaintiff to show that the proper steps had been taken to perfect the organization of the corporation. In the original omnion, we set out in full the contract entered into by the defendant. iThat contract very clearly was not with an existing corporation. It contemplated a future organization of the corporation, to which he was to become liable on his subscriptionCX To treat him as having promised to pay the amount of his subscripti©& to a corporation JOHNSON V. COESEE. 165 which then existed, would be to make a new contract for him in place of the one which he made for himself. There may have been a cor- poration of the same name, and organized for the same purpose, in existence at the time the defendant made his contract ; but if so, the contract set out was not made with such existing corporation. That contract was to pay a corporation to be thereafter organized and brought into existence. (The ground upon which a party who has con- tracted with a corportion 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 its present existence, but contemplate^ the future organization of the corporation, to which he was to pay the amount of his subscription. The legal effect of a written contract cannot be thus changed by averment or parol evidence. The petition for a rehearing is overruled. JOHNSON V. COESEE et als. 1885. 34 Minnesota, 355. On April 30, 1884, the defendants signed articles associating them- selves together for the purpose of organizing as a bod3' corporate under the name of " The Sixth Avenue North Extension and Improve- ment Association." These articles of association were not filed for record until November 21, 18g4. In the first week in May, 1884, bj^- laws were adopted and officers were elected. On June 16, 1884, a contract in writing, in the name of the association, was made with Egan & Salter for grading and improving Sixth Avenue. Work was begun under this contract, and continued till August 5, 1884, when the plalntifif and others, laborers engaged upon the work, struck and refused to continue work, because thej' had not received their paj-. Two of the defendants, the secretary and vice-president of the associa- tion, visited the scene of work and succeeded in inducing plaintiff and his fellow-laborers to return to work, upon 'the promise, as claimed by plaintiff but denied by defendants, that the association would pay them. Thereafter the plaintiff continued work till November 18, 1884, and the officers of the association paid them to October 1, 1884. The plaintiff brought this action before a justice of the peace for Hennepin county against the defendants, as partners, to recover for his work and services from October 1, 1884, to November 18, 1884. Upon appeal to the district court, the action was tried before Young, J., and a jury, and plaintiff had a verdict. Defendants appeal from an order refusing a new trial. 166 JOHNSON V. COESER. Bea, ^tchel <& Shaw, and Scott, Longbrake S Van Uleve, for appellants. Thomas Canty and Robert Christensen, for respondent. Dickinson, J.^ In the spring of 1884 the defendants entered into articles of association, intending to acquire a corporate character, and probably supposed that this purpose liad been accomplished. No incorporation was, however, effected. The articles of association executed by the defendants declared the purpose of the proposed cor- poration to be to secure the extension of a certain street in Minneapo-* lis, and to improve and beautifj' the same. They provided for no capital stock, but that the funds necessary for the accomplishment of the contemplated purpose should be raised by subscription from the members. The usual officers were named, and a board of five directors provided for ; meetings of the members were held ; officers and a board of directors elected ; by-laws adopted, which provided for the appoint- ment of an executive committee, whose duty was declared to' be to direct and superintend the work and to employ the necessary labor ; subscriptions were made by all of the defendants, excepting Stark, for the purposes of the association; a contract was made between the asso- ciation, by its adopted name, and certain contractors, (Egan & Salter,) lor grading and improving the street, and the performance of the work under the contract was entered upon. The plaintiff was an employ^ of Egan & Salter, and engaged, with others, in the work. During the progress of the work, the employes of the contractors, becoming dis- satisfied with their employers, ceased to work. Then two of the defendants, Mathews and Riebeth, who were respectively vice-president and secretary of the association, made an agreement with the laborers, the precise nature of which is in dispute. The evidence on the part of the plaintiff is sufficient to support what must have been the conclusion of the jury, that the agreement was that if the men would go on with the work, the association would pay them ; while the evidence for the defendants tended to show that the agreement was merely' to pay directly to the laborers the money which should be due to Egan and Salter on their contract. By this action the plaintiff seeks to recover against the defendants individualh- upon this agreement. The attempt to become incorporated was ineffectual to limit the indil vidual liability of the associates; and upon any contract which theyl may be found to have authorized to be made, or which they may have J ratified, although in terms the contract was made as the contract of the association or assumed corporation, the members may be held to an individual responsibility. Hess v. Werts, 4 Serg. & R. 356 ; Pettis V. Atkins, 60 111. 454 ; Bigelow v. Gregory, 73 111. 197 ; Garnett v. Richardson, 35 Ark. 144; Kaiser m. Lawrence Sav. Bank, 56 Iowa, 104 ; Ahhott v. Omaha Smelting Co., 4 Neb. 416 ; Field v. Cooks, 16 La. Ann. 153 ; Jessup v. Carnegie, 44 N. Y. Super. Ct. 260. While, if the other contracting party were to charge the defendants in their * Mitchell, J., did not hear the argument and took no part in this case. JOHNSON V. OORSEK. 167 assumed corporate capacitj', they might not in some cases be heard to deny their corporate existence, yet, there being in fact no such exist- ence, the plaintiff maj- go behind the assumed corporate character, and hold the real principals to responsibility for the acts of those whom they may have clothed with authority to act in behalf of the associa- tion. JBigelow v. Gregory, supra ; Kaiser v. Lawrence Sav. Bank, supra ; Jessup v. Carnegie, supra ; Hurt v. Salisbury, 65 Mo. 810. We deem the evidence to have been suflSeient to sustain a conclusion on the part of the jury that all of the defendants, the members of the association, authorized the prosecution of the contemplated work, and knew that it was actually being carried forward under the direction of the appointed agents of the association ; that the executive committee was authorized \>j the association to prosecute the work as its agent, and for that purpose to employ laborers; that the alleged contract upon which this action is brought was made by two members of the committee in behalf of the association ; and that the whole committee, having knowledge of that fact, ratified the agreement, making pay- ments from time to time in accordance with it. Only as to two of these particulars does the sufficiency of the evidence seem questionable, and only to that evidence shall we particularly refer. It is in evidence that the defendant Stark did not subscribe or pay anything for the purpose of the association, and, after executing the articles of association, took no active part in the enterprise. He, how- ever, subscribed to the articles of association, the declared purpose of which was the prosecution of this work. He was present on the occa- sion when the agreement sued on was made, and, as the evidence tends to show, heard the agreement then made, — that the association would pay the laborers, — although, according to his own testimony, the agreement was not such as is shown on the part of the plaintiff. We think this sufficient to warrant the conclusion that Stark was awaic that the work was being carried on in behalf of the association with which he had united, and that Mathews and Eiebeth in his presence assumed to make this contract as the contract of the association. If the fact were so, the mere silence of Stark might be deemed to signify his acquiescence. It is not entirely clear from the evidence whether the agreement made by Mathews and Eiebeth was communicated to all the othei members of the executive committee. The by-laws adopted by the association declared that there should be an executive committee of five, of which the president, vice-president, and secretary should be ex officio members, and of which three members should constitute a quorum. But it is testified to that five members of the executive com- mittee were elected. We are left in doubt whether the association in fact named three or five of its members, in addition to the ex officio members, as its executive committee. But this is not very material. It is distinctly testified to that the agreement made by two of the ea officio members of the committee was communicated to three of the 168 JOHNSON V. CORSEE. other members of the committee, one of whom was the president, and that they assented to it. It further appears that other members named as members of that committee were present when computations were made of the amounts to be paid to the laborers ; that meetings of the committee were held, at which they took action relative to the work being carried forward under the agreement made by Mathews and Kie- beth ; and that during a period of several weeks the laborers were paid by direction of the committee. While this evidence is not the most \ satisfactory, it is still such as to justify the conclusion that the agree- ment, as testified to on the part of the plaintiffs, was communicated to the executive committee as a whole, and was ratified and adopted by them. Nothing further was necessary to charge the defendants with liability'. The plaintiff asserts, as a rule of law applicable to the case, that, from the mere failure to perfect the contemplated incorporation, the association, after proceeding to carry on the proposed enterprise, became a partnership, and the members copartners, with authority (implied from their relations) in each member to bind all of the associ- ates by any act within the scope of the business carried on by the association. "We cannot sanction the application to this case of the doctrine of implied agency as it is recognized in ordinary business copartnerships. If it be conceded that the principle upon which the plaintiff relies exists and is applicable in cases where the business con- templated and carried on b}' the association, and the purposes for which it is prosecuted, are such as involve the essential elements of a partnership undertaking, or where the articles of association contain all that is essential to create a partnership, — still the principle is not applicable to this case, in which those conditions do not exist. So far as appears, the business undertaken and carried on by the defendants was not of a partnership character, nor the purposes such as to suggest the relation of copartners between those engaged in it. It was only the grading of a public street by the co-operation of these several per- sons, and that, so far as appears, for no purpose of gain or profit. This would not have constituted those uniting and contributing for such a purpose copartners ; nor can such a result have been accom- plished bj' the further fact that an incorporation was contemplated, and attempted to be perfected, but failed. We deem the liability of the defendants to rest upon the ordinary principles of contract and agency, and not upon the ground of an existing copartnership. The articles of association executed bj' the defendants were properly received in evidence. This evidence went to show the co-operation of the defendants in the enterprise in carrying on which the contract sued on was made. The same is true of the proof of contributions of money from the defendants. Order aflflrmed. SNIDEKS SONS CO. V. TEOY. 169 SNIDER'S SONS CO. v. TROY. 1890. 91 Alabama, 224.1 Action for goods sold by plaintiffs, in 1888, to, or on the order of, The Dispatch Publishing Co. The complaint alleged that said Com- panj' was at the time a partnership, and that defendant was one of the partners ; that the Company claimed to be a corporation, but was never in fact incorporated. Plea, setting out certain steps taken, in 1885, by defendant and other persons to organize a corporation by the above name ; also alleging that the debt now sued for was contracted by said Company as such corporation, and not otherwise ; and that plaintiff dealt with it as a corporation, and not as a partnership or association of individuals. A demurrer to the plea was overruled. E. P. Morrissett, for appellant. Tompkins <& Troy, contra. Clopton, J. A corporation de facto exists when, from irregularity or defect in the organization or constitution, or from some omission to comply with the conditions precedent, a corporation ds jure is not created, but there has been a colorable compliance with the require- ments of some law under which an association might be lawfully incor- porated for the purposes and with the powers assumed, and a user of the rights claimed to be conferred bj' the law, when there is an organi- zation with color of law, and the exercise of corporate franchises and functions. M. E. Church v. Pickett, 19 N. Y. 482 ; Stout v. Zulick, 48 N. J. Law, 599, 7 Atl. Rep. 362. The enabling law under which a corporation for the purposes and objects of the Dispatch Publishing Company', and with the powers assumed, might have been lawfully created at that time, is contained in sections 1803-1812 of the Code of 1876, and the amendatory acts, which authorize and provide for the incorporation of two or more per- sons desirous of forming a private corporation for the purpose of carry- ing on any industrial or other lawful business not otherwise specially provided for hy law. Acts 1882-83, p. 40. The plea avers that de- fendant and two other named persons filed, September 2, 1885, with the judge of probate of Montgomery county, a written declaration,, signed by themselves, setting forth substantially the matters required by the statute, except the residences of the persons, that they organ- ized bj' the election of three directors, and commenced and continued to do business in a corporate capacity, and were so doing business when the debt sued for was contracted. If the averments of the plea be true, the truth of which is admitted by the demurrer, the Dispatch Publishing Company was an association having capital stock divided into shares, organized by the election of ofHcers, and transacting busi- ness, and exercising franchises, functions, and powers, after an at- I Statement abridged. Arguments omitted. — Ed. 170 SNIDEE'S sons CO. V. TEOY. tempted incorporation, as if it were a corporation ctejure, a colorable compliance witii tlie requirements of an existing and enabling law, and user of the rights claimed to be conferred thereb}-, the essential ele- ments of a corporation de facto. Central, A. & M. Ass'n v. Alabama G. L. Ins. Co., 70 Ala. 120. Appellant seeks by the action to hold defendant, who was a member, liable as a partner for paper and other supplies sold to the Dispatch Publishing Companj'. Whether the shareholders in a corporation de facto are individually liable for the corporate debts, in the absence of fraud or a statute, is a question as to which the authorities are in direct antagonism. In Cooli, Stocks, § 233, the doctrine asserted is : "A corporate creditor, seeking to enforce the payment of his debt, may ignore the existence of the corporation, and may proceed against the supposed stockholders as partners, by proving that the prescribed method of becoming incorporated was not complied with by the com- pany in question." The leading cases supporting this doctrine are Bigelow V. Gregory, 73 111. 197 ; Abbott v. Smelting Co., 4 Neb. 416 ; Garnett v. Eichardson, 35 Ark. 144 ; Ferris v. Thaw, 72 Mo. 446 ; Eidenour v. Mayo, 40 Ohio St. 9 ; Coleman v. Coleman, 78 Ind. 344. We have omitted reference to a few cases, sometimes cited, for the reason, that either the question of liability as partners was not before the court, as in Blanchard v. Kaull, 44 Cal. 440 ; or the debt was contracted before any steps were taken, other than the mere filing of a certificate, towards organization, as in Bergen v. Fishing Co., (N. J.) 3 Atl. Eep. 404 ; or it was contracted after the expiration of the char- ter b3' its own limitation without reorganization, as in Bank v. Landon, 45 N. Y. 410. In the case last cited, the shareholders entered into a special agreement, which by its terms created a partnership as to third persons. In 2 Mor. Priv. Corp. § 748, the doctrine is stated as follows : "If an association assumes to enter into a contract in a corporate capacity, and the party dealing with the association contracts witli it as if it were a corporation, the individual members cannot be charged as parties to the contract, either severally or jointly or as partners." The following cases maintain the doctrine that the members of a cor- poration de facto cannot be held liable as partners for the corporate debts. Fay v. Noble, 7 Cush. 188; Bank v. Almy, 117 Mass. 476; Stout V. Zulick, 48 N. J. Law, 599, 7 Atl. Eep. 362 ; Bank v. Padgett, 69 Ga. 164 ; Bank v. Stone, 38 Mich, 779 ; Humphreys v. Mooney, 5 Colo. 282 ; Bank v. Walker, 66 N. Y. 424 ; Coal Co." v. Maxwell, 22 Fed. Rep. 197 ; Whitney v. Wyman, 101 U. S. 392. The plea and demurrer do not raise the question of the liability of the supposed stockholders, as partners, where there has been no inten- tion or attempt to incorporate, where they are acting as a body cor- porate without even color of legislative authority, b}' sheer usurpation. The plea avers that the debt sued for was contracted by the Dispatch Publishing Company, which is alleged to have been a de facto corpora- tion, and that plaintiff sold the goods to, and contracted with, the com- SNIDER S SONS CO. V. TEOY. 171 pany as a corporation, knowing that it was doing business as such. The question before us, and the only question we propose to decide, is whether, there being no fraud alleged, nor statute making the stock- holders individually liable, a creditor, who has dealt with a de facto corporation as a corporation, who has entered into contractual relations with it in its corporate name and capacity, can disregard the existence of the corporation, and, electing to treat it as a partnership, enforce the collection of his debt from the stockholders individually ? The conflict- ing authorities afford aid in the solution of this question, only so far as their opinions maj' be in accord with settled principles and sustained by reason. Though it is an undecided question in this state, principles have been well settled which materially bear upon the inquiry, and mark the way to a correct conclusion. Corporations maj' exist either de jure or de facto. If of the latter class, they are under the protection of the same law, and governed by the same legal principles, as those of the former, so long as the state acquiesces in their existence and exercise of corporate functions. A private citizen, whose lights are not invaded, and who has no cause of complaint, has no right to inquire collaterally into the legality of its existence. This can onlj* be done in a direct proceeding on the part of the state, from whom is derived the right to exist as a corporation, and whose authority is usurped. This principle was clearly and em- phatically declared in Lehman v. Warner, 61 Ala. 455, in the following language: "The corporation must of necessity be presumed to be riglitfully in possession of the franchise, and rightfully to exercise the power which the legislative grant confers. Individual right is not in- vaded, if the negative is true in fact, and tHere is usurpation. It is the state — the sovereign — whose rights are invaded and whose au- thority is usurped. The individual could not create the corporation, could not grant, define, limit its powers, and no grant of these by the sovereign can lessen his rights. There can consequently be no cause of complaint by the citizen, and no right to inquire whether corporate existence is rightful de jure, or merely colorable." Taylor, Corp. § 145 ; 4 Amer. & Eng. Enc. Law, 198. The creditor cannot proceed against the stockholders as partners, without proving non-compliance with prescribed conditions precedent, thus inquiring collaterally, nol into the fact, but the legality, of its existence. It is also an established rule of general application, that a party who contracts with a corporation, exercising corporate powers and perform- ing corporate functions, existing as a de facto corporation, in its cor- porate name and capacity, will not be permitted in a suit on the contract to deny and disprove the rightfulness of its existence. 4 Amer. & Eng. Enc. Law, 198. In Swartwout v. Railroad Co., 24 Mich. 390, CooLET, J., declares the rule as follows : " Where there is thus a cor- poration defa^to, with no want of legislative power to its due and legal existence, when it is proceeding in the performance of corporate func- tions, and the public are dealing with it on the supposition that it is 172 SNIDEE'S sons CO, V. TEOT. what it professes to he, and the questions are only whether there has been exact regularitj' and strict compliance with the provisions of the law relating to corporations, it is plainly a dictate alike of justice and public policy, that, in controversies between the de facto corporation and those who have entered into contract relations with it, as corpo- rators or otherwise, such questions should not be suffered to be raised." The general rule is thus stated by Beickell, C. J. : " Whoever contracts with a corporation in the use of corporate powers and fran- chises, and within the scope of such powers, is estopped from denying the existence of the corporation, or inquiring into the regularity of the corporate organization, when an enforcement of the contract, or of rights arising under it, is sought." Cahall v. Association, 61 Ala. 232 ; Central A. & M. Ass'n v. Alabama G. L. Ins. Co., 70 Ala. 120 ; Schloss V. Trade Co., 87 Ala. 411, 6 South. Eep. 360. It is conceded that the rule has been invoked and applied most fre- quently in suits against the stockholders or corporation, or persons who have contracted with it, where the stockholder, or corporation, or person, is seeking to avoid a liability by denying the legality of the corporate organization. But whj' should it not be applicable in other cases ? Whj"^ should the stockholder be estopped in a suit by a creditor of an insolvent corporation to require paj-ment of his unpaid subscrip- tion, and the creditor allowed to ignore the existence of the corporation, and proceed against the stockholder as a partner? Why should not the estoppel be mutual? Taylor, in his work on Corporations, § 148, having stated the general rule, that a corporation, when sued on its contract, and the person who contracted with it, when sued on his con- tract, is estopped to denj'nts legal incorporation, adds : " Furthermore, persons who have contracted with a corporation as such, and have acquired claims against it, are estopped from denying its corporate existence for the purpose of holding its shareholders liable as part ners." And the same rule was applied in several of the cases cited above, in which a corporate creditor was seeking to hold the stockholder liable as a partner for a corporate debt. The abrogation of the fore- going well-estabhshed rule is the logical sequence of maintaining a suit b\' a creditor of a de facto corporation, charging the stockholders as partners. Another consideration. Section 8, art. 14, of the constitution, de- clares : " In no case shall any stockholder be individually liable other- wise than for the unpaid stock owned by him or her." Exemption from liability other than for unpaid stock is the declared policy of the state. It cannot be imposed by legislation or by the judgment of a court. In view of the constitutional provision it is manifest that the shareholders of the Dispatch Publishing Company intended, by the attempt to incor- porate, to avoid individual liability for the debts contracted by the cor- poration. When a party deals and contracts with a corporation as corporators, exemption from individual liability enters as an element of the contract. It is true that the liability of persons associated in an EUTHEEFORD V. HILL. 173 enterprise or adventure is not determinable \>y the name the.y may assume, but by the legal consequences of their acts. A partnership may arise as to third persons by mere operation of law, and contrary to the intention of the parties, but, to have the effect, the elements essential to constitute a partnership as to third persons must exist. A corporation de facto has an independent status, recognized by the law as distinct from that of its members. A partnership is not the neces- sary legal consequence of an abortive attempt at incorporation. As said in Fay v. Noble, supra : " Surelj^, it cannot be, in the absence of all fraudulent intent, that such a legal result follows as to fasten on parties involuntarily, for such a cause, the enlarged liability of copart- ners, a liability neither contemplated nor assented to by them. The statement of the proposition carries with it a sufficient refutation." Maintenance of such suit involves judicial nullification of franchises and powers enjoyed and exercised b}' a de facto corporation as a dis- tinct entity recognized by the law, acquiesced in by the state ; defeats the corporate character of the contract ; changes the relation from that of stockholders to that of partners ; substitutes other and new parties to the contract ; effects the imposition of an enlarged liability, which they did not assume, but intended to avoid, so understood bj' the creditor when he contracted the debt with the corporation as such. The contract is valid and binding on the corporation, which the cred- itor trusted. No injustice is done him, for all his rights and remedies are preserved by the principle, that the corporation and the share- holder are estopped from denying its legal existence, as against him. It will not answer to say that he is not repudiating, but enforcing, the contract. He repudiates the party, the corporation, with which he made the contract, and seeks its enforcement against parties who never entered into contractual relation with him. The doctrine that a cred- itor who has dealt with a de facto corporation in its corporate capacity cannot charge the stockholders as partners with the corporate debt, there being no fraudulent intent alleged and proved, seems to us to be sustained by the weight of authorit}-, maintained by stronger reasoning consistent with well-settled principles, and in harmony with the policy of the state. Affirmed. EUTHEEFOED v. HILL. 1892. 22 Oregon, 218. Multnomah county : E. D. Shattuck, Judge. Defendants appealed. Eeversed. The defendants are sued as partners under the name and style of the Himes Printing Company. The complaint does not anywhere allege that the defendants entered into an agreement of co-partnership, but in lieu thereof the following facts are alleged : " That the defendants, on 174 EUTHEKFOED V. HILL. or about the fifth day of September, 1890, executed, acknowledged, and filed in the oflflce of the clerk of the countj- court of Multnomah county, and in the oflBoe of the secretary of state at Salem, Oregon, certain articles of incorporation as the Himes Printing Company ; that the defendants, in violation of the laws for the formation of corpora- tions subsisting in the state of Oregon, negligently failed to provide aA stock-book and to secure stock subscriptions to said corporation ; that I in spite of their said violation of the law, the defendants undertook to carry on tlie business provided for in said articles of incorporation, appointed one George H. Himes superintendent of their said business, and authorized him and the defendant Sherman Martin to represent them in all the transactions of said business ; that said business was carried on under the firm name and title of the Himes Printing Com- pany ; that between May 1, and September 1, 1891, the plaintiff, at the instance and request of the defendants, through their agents, the aforesaid Himes and the defendant Martin, performed certain labor and services for the defendants, of the reasonable and agreed value of two hundred and thirteen dollars and fourteen cents, which sum the defendants promised to pay ; that the plaintiffs performed the aforesaid work, relying on the credit and representations of the defendants for their paj'ment." Earhart and Hill answered separately, and each of them denied every material allegation of the complaint, except they did not deny executing and filing the articles of incorporation of the Himes Print- ing Companj'. The jury returned a verdict against the defendants Earhart and Hill for the amount claimed, and a judgment was entered thereon, from which this appeal was taken. George H. Durham^ and J. F. Watson, for Appellants. Wallace IP Cammant, for Respondents. Strahan, C. J. — At the conclusion of the evidence, the defendants Hill and Earhart asked the court to instruct the jury as follows: "1. The execution and filing of the articles of incorporation of the Himes Printing Company by said Hill and Earhart, in connection with the defendant Sherman Martin, would not itself make them partners with Martin, or render them liable in this action. 2. Said defendants Hill and Earhart cannot be charged in this action unless it has been shown by a preponderance of the evidence that they had notice of their being held out as such partners, and plaintiffs also had notice thereof before or at the time they performed the labor and services alleged in the complaint and performed the same on the faith thereof. 3. The plaintiffs cannot recover in this aotion against Hill and Earhart, unless it has been proved by a preponderance of the evidence' that said Hill and Earhart were partners in said printing company at the time the contract for said labor and services was entered into, or at the time the same were performed, or at the time the contract was entered into, or said labor and services performed, undertook to carry on said busi- EUTHERFORD V. HILL. 175 ness of said companj', or were interested as partners or appointed or participated in the appointment of George H. Himes as superintendent of said business, or authorized him or said Martin to represent them in the transaction of said business, or requested through said Himes or Martin the plaintiffs to perform said labor and service." No. 4 was in effect a direction to the jury to return a verdict for the defendants Hill and Earhart. The defendants excepted to the rulings of the court in refusing to give each of the foregoing instructions. The court then instructed the jury as follows : " I cannot agree with you, Mr. Durham and Judge Watson, that there may not be some other reasons why parties should not be bound than such as usually arise from an estoppel. Since this case has been going on, it has oc- curred to me whether or not this may not furnish a class of itself for pronouncing a man to be a partner. As a general rule, the doctrine of estoppel has got to be made out according to the authorities j-ou have read ; but I am inclined to the opinion that the mere act of filing arti- ^j cles is itself a holding out and notice to the world that theyare associated I in the business that is carried on under the name. I do not feel very i certain about it, but my best conception of this matter is that it ought to be considered the rule." An exception to this instruction was duly noted. The court also gave the following instruction: "If j'ou find from the evidence in this case that these two defendants and Sherman Martin filed articles of incorporation for the purpose of carrying on the printing business under the name of the Himes Printing Company, and that thereafter one of these men, to-wit, Sherman Martin, took up the business contemplated bj' this corporation, and carried it on under that name, and incurred liabilities, then all these incorporators that signed the articles are liable, and your verdict should be for the plain- tiffs for the amount claimed, provided j'ou further find that, before thej' performed the labor and rendered the services, thej- ascertained the fact of these articles being filed, and acted on the faith of the associa- tion of these defendants with Sherman Martin, and that they were Induced thereby to perform the labor and render the services." An exception was also taken to this instruction. There was no evidence whatever before the jurj' that these defend- ants had anything to do with the business of the Himes Printing Com- pany, or in any way authorized the same, except to sign the articles of incorporation. They appointed no agents and employed no laborers, purchased no material, nor did they have any knowledge that any busi- ness was conducted under that name, except the company did some printing for the defendant Hill ; and when a bill was presented to him for the same it had at the top, printed in bold letters, "The Himes Printing Company, incorporated ; Geo. H. Himes, Superintendent ; Sherman Martin, Manager." There was no evidence before the jury that the plaintiffs had any actual knowledge of the filing of the articles of incorporation at the time they performed the services sued for. The sole question, therefore, seems to be whether or not, wherfe i76 RUTHERFORD V. HILL. three or more persons sign, acknowledge, and file articles of incorpo- ration under the laws of this state, and do nothing further towards\ efEecting an organization or carrying on the proposed business, and one of them assumes to do business under the proposed corporate name \ and incurs liabilities, the other persons who sign said articles are liable.J' Appellants maintain that in such case there is no liability- on the part of those who do not participate in the business either directly or in- directly, while the respondents seelt to maintain the reverse of this proposition ; and this contention presents the only question we need consider on this appeal. The respondent contends that the executing and filing of the articles of incorporation and the assumption of the corporate name by one of the parties under which he does business, create a partnership between all the persons signing said articles ; and to sustain this view he relies upon these authorities : Whipple v. I'arker, 29 Mich. 369 ; Jessup v. Carnegie, 44 N. Y. Sup. Ct. 260 ; Coleman v. Coleman, 78 Ind. 344 ; Pettis v. Atkins, 60 111. 4.54 ; Smith v. Warder, 86 Mo. 382 ; Garnett V. Richardson, 35 Ark. 144 ; Lind. Part. 5 ; Abbott v. Omaha Smelt- ing Co., 4 Neb. 416 ; Johnson v. Corser, 34 Minn. 355. Some other authorities similar to these in principle, might be cited, but they add nothing to this side of the question. Without stopping to distinguish these cases from the one now before us, we think the decided weight of authorit3', as well as the better reason, is the other waj'. Fay v. Noble, 7 Cush. 188, is an early case in which it was held that the sub- scribers for and holders of stock in a manufacturing corporation, which has been defectively organized and transacted business under such de- 1 fective organization, do not thereby become partners, general or spe- ) cial, in such business. In Trowbridge v. Scudder, 11 Cush. 83, it was held that the stockholders of a corporation do not become liable as partners on notes given by the treasurer of the corporation, merely because after organizing they transacted no business. In First Nat. Bank v. Almy. 117 Mass. 476, it was held that the members of a cor- poration were not liable as partners by reason of having transacted business before the whole capital stock was paid in as required bj' statute. In Humphreys v. Mooney, 5 Col. 282, in considering the question now before the court, it was said : " The doctrine of a part- nership liability in such case is not founded in law reason, and is re- pugnant to the very purposes of the statute authorizing a corporation, one object of which is to limit individual liability." Substantially, the same doctrine is announced in Qartside Coal Co. v. Maxwell, 22 Fed. Rep. 197 ; Planters' etc. Bank v. Padgett, 69 Ga. 159 ; Stafford Nat. Bank v. Palmer, 47 Conn. 443 ; Ward v. Brigham, 127 Mass. 24 ; Central etc. Bank v. Walker, 66 N. Y. 424 ; Jessup v. Carnegie, 80 N. Y. 441 ; 36 Am. Rep. 643 ; Blanchardx. Kaull, 44 Cal. 440 ; Mora- wetz Corp. § 748. And 17 Am. & Eng. Ency. Law, 866, after stating that the rule contended foi- by respondents had been adopted by quite i. large number of cases, remarks : " But the weight of authority per- BUSHNELL v. CONSOLIDATED ICE MACHINE CO. 177 iiaps sustains the contrary rule, that if they were acting under the sup- position that they were incorporated, and were assuming only the liability of stockholders, and not that of partners, they will not be held liable as such " ; and a long list of cases is cited to sustain this proposition. It is not doubted that cases might arise and can readily be imagined where the incorporators sought to be charged might take such part in conducting the business, or hold themselves out to the world as part- ners or as principals in the business, that they would be held liable ; but this would grow out of their conduct in carrying on the business, and not out of the mere fact of signing and filing the articles. If the appellants could be held liable in this case, such lia bility wo uldrest on the mere act of signing a nd filing the art ides, and not upon any participation in the business, either directly or in3ifectly". " It would have to rest upon the theory, that by the mere signing the articles with Martin, they constituted him their general agent to proceed to cotiduct the business contemplated by the proposed corporation, thus creating a liability for any act of his done within the scope of the powers of the proposed corporation. No authority to which our attention has been directed, has gone so far, and we feel safe in saying that none can be found to support that doctrine. We therefore reverse the judgment, and remand the cause for such further proceedings as are not inconsistent with this opinion. BUSHNELL v. CONSOLIDATED ICE MACHINE CO. 1891. 138 Illinois, 167.1 Suit in chancery to have the Consolidated Ice Machine Co. declared a copartnership, and its affairs settled between the complainant and defendants accordingly. In the court below, the demurrer was sus- tained and the bill dismissed. The following facts appear from the bill : In 1884 the complainant and the individual defendants entered into a written agreement to form a corporation, with the above title, under the laws of the State ; all the required steps were taken, up to and including the issuing of i a certificate of the complete organization of such corporation by the \ Secretary of State ; complainant was a director ; and for several months secretary and soliciting agent, actively engaged in its busi- ness. In 1885 complainant became affticted with melancholia and remained incapacitated for the transaction of business for about three years. During his sickness, the other directors sold some of his shares for non-payment of installments, the sale being without notice. Since the sale he has been excluded from all participation in the 1 statement abridged. Arguments and part of opinion omitted. — Ed. 178 BUSHNELL V. CONSOLIDATED ICE MACHINE CO. management of the business. After being restored to health, and before filing his bill, he made frequent demands to be restored to his rights in said corporation, but without avail. The only allegation of the bill which is seriously insisted upon as y furnishing a ground for the relief prayed is, that the certificate of \ complete organization, issued by the Secretary of State was never J recorded in the office of the recorder of deeds in the county where the principal office of the company was located. The statute requires that " the same shall be recorded " in that office. Wilkin J. But assuming that a corporate existence dejure depends upon the filing of the certificate of complete organization in the office of the re- corder of deeds of the county in which its principal office is located, and that the bill properly avers that it was not done in the case of the corporation in question, it by no means follows that it did not become 1 a corporation de facto as between the complainant and defendants.J From the facts set up in the bill it clearly appears that there was an honest attempt by the incorporators to organize a corporation author- ized by the laws of this State. The necessary steps to perfect that organization were all taken as required by the statute, except that the final certificate was not recorded. It is shown by the bill that upon the issuing of that certificate its directors elected the proper officers and proceeded to the transaction of business as a corporation, and continued to act as such until the filing of this bill, a period of more A than five years. That these facts establish a corporation (?e/ac^ settled by numerous decisions of this court. President and Trustees^ etc. V. Thompson, 20 111. 198 ; Bice v. B. I. and A. B. B. Co. 21 id. 93 ; Baker et al. v. Administrator, 32 id. 79 ; Ramsey v. Marine and Fire Ins. Co. 65 id. 311 ; Cincinnati, Lafayette and Chicago Bail- road Oo. v. Danville and Vincennes By. Go. 75 id. 113 ; LouisviUe, New Albany and Chicago By. Co. v. Shires, 108 id. 617 ; Sudson v. Grreen Hill Seminary Corporation, 113 id. 618. That plaintiff in error, if he had been sued by the Consolidated Ice Machine Compan}' on his subscription to its capital stock, could not have questioned its corporate existence on the grounds alleged in his bill, is directly settled b}' several of the above cited decisions. It is equally clear that if, during the time he was a member of said cor- poration, it had been sued as such, neither he nor any other of its members could have been heard to say that no such corporation ex- isted. The general rule is, that one who deals with a corporation as \ existing de facto, is estopped to deny, as against it, that it has been 1 legall}' organized. It is the settled rule in this State that the legal ) existence of a corporation de facto can not be questioned collaterally. See cases supra, and Renwick et al. v. SaU et al. 84 111. 162 ; The People ex rel. v. Trustees of Schools, 111 id. 171 ; Keigwin et al. v. Drainage Comrs. 115 id. 347. BUSHNELL V. CONSOLIDATED ICE MACHINE CO. 179 It seems impossible to find a reason for placing the complainant in this bill in a moi-e favorable position to deny the existence of the cor- poration in question than a mere subscriber to its capital stock, or one who, as a third party, had dealt with it as a corporation, and we are of the opinion that he could not do so in this collateral proceeding. He, however, not only seeks to question the legal organization of the cor- poration, but to have the same changed into a co-partnership between himself and the other incorporators, and to compel the defendants to account to him as his co-partners. " A partnership is never created between parties by implication or operation of law, apart from an express or implied intention and agreement to constitute the relation." (1 Bates on Law of Partnership, sec. 3.) In Phillips v. Phillipg^ 49 111. 437, Caton, C. J., said : " A partnership can only exist in pur- suance of an express or implied agreement, to which the minds of the parties have assented." This rule will not prevent the enforcement of liability against persons as partners, when sued by third parties. " Par- ties may so conduct themselves as to be liable to third persons as i partners, when in fact no partnership exists as between themselves, i The public are authorized to judge from appearances and professions, ] and are not absolutely bound to know the real facts, while the certain \ proof is positivelj' known to the alleged parties to a firm." (Phillips V. Phillips^ supra.) On this latter ground parties who have attempted to organize a corporation, but have failed to comply with the law, so as to perfect their incorporation, may be held liable as partners to creditors, as in Bigelow v. Gregory et al. 73 111. 197. This liability rests on the doctrine of estoppel. When, however, even a creditor has dealt with the corporation as snph, partnershi p liability can not be enforced, even though the corporation has noFlDeen legally organized. Tarbell v. Page, 24 111. 46. It is wholly unnecessary, however, in this case, to determine when and under what circumstances third parties may proceed against incor- porators acting under a defective or imperfect organization, as indi- viduals or co-partners. In this case the complainant shows by his bill that he was not only one of the incorporators of the compan3- he now seeks to question, but that he was, upon its complete organization, elected its secretary and general agent, and acted as such for several months prior to his alleged disability, during which time he was actively engaged in assisting to carry on its corporate business, and that upon his being restored to health he still recognized its corporate existence, and sought to be restored to his rights therein. If the recording of the certificate in question was essential to the organiza- tion of the corporation, there is nothing in this bill to show that it was not as much his duty to have it done as either of the other incor- porators. We are unable to perceive, then, upon what principle he can now compel those who, for anything appearing in this bill, hon- estly supposed they were incorporated during all the time the business mentioned in the bill was being carried on, to account to him, upon the 180 SNYDER V. STUDEBAKER. theoiy that they were his co-partners. In fact, if the allegation as to his mental condition at the time his stock was sold was omitted from the bill, it would strike any one as too clear for argument that he has failed to state a case entitling him to equitable relief, and it must, we think, be held, that whether that fact, together with the allegation that his stock was sold without notice and he ousted from all participation in the business of the companj^ would entitle him to his action for that alleged wrong, or to be restored to his former rights as a member of said corporation or not, no legal ground is shown by this bill for hold- ing defendants liable to him as partners. There is nothing in the case ol Flagg v. Stowe, 85 111. 166, when the facts of that case are considered as they appear in that report, and in Stowe v. Flagg et al 72 111. 397, contrary to the view here ex- pressed. We have examined the numerous cases cited hy counsel for plaintiff in error as giving support to the position that a corporation defectively organized may be treated as a co-partnership, and the mem- bers held liable as partners ; but when it is borne in mind that com- plainant himself was a member of the corporation in question, and in no sense a third party, and that he is not seeking by this bill to recover for anything which he has been required to pay third parties for or on behalf of said corporation, the3' have no application. What he seeks to do is to have the corporation converted into a partnership, contrary to the contract of the parties, simply because he and other incorpora- tors failed to perfect, as he says, the corporation. He does not even show that he has been misled or in any way injured by the failure to have the certificate of complete organization recorded. Neither does he pretend that the omission of any of the incorporators to have the same recorded was willful, or in any way designed to injure him or others. We can find neither authority nor reason to sustain this bill, and are clearly of the opinion that the decree of the circuit court is right. Decree affirmed. SNYDER V. STUDEBAKER. ' 1862. 19 Indiana, 462* Appeal from the Wells Circuit Court. WoRDEN, J. This was an action by Snyder against Studebaker, to recover possession of a certain tract of land. Judgment for the defendant. The same question is presented by the pleadings and the evidence. It appears that, in March, 1853, the plaintifl!', who was then the SNYDEE V. ST0DEBAKEE. 181 owner of the land, conveyed the same to the Fort Wayne aiid Southern Railroad Company, by deed, duly executed and delivered. This convej'ance was made on account of a stock subscription. Afterward, in November, 1855, the railroad companj', for a valuable consideration, conveyed the premises to the defendant. TTie Fort Wayne and Southern Railroad Company was chartered by an act of the legislature, passed in 1849 ; and it appears that the corporators named in the act in question met in the town of Bluffton, i in said county of Wells, on the 19th day of November, 1851, and then and there accepted the act of incorporation, and organized the company pursuant to the provisions of said act. If the corporation was not created before the 1st of November, 1851, when the new constitution took effect, it could have no existence at all, as that instrument prohibits the creation of corporations, other than banking, by special act. The State v. Dawson, 16 Ind. 40. Harriman v. Southam, Id. 190. The plaintiff claims, that inasmuch as there was no acceptance of the charter, or organization under it, until after the adoption of the constitution of 1851, there was no such corporation as The Fort Wayne and Southern Railroad Company at the time he executed the convej-- ance, and, hence, that no title passed from him. But is he in a con- dition to dispute the existence of the corporation at the time he made Ms conveyance to it? It has been held, in numerous cases in this State, that a party who has contracted with a corporation, as such, is, as a general proposition, estopped by his contract to dispute the existence of the corporation at the time of the contract. The following cases may be cited, though there are, perhaps, others reported, and some not reported as yet. Judah V. The American Live Stock Insurance Company, 4 Ind. 333. The Broohville and Greenshurg Turnpike Company v. McCarty., 8 Tf?. 392. Ensey v. The Cleveland and St. Louis Railroad Com- pany, 10 Id. 178. Fort Wayne and Eluffton Turnpike Company v. Deam, Id. 563. Jones v. The Cincinnati Type Foundery Company, 14 Id. 89. Hubbard v. Chappdl, Id. 601. The Fvansville, etc. Railroad Company v. The City of Fvansville, 15 Id. 395. Meikel v. The German Savings Fund Society, 16 Id. 181. Heaston v. The Cincinnati and Fort Wayne Railroad Company, Id. 275. The doctrine is by no means confined to the State, but prevails else- where. The Dutchess Cotton Manufactory v. Davis, 14 Johns. 238. All Saints Church v. Lovett, 1 Hall, 191. Palmer v. Lavirence, 3 Sand. Sup. C. R. 161. Eaton v. Aspinwall, 6 Duer, 176. Jones v. Bank of Tennessee, 8 B. Mon. 122. Worcester Medical Institution v. Harding, 11 Cush. 285. The Congregational Society v. Ferry, 6 N. H. 164. People's Savings Bank, etc. v. Collins, 27 Conn. 142. West Winsted Savings Bank v. Ford, Id. 282. Angell and Ames on Corp., see. 94. The estoppel arises upon matter oifact only, and not upon matter of 182 SNYDER V. STUDEBAKEE. law. Hence, if there be no law which authorized the supposed corpoi^ ration, or if the statute authorizing it be unconstitutional and void, the contract does not estop the party making it, to dispute the existence of the corporation. But if, on the other hand, there be a law which authorized the corporation, then, whether the corporators have com- plied with it, so as to become duly incorporated, is a question of /act, and the partj' making the contract is estopped to dispute the organi- zation or the legal existence of the corporation. This proposition is substantial!}' stated in the cases of Jones v. The Cincinnati Type Foundery Company; Meikelv. The German Savings Fund Society ; and Heaston v. The Cincinnati and Fort Wayne Railroad Company, supra. Let us apply the doctrine to the case before us. The corporators named in the act to establish the Fort Wayne and Southern Railroad Company had a right, at any time before the offer of the franchises was withdrawn, that is, before the constitution of 1851 was adopted, to accept the charter, and organize under it. If they did so accept the charter, and organize, the corporation was legitimately created, and the new constitution did not destroy' it. Whether they did so accept the charter, and organize, was a ques- tion of fact, and the plaintiff, hj his conveyance, is estopped to deny such acceptance and organization. That the corporators accepted the charter, and organized under it, within the time when it was competent to do so, was as fully admitted by the contract, as was any other step necessary to an organization. The conclusion necessarily follows, that the plaintiff is estopped to dispute the existence of the corporation at the time of his convej'anee to it. This point was ruled the other way in the case of Harriman v. Southam, 16 Ind. 190, but, upon more more mature reflection, we are satisfied that the decision upon this point was wrong, and should be overruled. We may remark, also> that the doctrine of estoppel was erroneously applied in the case of The Evansville, etc. Railroad Go. v. The City of Evansville, 15 Ind. 395. There the point made was, that the law, under which the corporation was organized, was unconstitutional and void. A party, we have seen, does not, by his contract, estop himself to deny that there is anj' law, or any valid law, by which the corpora- tion was authorized. Some further observation, in respect to the case before us, will not be out of place. The doctrine of estoppel, as applied to the case, does not rest upon a mere technical rule of law. It has its foundation in the clearest equity, and the principles of natural justice. The doctrine of estoppel, in pais, is of comparatively recent growth, but is flrml}- and clearly established. " The recent decisions of the courts, both in this country and in England, appear to have given a much broader sweep to the doctrine of estoppel in pais, than that which formerly existed, SOCIETY PEKUN V. CLEVELAND. 183 and to have established that, in all cases where an act is done, or a statement made, by a part3-, the truth or efficacy of which it would be a fraud, on his part, to controvert or impair, there the character of an estoppel will be given to what would otherwise be mere matter of evi- dence, and it will, therefore, become binding upon a jury, even in the presence of proof of a contrary nature." 2 Smith, Lead. Ca. p. 531, 1 Am. Ed. See, also, upon this subject, Kinney v. Farnsworth., 17 Conn. 355. Middleton Bank v. Jerome, 18 Id., 443. Laney v. Laney, 4 Ind. 149. In Doe ex dem. Richardson v. Baldwin, 1 Za- briskie, 397, it was said, that " The doctrine of estoppel rests upon the principle, that when one has done an act, or made a statement, which it would be a fraud, on his part, to controvert or impair, and such act or statement has so influenced any one that it has been acted upon, the party making it will be cut off from the power of retraction. It must appear, 1. That he has done some act, or made some admission incon- sistent with his claim ; 2. That the other party has acted upon such conduct or admission ; 3. That such party will be injured by allowing the conduct or admission to be withdrawn.'' Here the plaintiff, by his conveyance to the corporation, admitted that it had an existence, and could receive the title. Upon this act and admission of the plaintiff the defendant has acted, in purchasing the land of the compan}-. If the plaintiff had not conveyed to the corporation, the defendant would not have purchased from it. The law will not now permit the plaintif! to withdraw the admission made by him in conveying to the corpora- tion, and deprive the defendant of the land which he purchased on the faith of such admission. In our opinion, the judgment below is right, and must be affirmed. Per Curiam. — The judgment is affirmed, with costs. tfohn H. Cqffroth, for the appellant. SOCIETY PEEUN v. CLEVELAND. 1885. 43 Ohio State, 481.1 Erkor to the District Court of Cuyahoga County. Action by city of Cleveland to foreclose a mortgage, as against cer- tain subsequent grantees, mortgagees, and purchasers. Perun, a cor- poration, Jan. 28, 1874, executed and delivered a mortgage to the city. This mortgage was not filed for record until Oct. 21, 1879. In Feb- ruary, 1874, certain persons attempted to organize, under general laws, a corporation by the name of Society Perun. In May, 1874, Perun delivered to Society Perun its deed, purporting to convey to the latter the premises theretofore mortgaged to the city. Between that date and Oct. 21, 1879, Society Perun, acting in its supposed corporate 1 Statement abridged. Arguments omitted — Ed. 184 SOCIETY PERUN V. CLEVELAND. capacity, executed and delivered deeds and mortgages, purporting to convey and incumber parcels of these mortgaged premises to various parties, who are made defendants in the present suit. During the pen- dency of the present foreclosure suit, it was adjudged, in a Quo War- ranto proceeding, instituted by the Attorney General, that the persons who attempted to incorporate under the name of Societj' Perun had not been legally incorporated, and that their attempted organizg-tion as a corporation was wholly void ; and a decree of ouster was rendered. Upon the trial of the present foreclosure suit in the District Court, the plaintiff gave in evidence, against the objection of the defendants, the record of the Quo Warranto proceedings. Defendants offered evidence tending to prove an attempt in good faith to incorporate Society Perun. This evidence was excluded, and defendants excepted. The District Court found, among other things, that, as to the city of Cleveland, Society Perun was not a corporation either in law or in fact ; that the conve3'ance to it by Perun was void as against the city ; and that the claims of all the defendants (except certain claims for taxes and im- provements) were subsequent and inferior to the lien of the city. To reverse the judgment rendered upon these findings, error was brought. Willson rpi}ration at the t ime it wa s contracted with 3 ,3 sach, Shappel v. Hubbard, at this term. And it has been held in other states that where individuals are incor- porated upon performance of certain acts, a person who contracts with them by their corporate name, cannot, in nn antinn agninat him np the contract, denj"^ the pejcformance by them o fjihe acts jiecegsary to give them a corporate existence. Hamtranch v. The Bank of Edwards- ville, 2 Miss. E. 169. — Tarr River Navigation Co. v. Neal, 3 Hawks, 520. See 1 U. S. Dig., 593 ; 4 id. 433. In New York, to work such estoppel, it has been necessary that the contract should state that the party contracted with was a. f^nvpftrat,i n n But this rule does not prevail in o ther states . It has not been acted jipon in this s tate. If the st^'le by which a party is contracted with is such as is usual in creating corporations, viz., naming an ideality, but disclosing that of 1 Part of opinion omitted. — Ed. JONES V. CINCINNATI TYPE FOUNDRY CO. 205 no individual, as is usual in the cases of simple partnerships, it has been treated as prima facie, at least, indicating a corporate existence. And such seems to have been the rule at common law. Grant on Corp., 62. Probably, a special answer, in such cases, in the nature of a plea in abatement, might, at the proper time, be made available. See Ang. and Ames on Corp., 506, 507, and the numerous cases in our own Eeports. And there is no hardship in this. The party executing the note owes the amount of it. The judgment upon it in the suit merges it, and the payment of the judgment satisfies it, and bars any other action against the maker for the money. But, in this class of cases, it would seem, after all, that the Courts have proceeded upon a rule of evidence, rather than the strict doctrine of estoppel. They have treated the contract with a party by a name im- plying a corporation, feally as evidence of the existence of a corpora- tion, more than as an estoppel to disprove such fact. Grant, in his late learned work on Corporations, says : " Generallj', the fact of an aggre- gate body being called by a name, is, prima facie, evidence that thej' are incorporated, ' for the name argues a corporation.' Jffbrris v. Staps, Hobart, 11. But the Courts take judicial notice that '■A. £. and company ' is not the name of a corporation. Hex v. Harrison, 8 T. R. 508." The doctrine of conclusive estoppel seems more properly applied to cases involving the question of legality of organization, where the fact of an existing statute, authorizing, in the given case, such corporation, is known to the Court, either by judicial notice or actual evidence in the cause. In such cases, where a party has contracted with a body as being organized as a corporation under the law, he will be estopped to dis- pute the legalit}' of the organization. See the cases cited in the TJ. S. Dig., and Ang. and Ames, ubi supra. This doctrine of estoppel, as applied to contracts with corporations, needs further examination ; but it is not important in this case, and we shall not here pursue it. The decision of this case will rest upon another ground. [The learned Judge then takes the position that the general denial in the answer admits the plaintiff's capacity to sue, and that the subse- quent paragraph denying plaintiff 's capacity is in the nature of a plea in abatement and is inconsistent with such general denial.] Jvdgment affirmed. 206 STOUTIMOEE V. CLAKK. STOUTIMORE v. CLARK et als. 1879. 70 Missouri, 471.1 Appeal from Clay Circuit Court. Tiie action, Stoutimore v. Clark, was brought to establish a certain charge as a lien upon the land formerly the property of Joseph Y. Clark, now deceased ; and to obtain a decree for the sale of the land to satisfj' the charge. By order of court, the Missouri City Savings Bank, and John Chrisman, were made defendants in said suit. The Bank filed an answer alleging a lien under a judgment against Clark, rendered March 27, 1874. This judgment was founded on a note of said Clark payable to the order of the Missouri City Savings Bank, at the oflSce of said Bank. Chrisman filed an answer alleging a lien on part of the land under a trust deed, executed by Clark Sept. 19, 1874, to secure a loan. Chrisman also filed a cross answer to the answer of the Missouri City Savings Bank, alleging that said Bank was not a corpo- ration. Upon the trial, to prove the corporate organization and exist- ence of the Bank, a certificate signed by the alleged president and secretary was offered in evidence. To the admission of this certificate Chrisman objected, on the ground that it did not comply with the statutory requii-ements. This objection was sustained, and the evi- dence was excluded. The Circuit Court ordered the sale of the land ; and directed that the judgment of the Bank should be paid out of the proceeds before the claim of Chrisman. Chrisman appealed from an order den}'ing his motion for a new trial. D. C. Allen, and Samuel Hardwicke, for appellant. The doctrine of estoppel does not apply. It takes two to make anl estoppel. There must be a partj' estopped, and a party in whose favor) the estoppel works. Herman on Estoppel, 40, 41. It is plain fron^ the evidence that the Missouri City Savings Bank never had a cor-i porate existence, nor a lawful organization on which corporate exist-/ ence could be based. The Circuit Court in excluding the certificate dated April 24th, 1869, so held. Hence there was no person in whose favor aii estoppel could work. Douthitt v. Stinson, 63 Mo. 279. The judgment against Clark being a nullity (because not rendered in favor of any legal entity), no question of estoppel arises under it. Bigelow on Estoppel, 21, 283 ; Wixom v. Stephens, 17 Mich. 518. [Omitting remainder of argument.] Simrall & Sandusky, for respondent. By the execution of the note Clark admitted the corporate existence i of the Missouri City Savings Bank, and he was estopped thereafter from \ denying its corporate existence. [Omitting citations.] It was un- • necessary to allege that plaintiff was a corporation ; and therefore 1 Only so mnch of the report is given as relates to one point. — Ed. STOUTIMORE V. CLAEK. 207, uimecessarj' to prove it. Clark was not only estopped by the execu- tion of said note from denying the corporate existence of the bank, but he was also estopped by the judgment. If the defense, nul tiel corpo- ration, was open to him at all, it should have been asserted before the rendition of said judgment. [Omitting remainder of argument.] Norton, J. . . . In support of these positions it is insisted by counsel that, inasmuch as, on the trial of the cause, the Missouri City Savings Bank failed to introduce evidence establishing the fact that it was a corporation, the said judgment rendered in its favor was a nullity and did not create a lien upon the real estate of Clark. We think the view thus taken is unsound. The note upon which said judgment was rendered is as follows : " $4,000. Missouri Citt, July 1st, 1870. Four months after date we promise to pay to the order of the Mis- souri City Savings Bank, Four Thousand Dollars, negotiable and pay- able at the office of the Missouri City Savings Bank, Missouri City, Mo., without defalcation or discount, for value received, with interest at ten per cent per annum from maturity until paid. Gilmer, Clark & Co. J. Y. Clark. E. G-. Gilmer, Security." We think it clear that in the suit instituted by the bank on this note Clark would not have been allowed to deny the corporate existence of the bank for the reason that by executing the note he admi ttedJihfi.fact that it was a corporation, w hich estopped him from disputing it . This prineipre was distinctly enunciated in the case of National Insurance Co. V. Bowman, 60 Mo. 252, following the case of Farmers and Mer- chants Insurance Co. v. Needles, 62 Mo. 17, and the case of 0. dt M, M.R. Co. V. McPherson, 35 Mo. 13. In the case of City of St. Louis V. Shields, et al., 62 Mo. 247, it was expressly held that the obligors on a bond given to a corporation by making and signing the instrument admit the corporate capacity of the obligee, and in a suit on such bond cannot plead nul tiel corporation. The cases cited indisputably estab- ^ lish that Clark, the obligor in the note upon which the judgment rests, could not have set up as a defense that the bank was not a corporation, and it therefore follows that the judgment, so far from being a nullity as counsel contend, was rightful and proper, and from the time of its rendition became a lien on the real estate of Clark in Clay county, and was conclusive and binding not only on him but upon all claiming through or under him. [After discussing the doctrine of privity.] It thus appearing that Clark, against whom the judgment in favor of the bank was rendered, could not have prevented its rendition by disputing the corporate ex- istence of the bank it therefore necessarily follows from the principles ^208 .OALLENDEB V. PAINESVILLB AND HUDSON EAILEOAD CO. above announced that Chrismaii, the beneficiary in the deed of trust executed subsequently to the rendition of the judgment, and convey- ing to the trustee for him land upon which said judgment had become a lien, occupied no better position than Clark. The judgment being eflScacious to create a lien on Clark's land, could not have been drawn in question by Clark on the ground that it was a nullity, because the bank was not a corporation ; nor can it be assailed on the ground by Chrisman, who became a privy in estate by reason of the grant made by Clark to him in the 'deed of trust of part of the land upon which the judgment was attached as a lien. Judgment affirmed. CALLENDER v. PAINESVILLE & HUDSON RAILROAD CO. I860. 11 Ohio State, 516.1 Error to the Court of Common Pleas of Cuyahoga Countj-. Reserved in District Court. Plaintiffs filed petition to recover debt and damages claimed under a written contract of defendant, an incorporated company, executed on the part of the company by Van R. Humphrey, as its president. George W. Steele filed a motion to»dismiss ; stating that he was a member and secretary of the company, denying the validity of the ser- vice of the summons, and alleging that said company is not a corpora- tion. The Court of Common Pleas dismissed the action, holding that, in view of the defects in the certificate of organization under the general statute, the defendant was not a duly organized corporation or liable to be sued as such. StTTLiFF, J. [After considering the question as to the validitj' of the certificate, and intimating that the only objection to it raised by counsel was untenable.] But in this case the original petition alleged that the defendant was a corporation. The contract upon which the action was brought, a copy of which was appended to the petition, purported to be executed by the defendant, as a corporation ; and the motion and the afHdavit of the mover, disclosed, at most, only a defect in th e act of incorpora- tion. But the affidavit admits that the companj' liad attempted in all respects to comply with the requisitions of the statute, and in fact ob- tained, by a supposed compliance on their part, the acceptance and record of their certificate by the secretary of state, a copy of which was to them a valid charter, as they supposed. And the affiant further states that he had acted as their secretary for some three years, and * Only 90 much of the case is given as relates to one point. — Ed. CALLENDEE V. PAINESVILLE AND HUDSON RAILROAD CO. 209 that the president of the companj' was then residing at PainesvilIe,N where the company then kept its office. It thus appears that the members of the company obtained their charter, supposed themselves a legally incorporated company, and had conttnued to hold themselves out, and to act as such, to and with the public, and are still so acting. Nor is there any denial, either in the motion or affidavit of Steele, that their president, Humphrey, was not authorized by himself and others of the association, to execute said contract on behalf of the association, as an incorporated company. Under such circumstances, the mem bers of the company, and esp e- cially the officers of the company. » ,rf pst,npppfi t<-> fj^ny jt.R p-r^st.pnnp. ag^ corporation . However mistaken in fact, no person, whether artificial or natural, is permitted to so conduct and represent himself as to induce reasonable men, at his instance, to act upon the truth of such represen- tations in their contracts and dealings with Kim, and to then deny the truth of such representations, to the prejudice of the party so having relied upon them. In order for the companj', or any member thereof, to so repudiate its conduct, and disprove the truth of its own representation, it is neces- sary for it, not only to show an honest mistake, but that such mistaken representation had not induced the adversary party, in the exercise of reasonable prudence on his part, to give the credit, make the contract, and act under it in confidence of the truth of such conduct and representations. But in this case, not only has the association obtained a copy of the certificate, its charter of incorporation, and represented itself to the other party to be a corporation, by making the contract in that capa- city-, but it has continued to act in a corporate capacity down to the time of filing the motion ; and the member so filing the motion states that he is still the officer of the corporation. It thus appears that, in- stead of contradicting the misrepresentation, before the contract was made, the company had not, even after making the contract, either in conduct or representation, ever denied their corporate character. Under such circumstances, to suffer the defendants to repudiate their first conduct, and deny the truth of their representations, by which the plaintiffs had been induced to contract with them, and upon which both parties had acted, would be in contravention of those prin- ciples of equity upon which the doctrine of estoppel rests, and its operative eflfect to prevent fraud depends. We are, therefore, clearh' of opinion that, at the time of the hearing of the motion, the company and its members who had so held them- selves out to be a corporation, were estopped to deny that fact, for anj' defect whatsoever, if the same had in fact existed in their charter. The judgment of the court of common pleas must, therefore, be reversed, and the cause remanded. Judgment accordingly. Scott, C. J. , and Peck, Gholson and Bkinkerhoff, JJ., concurred. 210 BOYCE V. TRUSTEES OF TOWSONTOWN STATION. BOYCE V. TRUSTEES OF TOWSONTOWN STATION OP THE M. E. CHURCH. 1877. 46 Maryland, 359.1 Assumpsit against an alleged religious corporation. Defendants ap- peared by counsel, and pleaded, 1st, that the defendants are not and never were a body corporate, as alleged. Plaintiff offered in evidence an agreement or certificate of incorporation under a general statute. The statute required this document to be acknowledged before two Justices of the Peace, or a Judge of the Circuit Court or of the Supreme Bench of Baltimore. It was acknowledged before a single Justice of the Peace. Plaintiff, to show user of the corporate name and franchise, offered in evidence a deed of land to said Trustees ; and a mortgage from said Trustees to Crook and Hiss, Trustees. All the above evidence was rejected, and plaintiff excepted. Verdict and judgment for defendants. Plaintiff appealed. Wm. A. Fisher and Orville Horwitz, for appellant. Arthur W. Machen, for appellee. Stewart, J. . . . But the appellant has undertaken to offer evidence of certain acts and proceedings of the appellee, referred to in the exceptions, to show that it held itself out as a corporation, and treated with the appellant as such, and is estopped from denying its liability as a corporation. We think it would be extending the doctrine of estoppel to an extent, not justified by the principles of public policy, to allow it to operate through the conduct of the parties concerned, to create substantially a de facto corporation, with just such powers as the parties ma^' by their acts give to it. This would be substituting the dealings of the parties, for compliance with the requirements of the law, and giving to them the same effect through the aid of the Courts. Thus, virtually, through the Courts, recognizing the existence of the corporation, in manifest disregard of the written law. It has been determined by this Court, that a corporation cannot bind itself in excess of its powers. Penna. Steam Navigation Co. vs. Dandridge, 8 G. d> J., 319. Whilst denying its capacity upon any principle of estoppel, to make contracts ultra vires, to bind itself ; it would not be consistent with that theory to recognize its existence ad libitum, according to the con- duct of the parties concerned. Such a principle would seem to aflSx no other limit to the existence of the corporation de facto, or the extent of its power than the deal- ings of the parties, through the recognition of the Courts, might, upon 'the doctrine of estoppel, prescribe. 1 Statement abridged. Arguments, and part of opinion, omitted. — Ed. BOYCE V. TEUSTEES OF TOWSONTOWN STATION. 211 It would be more reasonable to hold corporations to their contracts, though ultra vires, of which they have received the benefit, or to pre- vent parties who have contracted with them, and received the bene- fit therefrom, from defeating their liability, on the ground of want of power in the corporation, as is held in quarters of high authoritj% (see note and references in 2nd Sent, 351,) than to hold that corpora- tions should be deemed to have existence, because they had so held themselves out. The statute law of the State, expresslj' requiring certain prescribed acts to be done to constitute a corporation, to permit parties indirectly, or upon the principle of estoppel, virtually to create a corporation for any purpose, or to have acts so construed, would be in manifest opposi- tion to the statute law, and clearl}' against its policy, and justified upon no sound principle in the administration of justice. Judgment affirmed. 212 THBASHEK V. PIKE COUNTY B. CO. CHAPTER V. ACQUISITION OF MEMBEESHIP — SUBSCRIPTIONS EOR ST0CK.1 THEASHEE v. PIKE COUNTY E. CO. 1861. 25 Illinois, 393.2 Beeesb, J. The appellee, who -was plaintiff in the court below, urges several reasons justifying a recovery in this case, which it is necessary to notice. The declaration contains a special count, aver- ring, that on the nineteenth of March, 1856, the plaintiffs were a body politic and corporate, with power to construct and operate a railroad within the county of Pike, and authorized by law, as such corporation, to secure subscriptions to the capital stock of the company to the amount of one million of dollars, in shares of one hundred dollars each, and, desiring to ascertain what amount of stock would be subscribed, and not having opened regular subscription books, but intending so to do, agreed with the defendant that they would, in a reasonable tirtie there- after, open books for the purpose of securing such subscriptions, and that they would permit and allow the defendant, when the books should . be opened, to subscribe to the capital stock of the company thirty shares of one hundred dollars each, and upon payment therefor, the defendant should be the owner of thirty shares of the capital stock of Hhe company. It is then averred, that the defendant, in consideration of this promise, undertook and promised the plaintiff that he would subscribe to the stock of this company the sum of three thousand dol- lars, when the books should be opened for subscriptions ; that this promise was by a writing, signed by the defendant, and by him de- 1 The effect of fraud in obtaining subscriptions is not dealt -vrith as a specific topic in this book.*, The general rule of law, that a contract induced by fraudulent representations is voidable at the option of the innocent party, "applies with full force both to contracts of membership and to contracts to purchase or to take shares in a corporation at a future time." But, of course, the right to avoid a subscription induced by fraud may be barred by laches. And, in view of the peculiar character of the contract of membership, " and the equitable relations which it creates as between the shareholders and creditors and between the share- holders themselves," the person defrauded "must proceed with the utmost diligence if he desires to annul his contract." See 1 Morawetz on Private Corporations, 2d ed. ss. 94 and 108. — Ed. 2 Statement omitted. Only so much of the opinion is given as relates to a single point, — Ed. THRASHER V. PIKE COUNTY E. CO. 213 livered to the plaintiff. It is then averred, that on the same day, sub- scription books to the capital stock of the company were opened, of which the defendant had notice. The breach is, that the defendant neglected and refused to subscribe anything to the capital stock, ac- companied by an averment that the subscription, when the books were opened, was due and payable before the commencement of the suit, and although notified thereof, the defendant has refused to pay any part of the sura of three thousand dollars. The common counts are added, in one of which the indebtedness is alleged to be for one hun- dred shares of the stock of the Pike County Railroad, before that time bargained and sold to the defendant. This is the cause of action as set forth by the plaintiffs, and it is claimed by thfem, that they are entitled to recover as damages the par value of the stock, or the amount of calls made from time to time upon it, and which, at the commencement of the suit, amounted to fourteen installments, of five per cent, each, making, in aU, twenty-one hundred / dollars. This, we do not think, is a fair view of the defendant's liability upon his promise, if one was made to the plaintiffs. His undertaking is, \ to subscribe a certain amount of stock, when the subscription books j should be opened. This promise does not make him a stockholder, and, as such, liable to calls. The company has parted with no stock . to him, and can only claim as damages, the actual loss sustained by | them by his failure, or refusal to subscribe, when he was notified the I books were opened for such purpose. The company has the stock which the defendant promised to take, but did not take. His promise is like any other promise, or agreement to purchase any specific article of property. If the property contracted for be retained by the vendor, and there is no delivery to the purchaser, or offer to deliver, the dam- ages must not be measured by the value of the property ; for it would not be just, in such cases, that the vendor should retain the property, and recover, also, the value of it from the promisor. Some damage might result from the loss of a bargain, and to such the vendor would be entitled, if the extent could be established. In many cases, they would be merely nominal. On an agreement for the sale and purchase of stocks, and a refusal by the purchaser to take the stocks, the mea- sure of damages, ordinarily, might be the difference between the par value of the stocks and their market value, or between them and money. As well argued by the appellant, the defendant having vio- lated his promise by failing to subscribe, he has acquired no right to stock ; nor could a recovery in this action entitle him to become a stockholder. The company retains its stock, and the defendant his money. A stock certificate of three thousand dollars would represent a value to the company equivalent to so much money, and, in a state- ment of their liabilities, this would appear against the company as so much held by the stockholders, for which the company was respon- sible. If there is no actual subscription, the company does not incur 214 WINDSOR ELECTRIC LIGHT CO. V. TANDY. this liability. There being no special damages alleged, or proved, we do not think the plaintiffs could recover under this declaration, as they have done, the par value of the stock the defendant promised and agreed to take. A proper count might doubtless be so framed as to justify a full recovery, under sufficient proof. [Eemainder of opinion omitted.] Judgment reversed. WINDSOE ELECTEIC LIGHT CO. v. TANDY. 1893. 66 Vermont, 248.1 TvLEE, J. This is an action of general assumpsit brought by the plaintiff company to recover of the defendant an assessment upon his subscription for shares of the plaintiff's capital stock. After the de- fendant had rested the court directed a verdict upon the ground that the action could not be maintained in the absence of an express pro- mise. It appeared in evidence that the defendant and eight other persons, on Peb. 21, 1890, associated themselves together as a corporation, under ch. 153, E. L., as follows : " We, the subscribers, hereby associate ourselves together as a cor- poration under the laws of the state of Vermont, to be known by the name of the Windsor Electric Light Co., for the purpose of furnish- ing electric light, electric heat and electric power at Windsor, in the county of Windsor, in the state of Vermont, with a capital stock of five thousand dollars, divided into two hundred shares of twenty-five dollars each. Dated at said Windsor, this 21st day of February, A. D. 1890." The articles of association were duly recorded July 3, 1890, in the office of the secretary of state, whereupon the corporation was organ- ized, by-laws were adopted and officers were elected as provided by the statute. At a meeting held Nov. 29, 1890, it was voted to assess the stock one hundred cents on each dollar subscribed, and the assess- ment was made payable Dec. 15, 1890. The defendant's subscription was as follows : " Frank H. Tandy, ..... 80 shares," following which were the names and subscriptions of the other eight subscribers. Section 3260, E. L., ch. 152, provides that when a proprietor in any corporation does not pay a tax or assessment laid or assessed by such corporation, agreeably to the by-laws thereof, the treasurer may sell, by public auction, the shares of the delinquent under such regulations as the corporation, by its by-laws, directs. There was no provision in 1 Statement and arguments omitted; also part of the opinion. — Ed. ) ■WINDSOR ELECTRIC LIGHT CO. V. TANDY. 215 the by-laws that the plaintiff might sell delinquent stock, as is per- mitted by this section of the statute. The plaintiff claims that the defendant's subscription to the capital \ stock raised an implied promise by him to pay all assessments law- \ fully laid upon his stock, and that the statutory remedy was merely cumulative. The defendant contends that, as there is no provision for the enforcement of payment of assessments either in chapter i53, in the by-laws, or in the articles of association, the plaintiff's only remedy is by a forfeiture and sale, as provided in section 3260. When the defendant and others, by articles, had associated them- selves together pursuant to the provisions of the statute, and the arti- cles had been recorded and certified by the secretary of state, and the corporation had been organized, and all the conditions precedent re- quired by the statute had been complied with, those persons became a body politic and corporate under the laws of the state. The plain-'\ tiff's corporate existence was then and thereby established, and the j defendant became, by the act of subscription, a stockholder. His I subscription is presumed to have been accepted by the plaintiff, and it was binding upon it and upon the defendant, the prospective rights of membership being a sufficient consideration to support the con- tract. Beach on Pri. Cor., ss. 63 and 613 ; Hartford & New Haven B. Co. V. Kennedy, 12 Conn. 499. Whether the defendant, by becoming a stockholder, incurred a per- sonal liability to pay his proportion of such assessments as should be laid upon the stock, can best be determined by inquiring what the relation was which he assumed towards the corporation by the act of subscription. By agreement the entire capital was to be five thou- sand dollars, divided into two hundred shares of twenty-five dollars each. The defendant subscribed for and agreed to take eighty shares, \ and the corporation, by accepting his subscription, became obligated I to assign that number of shares to him. It seems clear, then, that / the defendant impliedly promised to contribute towards the entire/ capital as much money as his number of shares represented, and in such instalments and at such times as the corporation should require. In Lake Ontario, etc., B. Co. v. Mason, 16 K Y. 451, it was held that the defendant's subscription to the articles was, in effect, a contract to pay for the shares for which he subscribed. Dayton v. Boist, 31 K T. 435 ; Phmnix Warehouse Co. v. Badger, 67 N. Y. 294 ; Merri- mao Mining Co. v. Levy, 54 Penn. St. 227. Morawetz on Pri. Cor., s. 56, says that such a subscription does not » constitute a mere executory contract of sale, but that the liability to j pay the amount of the shares is an incident of the contract of mem- I bership ; that the moment the subscriber assumes the status of a / shareholder he becomes entitled to the rights and privileges incident I to membership, and is liable to all the obligations of a stockholder,' and must contribute the amount of capital subscribed by him. In section 128 the same writer says that the liability is not merely to 216 ATHOL MUSIC HALL CO. V. CAEET. pay for tlie shares for which he has subscribed, but to contribute to the capital of the company in proportion to the number of shares he has taken. See notes. to same section. In Massachusetts, Maine and New Hampshire a different rule has obtained. In those states it has been held that, unless there is an express promise to pay for the shares, the subscriber incurs no personal liability. [After commenting upon Essex Bridge Co. v. Tuttle, 2 Vermont, 393 ; Conn. & Pass. B. Co. v. Baihy, 24 Vermont, 465 ; and R. & B. JR. Co. V. Thrall, 35 Vermont, 536.] Judge Aldis said in the opinion [in B. & B. B. Co. v. Thrall] : " At an early day in railway enterprises it was claimed, that where provisions for forfeiture were embodied in the charter, the corpora- tion .could not sue for subscriptions, but must and could enforce the payment of them only by proceedings in forfeiture. But it has long been held that the right to sue and to declare stock forfeited co-exist, and that the latter proceeding is merely cumulative. Such it was intended to be in this charter." . . . While the case cannot be regarded as authority upon the point here in controversy, we think that the rule stated in the extract quoted from the opinion is the more just, and ought to be adopted rather than the one that prevails in some of the other states. It was not necessary that the defendant should expressly promise to pay for his shares, or to contribute his proportionate amount of the $5,000 capital. The promise is clearly implied, and the action can be maintained upon it. The remedy by forfeiture is only cumulative. Judgment reversed and cause remanded} ATHOL MUSIC HALL CO. v. CAEEY. 1875. 116 Massachusetts, 471.2 Contract on the following agreement : " We, the undersigned, severally promise and agree to and with ■ each other that we will associate ourselves into a corporation, the name whereof shall be determined by the members thereof, and pay to the treasurer of said corporation the amount of the several shares set against our respective names, for the purpose of purchasing the homestead of Washington H. Amsden, in Athol, on Main Street, and erecting a public hall thereon. The amount of the capital stock of ^ said corporation to be not less than twenty thousand dollars. Names. No. of shares. Amount. John, Carey, One, $100." 1 p'or an exhaustive argument in support of this view, see the opinion of Huhtington, J,, in Hartford <} Jf^- B. R. Co. v. Kennedy, 12 Conn. 499. — Ed. 2 Statement abridged. — Ed. ATHOL MUSIC HALL CO. V. CAEEY. 217 The declaration alleged that the defendant entered into and signed the above contract, (a copy whereof was annexed,) and thereby agreed, in consideration of other parties signing similar agreements, to pay to the treasurer of the Athol Music Hall Company, the sum of $100, for one share in the capital stock of said corporation when it should be organized. It then alleged the organization, the purchase of the homestead of Amsden, the building of a public hall thereon, a demand for the $100, readiness to deliver the stock, and the refusal of the defendant to pay. At the trial in the Central District Court of Worcester, the defend- ant asked the judge to rule that the action could not be maintained on the pleadings. This request was refused. There was evidence tending to show that in December, 1870, the defendant signed the agreement declared upon ; that the act of incor- poration was passed on March 3, 1871 ; that the corporation was duly organized on March 18, 1871, and that the name of the defendant was entered on the books of the corporation as a stockholder and notices were issued and directed to him of all the meetings. The defendant then asked the judge to instruct the jury that if they were satisfied upon the evidence that the defendant never attended any meeting of the corporation at the time of its organiza- tion, or after its organization, the action could not be maintained, although the corporation still retained his name upon its books, and sent him notices of the meetings ; that it was not enough for the plaintiff to show that it retained Carey's name upon its books, and otherwise considered him as entitled to a share in the capital stock, unless they are also satisfied that Carey did some act after its organi- zation in ratification of his agreement. The judge refused to give these instructions, but instructed the jury that if the plaintiff entered the defendant's name on the books of the corporation, as a stockholder, issued and directed notices to him of all its meetings, and gave him the same opportunities to attend the meetings and participate in the proceedings thereof as were given to other stockholders, they were authorized to find that the defendant's offer was accepted, and that he was received as a member of the cor- poration. The jury found for the plaintiff, and the defendant alleged exceptions. H. L. Parker, for the defendant. W. W. Bice & F. T. Blackmer, for the plaintiff. Wells, J. In agreements of this nature, entered into before the organization is formed, or the agent constituted to receive the amounts subscribed, the difficulty is to ascertain the promisee, in whose name alone suit can be brought. The promise of each subscriber, " to and with each other," is not a contract capable of being enforced, or intended to operate literally as a contract to be enforced between each sub- scriber and each other who may have signed previously, or who should 218 ATHOL MUSIC HALL CO. V. CARET. sign afterwards, nor between each subscriber and all the others collec- tively as individuals. The undertaking is inchoate and incomplete as a contract until the contemplated organization is effected, or the mutual agent constituted to represent the association of individual rights in accepting and acting upon the propositions offered by the several subscriptions. When thus accepted, the promise may be construed to have legal effect according to its purpose and intent, and the prac- tical necessity of the case ; to wit, as a contract with the common representative of the several associates. In Thompson v. Page, 1 Met. 565, and Ives v. Sterling, 6 Met. 310, individuals subsequently selected by voluntary associations to receive and expend subscriptions, in accordance with the terms of the agree- ment of association, were allowed to maintain actions against indi- vidual subscribers for the amount of their several subscriptions. Being thus constituted the payees, they were construed to have become also the promisees under the written agreement. The same principle applies where the agreement contemplates the organization of a cor- poration, and refers the payment of the subscriptions to the proper officers of such corporation. See People's Ferry Go. v. Balch, 8 Gray, 303, 311. In this agreement the treasurer of the corporation to be established is expressly made payee. The corporation is the aggregate of the several individuals entering into the agreement, one of whose terms was that they should thus associate and confer their individual rights upon the corporation. We are of opinion that the corporation, and the corporation alone, is the proper party to bring an action upon such an agreement. The corresponding agreements of the other subscribers, the organi- zation of the corporation, and the allotment to the defendant of the shares for which he subscribed, furnish sufficient consideration for his promise to take and pay for those shares. Although his promise was originally voluntary, or in the nature of a mere open proposition, yet having been accepted and acted on by the party authorized so to do, before he attempted to retract it, he has lost the right to revoke. His proposition has become an accepted mutual contract, and is bind- ing upon him as well as upon the corporation. The votes of the cor- poration indicate sufficient authority for the institution of this suit in the corporate name and behalf. These considerations dispose of all the objections, taken in various forms, to the maintenance of the action. •Exceptions overruled^ 1 As to the question of " consideration," where the agreement to take shares is madi, simply bj' the subscribers among themselves; see the discussion in Taylor on Corporations, 4th ed. ss. 92, 93, 94. — Ed. BRYANTS POND STEAM-MILL CO. V. FELT. 219 BEYANT'S POND STEAM-MILL CO. v. FELT. 1895. 87 Maine, 234.1 Walton, J. The only question we find it necessary to consider is whether a subscriber to the capital stock of an unorganized corpora- tion has a right to withdraw from the enterprise, provided he exer- cises the right before the corporation is organized and his subscrip- tion is accepted. We thint he has. Such a subscription is not a completed contract. It takes two parties to make a contract. A non- existing corporation can no more make a contract for the sale of its stock than an unbegotten child can make a contract for the purchase of it. The right of subscribers to the capital stock of a proposed corpora- tion to withdraw their subscriptions at any time before the organiza- tion of the corporation is completed has been affirmed in several recent and well considered opinions. The right rests upon the im- pregnable ground of the legal impossibility of completing a contract between two parties only one of which is in existence. There can be no meeting of the minds of -the parties. There can be no acceptance of the subscriber's proposition to become a stockholder. There can be no mutuality of rights or obligations. There can be no considera- tion for the subscriber's promise. As said in one of our own deci- sions, it is a mere nuduTu pactum, — a promise without a promisee, — a contractor without a contractee. In fact, every element of a binding contract is wanting. If the subscriber's promise to take and pay for shares remains unrevoked till the organization of the proposed cor- poration is effected, and his promise has been accepted, then we have all the elements of a valid contract. Competent parties. Mutuality of duties and obligations. A valid consideration, the promise of one party being a sufficient consideration for the promise of the other. A promise as well as a promisor. A contractee as well as a con- tractor. In fact, all the elements of a valid contract are present, and the subscription has become binding upon both of the parties. But, till the corporation has come into existence, all these elements are necessarily wanting, and the subscriber's promise amounts to no more than an offer, which, like all mere offers, may be withdrawn at any time before acceptance. When accepted, it becomes binding. Till accepted, it remains revocable. This conclusion is sustained by rea- son and authority. In Hudson Real Estate Co. v. Tower, 156 Mass. 82 (1892), the action was founded on a subscription to the capital stock of an un- organized corporation, and the defense was based on an alleged with- drawal of the subscription. The right to withdraw was controverted. 1 Statement and part of opinion omitted. — Ed. 220 LINCOLN SHOE MFG. CO. V. SHELDON. The court held that at the time when the defendant signed the sub- scription paper declared on, it was not a contract, for want of a con- tracting party on the other side ; that while such a subscription may become a contract after the corporation has been organized, still, until the organization is effected, and the subscription is accepted, it is a mere proposition or offer, which may be withdrawn, like any other unaccepted proposition or offer. It is urged by the counsel for the plaintiff corporation that such subscriptions create binding and enforceable contracts between the subscribers themselves, and are therefore irrevocable, except with the consent of all the subscribers ; and some of the authorities cited by him seem to sustain that view. But we find, on examination, that such views, when expressed, are in most cases mere dicta, and that the cases are very few in which such a doctrine has been acted upon. Keason and the weight of authority are opposed to such a view. Of course, subscription papers may be so worded as to create binding contracts between the subscribers themselves. But we are not now speaking of such subscriptions ; or of voluntary and gratuitous sub- scriptions to public or charitable objects, which, when accepted and acted upon, become binding. We are now speaking only of subscrip- tions to the capital stock of proposed business corporations. With regard to such subscriptions, we regard it as settled law that they do not become binding upon the subscribers till the corporations have been organized and the subscriptions accepted ; and that, till then, the subscribers have a right to revoke their subscriptions. And, in view of the fact that such subscriptions are often obtained by over persuar sion, and upon sudden and hasty impulses, we are not prepared to say that the rule of law which allows such a revocation is not founded in wisdom. We think it is. Judgment for defendant. LINCOLN SHOE MFG. CO. v. SHELDON. 1895. 44 Nebraska, 279.1 Eekoe from the District Court of Lancaster County. The petition contains (inter alia) the following allegations : Plaintiff is a corporation, organized and incorporated Feb. 10, 1890, under the general laws of Nebraska relating to manufacturing corpo- rations ; having a capital stock of $100,000, divided into 2000 shares of $50 each, of which more than 10 per cent has been subscribed. On March 22, 1890, the defendant, with other persons, became a sub- scriber to the capital stock by severally executing and delivering the following agreement in writing : " For value received we, the under- l Statement abridged. Arguments and part of opinion omitted. — Ed. LINCOLN SHOE MFG. CO. V. SHELDON. 221 Signed subscribers, hereby bind ourselves to purcbase the number of shares of stock set opposite our names in the Lincoln Shoe Manufac- turing Company at fifty ($50) dollars per share ; one fourth of the amount so by us subscribed respectively to be paid when the founda- tion of the building is laid ; one fourth when the building is under roof, the balance on call of the directors. In consideration of the building being erected on the west half of the northeast quarter of section twenty eight (28), town ten (10), range six (6), along the line of the Lincoln & Northwestern railroad. Witness our hands on this 22d day of March, 1890." Defendant placed the number of fifty shares opposite his name ; and thereby agreed to take that nun^ber of shares and agreed to pay the plaintiff therefor the sum of $2500. After more than 10 per cent of the capital stock had been subscribed, the plaintiff company commenced the erection of a building. The foundation was laid June 10, 1890 ; and on Sept. 1, 1890, the building was erected and under roof ; and it was on the land described in the agreement. Plaintiff, before the beginning of the action, demanded of defendant payment of the two instalments of one fourth each which had thus become due, and tendered certificates of stock to de- fendant, who has not paid said instalments. Plaintiff prays judgment for $1250, with interest. A demurrer to this petition was sustained by the District Court. Plaintiff brought error. Thomas C. Munger, for plaintiff in error. Pound & Burr, contra. Eagan C. [after stating the case] : Two arguments are relied upon here to sustain the judgment of the district court. 1. The first contention is that the contract of Sheldon made the basis of this suit is an agreement to purchase certain shares of stock of the manufacturing company, and not a subscription to the stock of I, such company ; and that the measure of the manufacturing company's|l damages is the difference in the actual value of the stock and the pricelj which Sheldon agreed to pay for it at the date of the breach of his^ contract ; 'and since the petition does not allege what the value of the stock was at the date Sheldon refused to take it, that it does not state a cause of action. Is the contract of Sheldon a contract to purchase stock in the manufacturing company, or is it a contract of subscrip- tion to the capital stock of such corporation ? Whether one or the other is a matter of construction for the court, and to be determined from the intention of Sheldon, gleaned from the contract itself and the law in force applicable to the subject-matter of the contract. The manufacturing company is a corporation organized under chapter 16, Compiled Statutes, 1893, entitled "Manufacturing Companies." Section 37 of that chapter provides that whenever any number of persons associate themselves together for the purpose of engaging in the business of manufacturing they shall make a certificate specify- 222 LINCOLN SHOE MFG. CO. V. SHELDON. ing the amount of capital stock necessary, the amount of each share, the name of the place where the corporation shall be located, and the name by which it shall be known ; that such certificate shall be certi- fied and foi;warded to the secretary of state and by him recorded; and when these things are done that the persons so associating them- selves together are authorized to carry on manufacturing operations by the name they have adopted ; and section 39 of the chapter pro- vides : " The persons named in the certificate of incorporation, or a majority of them, shall be commissioners to open books for the sub- scription to the capital stock of said company, at such times and places as they shall deem proper, and the said company are [is] au- thorized to commence operations upon the subscription of ten per cent of said stock." It appears from the petition that on the 10th of February, 1890, certain gentlemen associated themselves together for the purpose of organizing the manufacturing company ; that they made the certificate contemplated by said section 37 on that date and filed it with the secretary of state ; and on the 22d of March afterwards Sheldon signed the contract sued upon in this case. The presump- tion then is that the gentlemen, or a majority of them, who executed the certificate of incorporation provided for by said section 37, after it was executed and filed with the secretary of state, opened books to enable persons, who might desire to do so, to subscribe for the capital stock of th,e corporation, and that the contract sued upon was made by Sheldon at such time. The law does not require that the capital stock of a corporation like this shall be subscribed before its certifi- cate of incorporation is executed and filed with the secretary of state ; indeed the statute contemplates that the certificate of incorporation shall be first made and filed and afterwards the stock books opened. The language of the contract in suit is : " We, the undersigned sub- scribers, hereby bind ourselves to purchase the number of shares of stock set opposite our names in tlie Liincoln Shoe Manufacturing Company at fifty dollars per share ; one-fourth of the amount so by us subscribed, respectively, to be paid when the foundation of the building is laid ; one-fourth when the building is under roof ; the balance on call of the directors." While it is true that the word " purchase " is in the contract, yet we are unable to construe this contract as a contract of sale of stock. The corporation did not own any stock. The averments of the petition exclude the pre- sumption that this manufacturing company on the 20th of March, 1890, was the owner of any of its stock and that it agreed on that day to sell its stock or any of it to Sheldon. When we take into consideration the law under which this incorporation was organized ; that it was authorized to commence business when ten per cent of its capital stock had been subscribed ; that after its articles or cer tificate of incoxpfliatj"'^ hjdJaefiB _fil£i Lwith t he secretary of s tate,Jibat^.the persons executing such certificate had the right to open books for LINCOLN SHOE MFG. CO. V. SHELDON. 223 s ubscriptions to the capital stock of the corporation; that the con- tract bound the signer of it to pay one-fourth of the value of fifty shares of stock at fifty dollars a share when the foundation of the building to be used by the manufacturing company should be laid, and a like one-fourth when such building should be under roof, and the remainder of the value of said fifty shares at fifty dollars per share on call of the directors, we are forced to the conclusion that by the contract in suit Sheldon subscribed and agreed to pay for, in the manner stated in the contract, fifty shares of the capital stock of the manufacturing company. Tor the purposes of this case, however, we think it entirely immaterial whether the contract of Sheldon is one to purchase fifty shares of stock of this manufacturing company, or whether by the contract he subscribed for fifty shares of this stock. The petition alleges that before the bringing of this suit the founda- tion of the building to be used by the manufacturing company had been laid and such building was under roof, and that the manufactur- ing company demanded of Sheldon that he pay it f 1260, the agreed value of twenty-five shares of said stock, and at the same time ten- dered him certificates of the stock of said corporation for the amount of money claimed. So that if we should adopt the construction of this contract claimed by Sheldon he would still be liable to the manu- facturing company for the agreed price of the shares of stock. As Sheldon's having agreed to purchase fifty shares of this stock at fifty dollars per share, and the manufacturing company having tendered him the stock, it would be entitled to recover the contract price of the stock. (3 Parsons, Contracts [5th ed.], 209. [After referring to Wasson v. Palmer, 17 JSTebr. 330 ; Thrasher v. Pike County B. Co., 25 111. 393 ; and Thompson v. Alger, 53 Mass. 428.] These decisions are but applications of the well known rule that ■where a vendee refuses to perform his contract the vendor has either one of two remedies : he may keep the property made the subject of the contract and sue the vendee for his failure to perform, and in such case his measure of damages will be the difference between the contract price of the property and its actual value at the date of the breach of the contract ; or the vendor may tender the property made the subject of the contract to the vendee, and then in a suit upon the contract the vendor's measure of damages will be the contract price of the property. 2. The second contention is that the petition fails to state a cause of action for the reason that it shows that the whole amount of cap- ital stock provided by the articles of incorporation of the manufac- turing company has not been subscribed. To sustain this contention we are cited to Livesey v. Omaha Hotel Co., 5 Neb. 50, in which it was held : " When the subscription contract or charter of a corporation specifically fixes the capital stock at a certain amount, divided into shares of a certain amount each, the capital so fixed must be fully 224 LINCOLN SHOE MFG. CO. V. SHELDON. subscribed before an action will lie against a subscriber to recover assessments levied, on the shares of stock, unless there is a clear pro- vision in the contract to proceed with the accomplishment of the main design with a less subscription than the whole amount of capital specified, or there is a waiver of the condition precedent," and Hale v. Sanborn, 16 Neb. 1, and Hards v. Platte Valley Improvement Co., 35 Neb. 263. The general rule announced in the case in 5 Neb. was fol- lowed and adhered to in the cases in the 16th and 35th ; but these cases are not in point here. In the case in 5 Neb. the corporation was a hotel company, in 16 Neb. the corporation was a flouring mill, and in 36 Neb. the corporation was organized for the erection and operation of a hall for the use of societies, organized meetings, and for such other purposes as the trustees of the corporation might deem for the benefit of the stockholders. In other words, none of the cor- porations were manufacturing corporations. The corporations men- tioned in those cases were organ^ed under the general incorporation laws of the state, and there is no provision in this general law by which a corporation is authorized to commence the transaction of business until all its capital stock is subscribed. In the case at bar the corporation is a manufacturing corporation and expressly author- ized by the statute under which it was incorporated to commence 1 business when ten per cent of its capital stock should be subscribed.. Cook, in his work on Stock and Stockholders, after stating the gen- eral rule that it is an implied part of a contract of subscription to the capital stock of a corporation that the contract is to be binding and enforceable against the subscriber only after the full capital stock of the corporation has been subscribed, says : " The act of in- corporation may of course vary this rule. Thus, it is well established that where the charter authorizes the organization of the company, and the commencement of corporate work after a certain amount of the capital stock has been subscribed, such a charter provision is equivalent to an express authority to the corporation to call in the subscriptions as soon as this organization is effected. Subscriptions to the full amount of the capital stock are held not to be necessary. The defence is not good." (1 Cook, Stock & Stockholders, sec. 177.) In this state the legislature does not by a special act charter a corpo- ration, but all corporations are formed under general laws, and these laws and the articles of incorporation adopted in pursuance of and in conformity with such laws constitute the charter of a corporation of this state. In Jewett v. Valley R. Co., 34 0. St., 601, the contract sued upon was in the following language: "'We, the undersigned, hereby re- spectively subscribe to and agree to take of the capital stock of the Valley Eailway Company the number of shares, of fifty dollars each, set opposite our respective signatures,'" etc. The capital stock of the railway company was fixed by its certificate of incorporation at three millions of dollars. Jewett subscribed for one hundred shares LINCOLN SHOE MFG. CO. V. SHELDON. 225 of its stock amounting to $5,000. A law in force in Ohio at the time provided that railroad corporations, so soon as ten per cent of their capital stock should be subscribed, might give notice to the stock- holders to meet for the purpose of choosing directors and construct and maintain a railroad. The railroad company sued Jewett on his subscription, and he defended on the ground that, as the entire amount of the capital stock authorized by the certificate of incorporation had not been subscribed, he was not liable. The court said : " Can assess- ments be made and enforced on subscriptions for shares of the capital stock of a railroad corporation before the whole amount of stock, mentioned in the certificate of incorporation, has been subscribed ? In the absence of both legislation and express agreement on the sub- ject, they cannot." The court then cites Salem MiU-Dam Corporation V. Hopes, 6 Pick. [Mass.], 23, and other cases supporting the general doctrine, and continues : " In most states, however, provision has been made by statute ; and it is well settled that ' contracts must be expounded according to the laws in force at the time they are made, and the parties are as much bound by a provision contained in a law as if that provision had been inserted in and formed a part of the contract.' ... A careful consideration of the enactments set forth in the statement of this case, and other cognate statutory provisions, leaves with us no doubt that when ten per cent of the capital stock had been subscribed the company may organize by the election of directors, who may 'transact all business of the corporation,' and, looking to the duties imposed on the directors, it is clear that the residue of the stock, beyond the ten per cent, . . . must ' be paid in such installments and at such times and places, and to such persons as may be required by the directors of such company,' though the whole amount of the capital stock may not have been subscribed. . . . The terms of the subscription on which this suit was brought are in harmony with the statutory provisions as we have construed them ; and hence the fact that the whole of the capital stock had not been taken afforded no defence to this action." (See, also, Hunt v. Kansas & Missouri Bridge Co., 11 Kan. 412.) We conclude, therefore, that the fact that all the stock authorized by the articles of incorporation of a manufacturing company has not been subscribed is not a defence to a subscriber for such stock when sued on his contract of subscription, if ten per cent of the stock of such manufacturing corporation has been subscribed. The judgment of the district court is reversed and the cause remanded. Reversed and remanded. 226 MINNEAPOLIS THRESHING MACHINE CO. V. DAVIS, MINNEAPOLIS THEESHING MACHINE CO. v. DAVIS. 1889. 40 Minnesota, llO.l Mitchell, J. This was an action to recover instalments due on subscriptions to stock of the. plaintiff. The facts fully appear from the findings of the court, in connection with Exhibits A and B at- tached to the complaint. Those material for present purposes are that, a scheme having been started to organize a manufacturing cor- poration with $250,000 capital, whose works should be located at Junction City, near Minneapolis, and one McDonald having proposed that if the citizens of Minneapolis would subscribe $190,000 to the capital stock, he would subscribe the remaining $60,000, one Janney, a promoter, but not a subscriber to the stock of the proposed corpora- tion, acting as a voluntary solicitor, having with him the subscription paper, (Exhibits A and B,) about April 1, 1887, proceeded to canvass for subscriptions to the stock of the proposed corporation, on the terms and conditions embodied in the paper. He first applied to de- fendant, who subscribed $5,000 of stock. Afterwards, and about the same date, other citizens respectively subscribed to the stock, on the same paper, to the aggregate amount, including defendant's subscrip- tion, of $190,000, of which over $65,000 has been paid in to plaintiff. Thereupon McDonald, in accordance with his proposition, subscribed the remaining $60,000, which he has paid up in full. All the condi- tions expressed in the written subscription (Exhibit A) having been fully performed and complied with, the proposed corporation was afterwards, about April 25, 1887, organized, and these subscriptions to its stock delivered over to it. The corporation, acting in good faith upon such subscriptions, including that of defendant, expended large sums of money in locating and constructing its works, and entered into large contracts, and incurred liabilities to the amount of over $75,000. During all this time, the corporation had no notice or knowledge of any condition being attached to defendant's subscription other than those expressed in the subscription paper itself. Neither is it found or claimed that any of the other subscribers to the stock had any such notice or knowledge. Defendant was not present at the organization of the corporation, and never attended or took part in any of its meetings, and had no notice or knowledge that the sub- scription paper had been transferred or delivered over to the plain- tiff, or that plaintiff relied on it, until about November, 1887, just prior to the commencement of this action. Upon the trial the defendant was permitted, against plaintiff's ob- jection and exception, to testify that he signed or subscribed to the stock only upon the express oral condition and agreement, then had between him and Janney, that the latter should retain in his possession 1 statement omitted, — Ed, MINNEAPOLIS THRESHING MACHINE CO. V. DAVIS. 227 said agreement with his name signed thereto, and not deliver it to any one, or use it in any way, until certain four persons should subscribe to the stock, each in the sum of $6,000 ; that Janney took the agree- ment from defendant on that express condition and understanding, and not otherwise ; that none of these four persons ever did subscribe to the stock of the plaintiff ; and that defendant never authorized Janney or any one to deliver said agreement to any one except upon the condition referred to. The court found the facts to be in accord- ance with the testimony, and upon that ground found as a conclusion of law that defendant never became a subscriber to the plaintiff's stock. The competency of this evidence is the sole question in this case. Under the elementary rule of evidence that a written agreement cannot be varied or added to by parol, it is not competent for a sub- scriber to stock to allege that he is but a conditional subscriber. The condition must be inserted in the writing to be effectual. This rule applies with special force to a case like the present, where to allow the defendant now to set up a secret parol arrangement by which he may be released, while his fellow-subscribers continue to be bound, would be a fraud, not only upon them, but upon the corporation which has been organized on the faith of these subscriptions and upon its creditors. The defendant of course does not attempt to controvert so elementary a rule as the one suggested, but contends that the effect of this evidence was not to vary or contradict the terms of the writing, but to prove that there was never any delivery of it, and hence that there never was any contract at all, delivery being prerequisite to the very existence of a contract. His claim is that the subscription paper was given to and received by Janney merely as an escrow, or as in the nature of an escrow, only to be delivered or used upon the per- formance of certain conditions precedent, and that until they were performed there could be no valid delivery. In determining this question it becomes important to consider the nature of a subscription to the stock of a proposed corporation, and the relation of the different parties to each other, under the facts of this case. A subscription by a number of persons to the stock of a corporation to be thereafter formed by them has in law a double character : First. It is a contract between the subscribers themselves to become stockholders without further act on their part immediately upon the formation of the corporation. As such a contract it is binding and irrevocable from the date of the subscription, (at least in the absence of fraud or mistake,) unless cancelled by consent of all the subscribers before acceptance by the corporation. Second. It is also in the nature of a continuing offer to the proposed corporation, which, upon acceptance by it after its formation, becomes as to each sub- scriber a contract between him and the corporation. 1 Mor. Priv. Corp. § 47 et seq. ; Bed Wing Hotel Co. v. Frederick, 26 Minn. 112, (1 N. W. Eep. 827.) Janney, the promoter who solicited and obtained 228 MINNEAPOLIS THEESHING MACHINE CO. V. DAVIS. the subscriptions, occupied the position of agent for the subscribers as a body, to hold the subscriptions until the corporation was formed in accordance with the terms and conditions expressed in the agree- ment, and then turn it over to the company without any further act of delivery on part of the subscribers. The corporation would then become the party to enforce the rights of the whole body of subscrib- ers. It follows, then, that, considering the subscription as a contract between the subscribers, a delivery to Janney by a subscriber was a complete and valid delivery, so that his subscription became eo irb- stanti a binding contract. ThS' case stands precisely as a case where a contract is delivered by the obligor to the obligee. It cannot there- fore be treated as a case where a writing has been delivered to a third party in escrow. The defendant, however, attempts to bring the case within the rule of Westman v. Krumweide, 30 Minn. 313, (15 N. W. Eep. 265,) in which this court held that parol evidence was admissible to show that a note delivered by the maker to the payee was not intended to be operative as a contract from its delivery, but only upon the happen- ing of some contingency, though not expressed by its terms ; that is, that the delivery was only in the nature of an escrow. We so held upon what seemed the great weight of authority, although the doc- trine, even to the extent it was applied in that case, is a somewhat dangerous one. The distinction between proving by parol that the delivery of a contract was conditional, and that the contract itself contained a condition not expressed in the writing, is one founded more on refinement of logic than upon sound practical grounds. It endangers the salutary rule that written contracts shall not be varied by parol. Said Erie, J., in Pym v. Campbell, 6 El. & Bl. 370, in sus- taining such a defence : " I grant the risk that such a defence may be set up without ground, and I agree that a jury should therefore look on such a defence with suspicion." And in all the cases where such a defence has been sustained, so far as we can discover, they have been cases strictly between the original parties, and where no one has changed his situation in reliance upon the contract and in ignorance of the secret oral condition attached to the delivery, and hence no question of equitable estoppel arose. Many of the cases have been careful to expressly limit the rule to such cases. Benton V. Martin, 62 N. Y. 570 ; Sweet v. Stevens, 7 E. I. 376. Conceding the rule of Westman v. Krumweide, supra, to its full ex- tent, there are certain well-recognized doctrines of the law of equita- ble estoppel which render it inapplicable to the facts of the present case. This subscription agreement was not intended to be the sole contract of defendant. It was designed to be also signed by other parties, and from its very nature defendant must have known this. Each succeeding subscriber executed it more or less upon the faith of the subscriptions of others preceding his. The paper purports on its face to be a completed contract, containing all the terms and con- MINNEAPOLIS THRESHING MACHINE CO. V. DAVIS. 229 ditions whicli the subscribers intended it should. When this agree- ment was presented to others for subscription, defendant had not only signed it in this form, but he had also done what, under the facts, constituted, to all outward appearances at least, a complete and valid delivery. He had placed it in the proper channel according to the ordinary and usual course of procedure for passing it over to the corporation when organized, and clothed Janney with all the indicia of authority to hold and use it for that purpose without any other or further act on his part, untrammelled by any condition other than those expressed in the writing. In reliance upon this, others have not only subscribed to the stock, but have since paid in a large share of it. The corporation has been organized and engaged in business, expending large sums of money, and contracting large liabilities, all upon the strength of these subscriptions to its stock, and in entire ignorance of this secret oral condition which defendant now claims to have attached to the delivery. To permit defendant to relieve him- self from liability on any such groxind, under this state of facts, would be a fraud on others who have subscribed and paid for stock, upon the corporation which has been organized and incurred liabilities in reliance upon the subscriptions, and on creditors who have trusted it. The familiar principle of equitable estoppel by conduct applies, viz. : Where a person, by his words or conduct, wilfully causes another to believe in the existence of a certain state of facts, and induces him to act on that belief so as to alter his own previous condition, he is estopped from denying the truth of such facts to the prejudice of the other. We have examined all of the numerous cases cited by defendant's counsel, and fail to find one which, in our judgment, is analogous in its facts, or the law of which will cover the present case. The two which at first sight might seem most strongly in his favor are Beloit & Madison B. Co. v. Palmer, 19 Wis. 674, and Ottawa, etc., B. Co. v. Hall, 1 Bradw. 612. But an examination of those cases will show that in neither did or could any question of estoppel arise, and in both the court held that the person to whom the instrument was delivered after signature was a stranger to it, so that it was strictly a delivery in escrow to a third party. Cases are cited where a surety signed a bond or non-negotiable note, and delivered it to the principal obligor upon condition that it should not be delivered to the obligee until some other person signed it, and where, without such signature, the principal obligor delivered it to the obligee and yet the courts held that the surety was not liable, although the obligee had no notice of the condition. Such cases seem usually to proceed upon the theory that a delivery to the principal obligor under such cir- cumstances is a mere delivery in escrow to a stranger ; the term " stranger," in the law of escrows, being used in opposition merely to the party to whom the contract runs. It may well be doubted whether in such cases, where the instrument is complete on its face, the courts 230 PACIFIC NATIONAL BANK v. EATON. have not sometimes ignored the law of equitable estoppel. No such defence would be allowed in the case of negotiable paper, and it is not clear why the distinction should be drawn on that line. The doctrine of estoppel rests upon totally different grounds, and operates inde- pendently of negotiability, being founded upon principles of equity. But whether the eases referred to be right or wrong, we do not see that they are in point here. Our conclusion is that the court erred in admitting the evidence objected to, and for that reason a new trial must be awarded. Order reversed. PACIFIC NATIONAL BANK v. EATON. 1891. 141 U. S. 227.1 Erkok to Supreme Court of Massachusetts. Action at law by Mary J. Eaton, to recover from the bank an amount paid in as a subscription to an increase of its stock. Plaintiff on Sept. 28, 1881, paid the bank for the stock; and received a receipt — "Eeceived of Mary J. Eaton four thousand dollars on account of subscription to new stock." Certificates for the new stock were made out in a book, with stubs to indicate their contents, and were delivered to the stockholders as they called for them. Such a certificate was made out for Miss Eaton, but she never called for it, though she was registered in the stock register of the bank as owner thereof without her knowledge. On Jan. 10, 1882, the plaintiff de- manded of the bank repayment of said four thousand dollars, upon the ground that the conditions upon which it was received had not been performed. The Supreme Court of Massachusetts sustained this contention of the plaintiff. A. A. Banney, for plaintiff in error. J. H. Benton, Jr., for defendant in error. Bkadlet, J. [After deciding another point.] The only question to be considered, therefore, is whether the fact that the defendant in error did not call for and take her certificate of stock made any difference as to her status as a stockholder. We can- not see how it could make the slightest difference. Her actually going or sending to the bank and electing to take her share of the new stock, and paying for it in cash, and receiving a receipt for the same in the form above set forth, are acts which are fully equivalent to a subscription to the stock in writing, and the payment of the money therefor. She then became a stockholder. She was properly entered as such on the stock book of the company, and her certificate of stock was made out ready for her when she should call for it. It was her certificate. She could have compelled its delivery had it 1 Only 80 much of the report is given as relates to a single point. — Ed. PACIFIC NATIONAL BANK V. EATON. 231 been refused. Whetlier she called for it or not was a matter of no consequence whatever in reference to her rights and duties. The case is not like that of a deed for lands, which has no force, and is not a deed, and passes no estate, until it is delivered. In that case everything depends on the delivery. But with capital stock it is different. Without express regulation to the contrary, a person becomes a stockholder by subscribing for stock, paying the amount to the company or its proper oificer, and being entered on the stock book as a stockholder. He may take out a certificate or not, as he sees fit. Millions of dollars of capital stock are held without any certificate ; or, if certificates are made out, without their ever being delivered. A certificate is authentic evidence of title to stock ; but it is not the stock itself, nor is it necessary to the existence of the stock. It cer- tifies to a fact which exists independently of itself. And an actual subscription is not necessary. There may be a virtual subscription, deducible from the acts and conduct of the party. Judgment reversed, and the cause remanded for further proceedings not inconsistent with this opinion. 232 EKLANGER V. NEW SOMBKBEO PHOSPHATE CO. CHAPTER VI. PEOMOTEES. EELANGEE v. NEW SOMBEEEO PHOSPHATE CO. 1878. Law Seports, 3 Appeal Cases, 1218.1 Appeal against a decision of the Court of Appeal which, had re- Tersed a decree of Vice Chancellor Malins. Sombrero, a small island in the West Indies, the property of the Crown, had been leased out by the Crown for 21 years from 1865. This lease had been assigned to " The Sombrero Company," which undertook to work the beds of phosphate of lime with which the island abounded. This company was ordered to be wound up. The lease was ordered to be sold by the official liquidator, Mr. Chatteris. Erlanger and others formed a syndicate to purchase it, and did pur- chase it for £66,000. The purchase was effected by a provisional con- tract Aug. 30, 1871, though not formally concluded until later. The syndica.te desired to resell the lease at a profit ; and with that view proceeded to get up a company to purchase it from the syndicate. Erlanger, who acted for the syndicate, took steps to form a com- pany, under the Companies Act. A memorandum of association was drawn up by the solicitor of the syndicate, and was signed by seven persons all of whom were mere nominees of the syndicate. The arti- cles of association for the company were drawn by the same solicitor, and bear date Sept. 20, 1871. These articles provide that the first board of directors shall consist of fiva specified persons ; that two directors shall be a quorum for the transaction of business ; and that the direc- tors may, without any further authority from the members, adopt and carry into effect the contract, of even date, for the assignment to the company of the island of Sombrero for the residue of the term of the lease. A contract had also been drawn up, and dated Sept. 20, for the sale of the lease to the new company. This contract purported to be made between Evans as vendor and Pavy as purchaser on behalf of the new company. Evans was a trustee or agent for the members of the syndicate. The contract was, on the face of it, a provisional one, 1 Case abridged. Arguments omitted; also greater part of the opinions. — Ed. EELANGER V. NEW SOMBEEKO PHOSPHATE CO. 233 subject to the formation of the company, and the adoption of the con- tract by it. This contract recited the purchase by the syndicate on Aug. 30, but did not name the price then given. The price to the new company was to be £110,000, of which £80,000 was to be paid down, and the remaining £30,000 to be satisfied by fully paid-up shares in the new company. The money was to be obtained by the subscriptions for the shares, which were to be 13,000 in number of £10 each. The five persons specified in the articles as directors were all named by the syndicate. Two of them were persons not likely to act, and who did not act, in the early proceedings of the board. The other three were Evans, Macdonald and Dakin. Evans' shares were given to him by Erlanger. Macdonald held shares only as trustee for Erlanger. Dakin had not sufficient knowledge of the fa(j);s to form an independent judgment. The first meeting of the directors was held Sept. 29, 1871 ; and was attended by Evans, Macdonald and Dakin. It was resolved that the contract of purchase for £110,000 " be approved and confirmed." A prospectus was soon issued ; and after its publication the number of applications for shares became considerable. There was never any confirmation of the purchase by vote of the stockholders. Subsequently, after new directors had been chosen, the bill in this suit was filed by the- company against Erlanger and all the members of the syndicate ; one prayer being that the contract of Sept. 20 might be set aside ; and the purchase money repaid to the company. The case was heard before Vice Chancellor Malins, who ordered the bill to be dismissed, but without costs. On appeal by the company, the contract was ordered to be rescinded as to all members of the syndicate, the purchase money paid by the company repaid, and, on payment of the money so ordered tp be repaid to the company, the island was to be restored by the company to the syndicate. Erlanger et als. then brought the present appeal to the House of Lords. The case was twice argued. Southgate, Q. C, and Benjamin, Q. C. (Ingle Joyce with them), for appellants. J. Napier Higgins, Q. C., and Davey, Q. C. (Alexander Young with them), for respondents. LoED Penzance. [After stating the facts.] Can a contract so obtained be allowed to stand ? The bare state- ment of the facts is, I think, sufficient to condemn it. From that statement I invite your Lordships to draw two conclusions : first, that the company never had an opportunity of exercising, through independent directors, a fair and independent judgment upon the subject of this purchase ; and, secondly, that this result was brought about by the conduct and contrivance of the vendors themselves. It 234 EELANGEE V. NEW SOMBEEEO PHOSPHATE CO. was tlie vendors, in their character of promoters, who had the power and the opportunity of creating and forming the company in such a manner that with adequate disclosures of fact, an independent judg- ment on the company's behalf might have been formed. But instead of so doing they used that power and opportunity for the advance- ment of their own interests. Placed in this position of unfair ad- vantage over the company which they were about to create, they were, as it seems to me, bound according to the principles constantly acted upon in the Courts of Equity, if they wished to make a valid contract of sale to the company, to nominate independent directors and fully disclose the material facts. The obligation rests upon them to shew they have not made use of the position which they occupied to benefit themselves ; but I find no proof in the case that they have discharged that obligation. There is no proof that either Sir Thomas Dakin or Admiral Macdonald was aware of the price at which the property had just been brought under the authority of the Court of Chancery, nor, indeed, that they even knew that the real vendors were also the promoters of the company. And there is certainly no proof that in the selection of the directors who were to be the com- pany's agents for accepting and affirming the proposed purchase, the vendors used their power as promoters in such a way as to create an independent body capable of acting impartially in defence of the company's interests. A contract of sale effected under such circumstances is, I conceive, upon principles of equity liable to be set aside. The principles of equity to which I refer have been illustrated in a variety of relations, none of them perhaps precisely similar to that of the present parties, but all resting on the same basis, and one which is strictly applicable to the present case. The relations of principal and agent, trustee and cestui que trust, parent and child, guardian and ward, priest and penitent, all furnish instances in which the Courts of Equity have given protection and relief against the pressure of unfair advantage resulting from the relation and mutual position of the parties, whether in matters of contract or gift ; and this relation and position of unfair advantage once made apparent, the Courts have always cast upon him who holds that position, the burden of shewing that he has not used it to his own benefit. I have no difficulty, therefore, in asking your Lordships to assent fco the proposition of the Lord Chancellor, that if, within a proper time after the completion of this purchase, a bill had been filed by the company, the purchase must have been set aside. The question remains whether the present bill has been filed with sufficient promp- titude for that purpose. [His Lordship held, that the company was not barred by laches. The facts relating to this branch of the case have been omitted.] Lord Caibns ; Lord Chancellor. [After referring to purchase by the syndicate on Aug. 30, 1871.] EELANGEE V. NEW SOMBEEEO PHOSPHATE CO. 235 My Lords, I stop at this point for the purpose of saying that I think it to be clear that the syndicate in entering into this contract acted on behalf of themselves alone, and did not at that time act in, or occupy, any fiduciary position whatever. It may well be that the prevailing idea in their mind was, not to retain or work the island, but to sell it again at an increase of price, and very possibly, to pro- mote or get up a company to purchase the island from them ; but they were, as it seems to me, after their purchase was made, perfectly free to do with the island whatever they liked ; to use it as they liked, and to sell it how, and to whom, and for what price they liked. The part of the case of the Eespondents which, as an alternative, sought to make the Appellants account for the profit which they made on the re-sale of the property to the Eespondents, on an allegation that the Appellants acted in a fiduciary position at the time they made the contract of the 30th of August, 1871, is not, as I think, capable of being supported, and this, as I understand, jvas the view of all the Judges in the Courts below. [After stating the subsequent proceedings up to and including Sept. 20.] In the whole of this proceeding up to this time the syndicate, or the house of Erlanger as representing the syndicate, were the pro- moters of the company, and it is now necessary that I should state to your Lordships in what position I understand the promoters to be placed with reference to the company which they proposed to form. They stand, in my opinion, undoubtedly in a fiduciary position. They have in their hands the creation and moulding of the company ; they have the power of defining how, and when, and in what shape, and under what supervision, it shall start into existence and begin to act as a trading corporation. If they are doing all this in order that the company may, as soon as it starts into life, become, through its managing directors, the purchaser of the property of themselves, the promoters, it is, in my opinion, incumbent upon the promoters to take care that in forming the company they provide it with an executive, that is to say, with a board of directors, who shall both be aware that the property which they are asked to buy is the property of the promoters, and who shall be competent and impartial judges as to whether the purchase ought or ought not to be made. I do not say that the owner of property may not promote and form a joint stock company, and then sell his property to it, but I do say that if he does he is bound to take care that he sells it to the company through the medium of a board of directors who can and do exercise an independent and intelligent judgment on the transaction, and who are not left under the belief that the property belongs, not to the promoter, but to some other person. [His Lordship was of opinion that the company was barred by laches from obtaining the relief prayed for.] 236 EEL ANGER V. NEW SOMBRERO PHOSPHATE CO. LOED Blackbukn. Throughout the Companies Act, 1862 (25 & 26 Vict. c. 89), the word " promoters " is not anywhere used. It is, however, a short and con- venient way of designating those who set in motion the machinery by which the Act enables them to create an incorporated company. • Neither does this Act in terms impose any duty on those promoters to have regard to the interests of the company which they are thus empowered to create. But it gives them an almost unlimited power to make the corporation subject to such regulations as they please, and for such purposes as thej- please, and to create it with a man- aging body whom they select, having powers such as they choose to give to those managers, so that the promoters can create such a cor- poration that the corporation, as soon as it comes into being, may be bound by anything, not in itself illegal, which those promoters have chosen. And I think those who accept and use such extensive pow- ers, which so greatly affect the interests of the corporation when it comes into being, are not entitled to disregard the interests of that corporation altogether. They must make a reasonable use of the powers which they accept from the Legislature with regard to the formation of the corporation, and that requires them to pay some regard to its interests. And consequently they do stand with regard to that corporation when formed, in what is commonly called a fidu- ciary relation to some extent. Some reference was made in the argu- ment to the Companies Act, 1867 (30 & 31 Vict. c. 131, s. 38), on the con- struction of which there has been a great diversity of judicial opinion. That section does contain the word " promoters," which, as I have already observed, is not to be found in the Companies Act, 1862, but it imposes no fresh duty on them with regard to the company. It imposes a fresh duty towards, and gives a new cause of action to, per- sons who take shares in the company as individuals ; it does not affect the obligation of the promoters towards the corporation. I think that the extent of that fiduciary relation, which, as already said, in my opinion, the promoters bear to the company, is a very im- portant consideration in construing that section ; and I am desirous to avoid prejudging that question by saying in this case more than is necessary for its decision. I think, as already said, that the pro- moters are in a situation of confidence to some extent towards the company they form. Where, as in the present case, the company is formed for the pur- pose of becoming purchasers from the promoters as vendors, the in- terests of the promoters and of the company clash. It is the vendors' interest to get as high a price as possible, and they have a strong bias to overvalue the property which they are selling ; it is the purchas- ers' interest to give as low a price as possible, and to secure that the price actually given is not more than the property is really worth to them. GEEENWOOD v. LEATHEE SHOD WHEEL CO 237 Lord Eldon, in Gibson v. Jeyes^ sa,js that " it is a great rule of the Court that he who bargains in matters of advantage with a person placing confidence in him, is bound to shew that a reasonable use has been made of that confidence — a rule applying to trustees, attorneys, or any one else." I think persons having property to sell may form a company for the purpose of buying it in such a manner as to shew this, and when they do so, the sale will be unimpeachable. I will not attempt to define how this may be done. Probably there are many ways. What I shall do is to inquire what, on the evidence, appears to have been done in this case, and then to confine myself to saying whether, on the facts of this particular case, it appears that an unrea- sonable use has been made of that confidence which the company did not indeed place in the promoters, for the company did not then exist, but which the Legislature did place in them for the company when it gave the promoters power to create it. [Opinions concurring with Lobd Penzance were delivered by Lords Hatheelbt, O'Hagan, Selboene, and Gordon.] Order appealed from affirmed. GEEENWOOD v. LEATHER SHOD WHEEL CO. 1899. , Law Reports (1900), 1 Chancery Division, 421.2 Action by a shareholder in the defendant company against the company, the directors, and the promoter, T. H. Lambert. The company was registered Eeb. 12, 1897, under the Companies Acts. T. H. Lambert was the promoter. By authority of the direc- tors, and of Lambert, a prospectus, dated Feb. 10, 1897, was issued to tlie public inviting subscriptions for shares. Section 38 of the Companies Act, 1867, is as follows : " Every pro- spectus of a company, and every notice inviting persons to subscribe for shares in any joint stock company, shall specify the dates and the names of the parties to any contract entered into by the company, or the promoters, directors, or trustees thereof, be-fore the issue of such prospectus or notice, whether subject to adoption by the directors of the company or otherwise ; and any prospectus or notice not specify- ing the same shall be deemed fraudulent on the part of the promoters, directors, and officers of the company knowingly issuing the same, as regards any person taking shares in the company on the faith of such prospectus, unless.he shall have had notice of such contract." At the end of the prospectus (issued as above stated), under the 1 6 Ves. 278. 2 statement abridged. Only so mnch of the report is given as relates to a singU point. — Ed. 238 GREENWOOD V. LEATHER SHOD WHEEL 00. heading in large print, " The following agreement has been entered into," was a paragraph in smaller print than the rest of the prospectus, purporting to give particulars of an agreement dated Feb. 6, 1897, (for the sale of certain patents by the Coria Syndicate, Limited, to the de- fendant company) — and then continuing thus : " There may be other agreements as to the formation of the company, the subscription to the capital, or otherwise, to none of which is the company a party, and which may technically fall within s. 38 of the Companies Act, 1867. Subscribers will be held to have had notice of all these contracts and to have waived all right to be supplied with particulars of such con- tracts, and to have agreed with the company, as trustees for the direc- tors and other persons liable, not to make any claims whatsoever or to take any proceedings under the said section, or otherwise in respect of any non-compliance therewith." Plaintiff received a copy of the prospectus ; and, on the faith of it, he applied, Feb. 15, 1897, for 1000 shares in the company, by filling up and signing a printed application form, part of which was as fol- lows :..."! beg to apply for lOOOZ. ordinary shares, ... on the terms of the prospectus. ... I further agree with the company, as trustee for the directors and others liable, to waive any claims I may have against them for non-compliance in the said prospectus with s. 38 of the Companies Act, 1867, or otherwise. . . ." The 1000 shares were duly allotted to the plaintiff, and he paid the full amount of lOOOZ. thereon. Plaintiff subsequently discovered that an agreement had been en- tered into, on Dec. 3, 1896, between T. H. Lambert, on the one hand, and the Coria Syndicate, Limited — who were ultimately the ostensible vendors to the defendant company — on the other ; whereby it was agreed that the syndicate should purchase a number of leather tire patents from one Lembeke, alleged to be a nominee or agent of T. H. Lambert, on the terms of allotting half of its share capital to Lembeke, and the other half, less the seven statutory shares allotted to the subscribers to the syndicate's memorandum of association, to T. H. Lambert ; who thus on the ultimate sale to the defendant company acquired a substantial interest in it. On making this and other discoveries, plaintiff, on Oct. 1, 1897, re- pudiated his shares and demanded repayment. On the company deny- ing his right to repudiate, he began the present action. Kekewich, J., after trial, gave judgment, that, as against T. H. Lambert, the prospectus was to be deemed fraudulent under s. 38 of the Companies Act, 1867 ; and that T. H. Lambert should, in default of payment by the defendant company, pay to the plaintiff the said sum of 1000?. The defendants appealed. [The argument in behalf of the other defendants is omitted.] E. Ford, for T. H. Lambert, GBEENWOOD V. LEATHER SHOD WHEEL CO. 239 • • • The question, then, is whether he is liable under s. 38, for non- disclosure of that agreement [of Dec. 3, 1896.] I submit that the waiver clause in the prospectus, and also in the application for shares, debars the plaintiff from relying on the section. [EoMEE, L. J. Your contention then is that, no matter how fraudu- lent a contract may be, there is nothing in the Act to prevent a share- holder from contracting himself out of the Act.] . [LiNDLET, M. R. Suppose this is a fraudulent prospectus as against the Company and you the promoter, the entire prospectus is a fraud including this waiver clause. What then becomes of the waiver ?] There is no enactment in the Act that a shareholder shall not con- tract himself out of it. [E.0MBE, L. J. Assume that there was a contract by the plaintiff not to take, advantage of the Act, how can you bind him when you state in your prospectus that there " may be " other agreements when you knew there were ? In your case you are a promoter knowing of this contract, and yet you put in a misleading statement that there " may be " other agreements. That, surely, is not a case in which you can say there is a waiver.] I rely strongly on the waiver clause in the application form. To say that the plaintiff is not bound by that is to say that he may com- mit a breach of contract. After that contract he cannot turn round and say my client is liable. The allotment was made by the company upon the terms stated in the application form, and upon no other. [LiNDLET, M. E.. The expression in the application form, " or other- wise," is very significant. It covers a common law action of tort. It means that the shareholder shall not sue on any ground at all.] But the fact remains that the plaintiff has solemnly contracted him- self out of this head of relief. Whether a company can put in a pro- spectus or application form a clause to protect itself, or whether a shareholder can contract himself out of the Act, has never yet been decided ; but I submit that such a clause is not in itself unreasonable. Warmington, Q. C, Benshaw, Q. G., and Norman Craig, for plaintiff, [Argument omitted.] Cur. adv. vult. LiNDiEY, M. R. [After discussing other questions.] One part of the order, however, affects Mr. T. H. Lambert alone, and it raises a very important question as to the effect of what are called " waiver clauses " on s. 38 of the Companies Act, 1867. The prospectus in this case omitted all reference to an important contract of December 3, 1896, by which Mr. T. H. Lambert was to obtain considerable benefits. There can be no doubt that this contract ought to have been disclosed in the prospectus. Mr. T. H. Lambert has been held to have in- fringed this section, and an order has been made against him as to costs, of which he complains. The other directors apparently knew aothing of the contract in question, and no similar order was made 240 GREENWOOD V. LBATHEK SHOD WHEEL CO. against them. Kekewich, J.'s view was that the waiver clause could not avail Mr. T. H. Lambert because the plaintiff was not suf- ficiently informed of what he was waiving. I am of the same opinion, but, as this matter is one of great importance, I will state my reasons for my conclusion. The iirst part of s. 38 enacts that every prospectus of a company, and every notice inviting persons to subscribe for shares, shall specify the dates and names of the parties to any contract entered into by the company, or the promoters, directors, or trustees thereof, before the issue of such prospectus or notice. The second part of the section enacts that every prospectus or notice not specifying the same shall be deemed fraudulent on the part of the promoters, directors, and officers of the company knowingly issuing the same, as regards any person taking shares in the company on the faith of such prospectus, unless he shall have had notice of such contract. A prospectus, therefore, which does not comply with the first half of the section is to be deemed fraudulent, as between the persons issu- ing it, on the one hand, and all persons taking shares on the faith of it, on the other, except only in one case — namely, if they have notice of the contract, of which some particulars have to be given in compli- ance with the first part of the section. Considering the manifest object of this section, which is to compel the persons issuing prospectuses to afford to persons invited to take shares the information required by the section, it is obvious that the words, " unless he shall have had notice of such contract," mean a great deal more than " unless he shall have some vague information which, if followed up, will lead to such notice." Notice in the section means, not what is called "constructive notice," but actual notice, that is, notice which brings home to the mind of a reasonably intelli- gent and careful reader such knowledge as fairly, and in a business sense, amounts to notice of a contract. Any other construction would render the section perfectly useless. Again, what is to be deemed fraudulent is the prospectus as a whole. It may contain some true statements, but the introduction of these will not -save the prospectus from being deemed fraudulent as a whole. The introduction into the prospectus of a tricky waiver clause, instead of preventing the pro- spectus from being deemed fraudulent, affords an additional reason for holding it to be so in fact. The waiver clause in the prospectus of this company is, in my opin- ion, clearly tricky and fraudulent on the part of Mr. T. H. Lambert. It is printed in small type, so as to escape attention ; it is worded so as to conceal, and not to afford notice of, the contract of December 3, 1896, to which he, the promoter, was a party. The language, " there may be contracts which perhaps ought to be referred to," when it was perfectly well known, to Mr. T. H. Lambert at all events, that there certainly was one which ought to have been disclosed, stamps the clause as tricky and dishonest, so far as he is concerned. GREENWOOD V. LEATHER SHOD WHEEL GO. 241 But then it is said that the application for shares contains another waiver clause. But the application for shares refers to the prospectus, and was sent out with it, and the waiver clause in the application for shares is as tricky as the other, and is even worse by reason of the words " or otherwise,'' which increases its scope beyond all reason- able bounds. Literally construed, it would, if effect were given to it, afford a defence to the whole action. If a company's prospectus is fraudulent at common law, or is to be deemed fraudulent under s. 38 of the Companies Act, 1867, and an applicant for shares signs a con- tract which is intended to deprive him of his right to redress, he is not bound in equity by what he signs, unless his attention is called to the existence of facts which render the prospectus fraudulent. The introduction of a stipulation that an applicant for shares is to be deemed to have notice of what is in fact concealed from him, is sim- ply part of the trick had recourse to in order to evade the consequences of the improper concealment. Such a stipulation in a tricky waiver clause like the one before us affords no protection to the person who seeks protection from it. The principle of refusing to give effect to parts of documents so as to prevent successful deception by means of them is quite familiar in its application to general words in releases, and to catching conditions of sale. The refusal is based on ordinary principles of honesty, and is as applicable to tricky waiver clauses as to other tricky documents. I wish to guard myself against being supposed to go further than I intend. I have no doubt that a person who takes shares on the faith of a contract which is fraudulent at common law, or which is .deemed to be fraudulent under s. 38 of the Companies Act, 1867, may elect to keep his shares, and may agree not to enforce his right to damages. But, in order to bind him by election or agreement, he must be fairly dealt with ; and his attention must be fairly drawn to the facts, or at all events the existence of facts, which confer the rights which he elects or agrees not to enforce. If his attention, instead of being drawn to such facts, is drawn from them, the attempt to catch him will fail. I am aware that, owing to the wide language of s. 38, there is some- times practical difficulty in determining whether all contracts which apparently come within it are really such as to require notice in a pro- spectus ; and to put in a long list of contracts, which no applicant for shares would care to know anything about, would frighten the public and do no good to any one. These dif&culties have given rise to hon- est attempts to protect honest men by -ssaiver clauses from the conse- quences of honest unintentional breaches of the law. General waiver clauses in prospectuses, applications for shares, articles of association, or other documents addressed to large numbers of persons are, how- ever, always suspicious, and require careful scrutiny. When the Court has to deal with an honest case of the sort above mentioned, the Court will, I have no doubt, be able to come to a just conclusion, and will, if necessary, uphold the clause. On the present occasion we have no 242 MoELHBNNYS APPEAL. such ease to deal with. Mr. T. H. Lambert, the promoter, has ingen. iously endeavored to shield himself from the consequences of conceal- ing a contract to which he dared not allude, and his appeal, like the others, must be dismissed with costs. [SiE F. H. Jeunb and Eomee, L. J., concurred ; the latter deliver- ing an opinion upon another branch of the case.] Appeal dismissed. MoELHENNY'S APPEAL. 1869. 61 Permsylvania State, 188.1 Bill filed by Hubert Oil Company against the administrators of McElhenny's estate. McElhenny purchased land, probably at a cost of much less than $12,000. This land he sold to Baird and others ; upon their agree- ment that he should receive $12,000 ; and should also receive a share of the profits to be made by the purchasers from him, in case they put ifc into a company at the sum of $40,000. Baird et als. then pro- moted the formation of the plaintiff corporation. Stock was sub- scribed to the amount of more than $40,000; McElhenny's name appearing as a subscriber to the extent of $2000. The promoters sold the land to the corporation for $40,000. Out of this sum Mc- Elhenny was paid the $12,000, due from Baird et als. as purchase money.. The balance of $28,000 was divided as profit among the promoters ; McElhenny receiving as his share the sum of $2083.84. The sale to the corporation was made under such circumstances that the promoter-vendors were compellable to refund to the corporation the profit they received. The corporation claimed that McElhenny should account to it for the profit received by McElhenny on the sale which he made to Baird et als., as well as the profit received by McElhenny on the sale by Baird et als. to the corporation. The court below, apparently adopting this basis, decreed that the administrators should pay to the corporation the sum of $9083.84. Erom this decree, the administrators appealed. T. Archer, Jr. (L. C. Cassidy with him), for appellants. E. S. Miller (0. B. Penrose with him), for appellees. Thompson C. J. In order to bring the intestate's estate into liability to the com- pany for money received by him in payment for the land, it must be tnade to appear that he occupied some fiduciary relation to it, so that 1 Statement abridged. Arguments and part of opinion omitted. — Ed. moelhenny's appeal. 243 the receipt of the money, although receired by him for his own use, was, by means of the fraud practised in his fiduciary relation, money of the company. It is not damages in a case like this that equity gives, it is restoration of the thing wrongfully taken, viz. the money received, or an equal sum and interest. It nowhere appears that McElhenny, the purchaser from Hubert, the original owner, did it as the agent of Messrs. Baird, Boyd & Co. and others, although he bought it to sell again, no doubt. If the property was not purchased by McElhenny for the use and as agent of the company, but for his own use (and this is the proof in the case), he might sell it at a profit most assuredly. No subsequent purchasers from his vendees would have any right to call upon him to account for the profits made on his sale. The parties to whom he sold have never asked him to account to them for the profit at which he sold to them. They have not pretended that he was their agent in making the purchase, and I am unable to understand the ground of a right in the company to demand it. The difference between the sum he paid and that at which he sold, he was as fairly entitled to as to the sum paid. Seeing no evidence of agency, or of a trust, or a fiduciary relation between the plaintiff and the defendant's intestate thus far, we are of opinion that there was error in decreeing payment of any portion of the profits made by him in the sale to the promoters of the Hubert Oil Co. ; and to the extent of $7000 the decree is to be modified. At this point another inquiry arises, is the estate of McElhenny liable in equity to refund- to the company the share of the profits re- ceived by him over the sum of $12,000 ? We "are inclined to think it is. After selling to Baird, Boyd and others, and then joining them in selling to the company, he assumed their position and liabilities, and if they could not make a profit, he could not. [Decree against McElhenny' s estate for $2083.84. J Shabswood, J., dissented. 244 KELNEK V. BAXTER. KELNER V. BAXTER. 1866. Law Reports, 2 Common Fleas, 174.1 The declaration was for goods sold and delivered, goods bargained and sold, interest, and upon accounts stated. [Pleas omitted.] At the trial before Erie, C. J., at the sittings in London after last Trinity Term, the following facts appeared in evidence : — The plain- tiff was a wine merchant, and the proprietor of the Assembly Rooms at Gravesend. In August, 1865, it was proposed that a company should be formed for establishing a joint-stock hotel company at Gravesend, to be called The Gravesend Royal Alexandra Hotel Com- pany, Limited, of which the following gentlemen were to be the direc- ' tors, viz., Mr. L. Calisher, Mr. T. H. Edmands, Mr. M. Davis, Mr. Macdonald, Mr. Hulse, Mr. N. J. Calisher (one of the defendants), and the plaintiff. The plaintiff was to be the manager of the proposed company, and Mr. Dales (another of the defendants) was to be the permanent architect. One part of the scheme was that the company should purchase the premises of the plaintiff for a sum of 5000Z., of which 3000Z. was to be paid in cash, and 2000Z. in paid up shares, the stock, &c., to be taken at a valuation ; and this was carried into effect and completed, the other defendant (Baxter) being the nominal pur- chaser on behalf of the company. In December a prospectus was set- tled. On the 9th of January, 1866, a raemorandum of association was executed by the plaintiff and the defendants and others. Pending the negotiations the business had been carried on by the plaintiff, and for that purpose additional stock had been purchased by him ; and on the 27J;h of January, 1866, an agreement was entered into for the transfer of this additional stock to the company, in the following terms : — "January 27th, 1866. " To John Dacier Baxter, Nathan Jacob Calisher, and John Dales, on behalf of the proposed Gravesend Royal Alexandra Hotel Com- pany, Limited. " Gentlemen, — I hereby propose to sell the extra stock now at the Assembly Rooms, Gravesend, as per schedule hereto, for the sum of 900?., payable on the 28th of February, 1866. (Signed) « John Kelner." Then followed a schedule of the stock of wines, &c., to be purchased, and at the end was written as follows : — 1 Pleadings and arguments omitted. — Ed. KELNER V. BAXTEE. 245 "ToMr. JohnKelner. " Sir, — We have received your offer to sell the extra stock as above, and hereby agree to and accept the terms proposed. (Signed) « J. D. Baxter, " N. J. Calisher, "J. Dales, " On behalf of the Gravesend Royal Alexandra Hotel Company, Limited." In pursuance of this agreement the goods in question were handed over to the company, and consumed by them in the business of the hotel ; and on the 1st of February a meeting of the directors took place, at -which the following resolution was passed : " That the ar- rangement entered into by Messrs. Calisher, Dales, and Baxter, on behalf of the company, for the purchase of the additional stock on the premises, as per list taken by Mr. Bright, the secretary, and pointed out by Mr. Kelner, amounting to 900Z., be, and the same is hereby ratified." There was also a subsequent ratification by the company, viz., on the 11th of April, but this was after the commencement of the action. The articles of association of the company were duly stamped on the 13th of February, and on the 20th the company obtained a certificate of incorporation under the 25 & 26 Vict. o. 89. The company having collapsed, the present action was brought against the defendants upon the agreement of the 27th of January. On the part of the defendants oral evidence was tendered for the purpose of showing that it never was intended that they should be personally liable ; but his Lordship rejected it. It was then submit- ted that, inasmuch as the agreement was not entered into by the de- fendants personally, but only as agents for the hotel company, they thereby incurred no personal obligation to the plaintiff, who was him- self one of the promoters. For the plaintiff it was insisted that, there being no company in ex-j istence at the time of the agreement, the parties thereto had rendered! themselves personally liable ; and that there could be no ratification' of the contract by a subsequently created company. A verdict was taken for the plaintiff for 900Z., subject to leave re- served to the defendants (upon giving security) to move to enter a nonsuit, on the ground that the agreement of the 27th of January did not make them personally liable. Nov. 6, 1866. Seymour, Q. C, obtained a rule nisi accordingly, and also for a new trial on the ground of misdirection on the part of the learned judge, " in not allowing witnesses to be called to contradict the plaintiff as to the defendants' personal liability." J. Brown, Q. C, and Thesiger, shewed cause. Seymour, Q. C, in support of the rule. Eelb, C. J. I am of opinion that this rule should be discharged. The action is for the price of goods sold and delivered : and the ques- 246 KELNER V. BAXTER. tion is whether the goods were delivered to the defendants under a\ contract of sale. The alleged contract is in writing, and commences with a proposal addressed to the defendants, in these words : — "I hereby propose to sell the extra stock now at the Assembly Eooms, Gravesend, as per schedule hereto, for the sum of 900?., payable on the 28th day of February, 1866." Nothing can be more distinct than this as a vendor proposing to sell. It is signed by the plaintiff, and is fol- lowed by a schedule of the stock to be purchased. Then comes the other part of the agreement, signed by the defendants in these words, — " Sir, We have received your offer to sell the extra stock as above, and hereby agree to and accept the terms proposed." If it had rested there, no one could doubt that there was a distinct proposal by the vendor to sell, accepted by the purchasers. A difB^culty has arisen because the plaintiff has at the head of the paper addressed it to the defendants, "on behalf of the proposed Gravesend Eoyal Alexandra Hotel Company, Limited," and the defendants have repeated those words after their signatures to the document ; and the question is, whether this constitutes any ambiguity on the face of the agreement, or prevents the defendants from being bound by it. I agree that if the Gravesend Eoyal Alexandra Hotel Company had been an existing company at this time, the persons who signed the agreement would J have signed as agents of the company. But, as there was no company in existence at thatime, the agreement would be wholly inope rativ e unless it were held to be binding on the defendants cases referredTto in the course of the argumeiit fully bear out the pro- position that, where a contract is signed by one who professes to be signing " as agent," but who has no principal existing at the time, and the contract would be altogether inoperative unless binding upon the person who signed it, he is bound thereby : and a stranger can- not by a subsequent ratification relieve him from that responsibility. When the company came afterwards into existence it was a totally new creature, having rights and obligations from that time, but no J rights or obligations by reason of anything which might have been^ done before. It was once, indeed, thought that an inchoate liability might be incurred on behalf of a proposed company, which would be- come binding on it when subsequently formed : but that notion was manifestly contrary to the principles upon which the law of contract is founded. There must be two parties to a contract ; and the rights and obligations which it creates cannot be transferred by one of them to a third person who was not in a condition to be bound by it at the time it was made. The history of this company makes this construc- tion to my mind perfectly clear. It was no doubt the notion of all the parties that success was certain : but the plaintiff parted with his stock upon the faith of the defendants' engagement that the price agreed on should be paid on the day named. It cannot be supposed that he for a moment contemplated that the payment was to be contingent on the formation of the company by the 28th of February. The paper V KELNER V. BAXTER. 247 expresses in terms a contract to buy. And it is a cardinal rule that no ora evidence shall be admitted to shew an intention different from that which appears on the face of the writing. I come, therefore, to\ the conclusion that the defendants, having no principal who was bound originally, or who could become so by a subsequent ratification, were themselves bound, and that the oral evidence offered is not admissible to contradict the written contract. WiLLEs, J. I am of the same opinion. Evidence was clearly inad- missible to shew that the parties contemplated that the liability on this contract should rest upon the company and not upon the persons con- tracting on behalf of the proposed company. The utmost it could amount to is, that both parties were satisfied at the time that all would go smoothly, and consequently that no liability would ensue to the de- fendants. The contract is, in substance, this, — " I, the plaintiff, agree to sell to you, the defendants, on behalf of the Gravesend Eoyal Alexandra Hotel Company, my stock of wines ; " and, " We, the de- fendants, have received your offer, and agree to and accept the terms proposed ; and you shall be paid on the 28th of February next." Who is to pay ? The company, if it should be formed. But, if the com- pany should not be formed, who is to pay ? That is tested by the fact of the immediate delivery of the subject of sale. If payment was not made by the company, it must, if by anybody, be by the defendants. That brings one to consider whether the company could be legally liable. I apprehend the company could only become liable upon a new contract. It would require the assent of the plaintiff to discharge the defendants. Could the company become liable by a mere ratification ? Clearly not. Eatification can only be by a person ascertained at the time of the act done, — by a person in existence either actually or in contemplation of law ; as in the case of assignees of bankrupts and administrators, whose title, for the protection of the estate, vests by relation. The ease of an executor requires no such ratification, inas- much as he takes from the will. It is unnecessary, however, to pur- sue this further. In addition to the cases cited at the bar, I would refer to Gunn v. London and Lancashire Fire Insurance Company,^ where this Court, upon the authority of Payne v. New South Wales Coal and International Steam Navigation Company,'^ held that a con- tract made between the projector and the directors of a joint-stock company provisionally registered, but not in terms made conditional on the completion of the company, was not binding upon the subse- quent completely registered company, although ratified and confirmed by the deed of settlement : and Williams, J., said, that, " to make a contract valid, there must be parties existing at the time who are capable of contracting." That is an authority of extreme importance upon this point ; and, if ever there could be a ratification, it was in that case. Both upon principle and upon authority, therefore, it seems to me that the company never could be liable upon this contract : and, 1 12 C. B. (N. S.) 694. 2 10 Ex. 283 ; 24 L. J. (Ex.) 117. 248 KELNEK V. BAXTER. as was put by my Lord, construing this document ut res magis valeat quam pereat, we must assume that the parties contemplated that the persons signing it would be personally liable. Putting in the words " on behalf of the Gravesend Eoyal Alexandra Hotel Company," would operate no more than if a person should contract for a quantity of corn " on behalf of my horses." As to the suggestion that there should have been a special count, that is quite a mistake. There need not be a special count unless there was a person existing at the time the con- tract was made who might have been principal. The common count perfectly well represents the character of the liability which these de- fendants incurred. It is quite out of the question to suppose that there was any mistake. The document represents the real transaction between the parties. I think that the course taken at the trial was perfectly correct, and that the rule should be discharged. Bylbs, J. I am of the same opinion. At first, I must confess, I entertained some doubt, the contract appearing on the face of it to have been entered into by the defendants on behalf of the company. The true rule, however, is that stated by Mr. Thesiger, viz., that per-^ sons who contract as agents are generally personally responsible where there is no other person who is responsible as principal. Suppose this company never came into existence at all, could it be doubted that these defendants must be held to have bound themselves personally ? Then, was it contemplated that the liability was conditional only until the company should be formed ? It is said that the contract was ratified by the company after it came into existence. There could, however, be no ratification. Omnis ratihabitio retrotrahitur, et mandato priori cequi- paratur : but the ratification must be by an existing person, on whose behalf the contract might have been made at the time. That could not be so here : a subsequent ratification by the company could only be with the assent of the plaintiff ; and then it would be a new con- tract. Mr. Seymour contended tha.t the contract might amount to a personal undertaking on the part of the defendants that the company shall pay. That would make them equally liable. Any objection on the score of the Statute of Frauds would be cured by the Mercantile Law Amendment Act, 19 & 20 Vict. c. 97. In no way, therefore, in which it can be put, could the company become responsible. [The concurring opinion of KbatinGj J., is omitted.] Side discharged. LANDMAN V. ENTWISTLE. 249 LANDMAN v. ENTWISTLE. 1852. 7 Exchequer, 632.1 Assumpsit to recover 616Z. 18s. ^d., claimed by plaintiff for his ser- vices as the engineer of a projected railway, called the Kentish Eail- •way Company, of which the defendant was one of the provisional committee. At a meeting of the provisional committee, on Aug. 12, 1844, at which plaintiff was present, one of the resolutions was : — " That the provisional committee disclaim the intention of taking on them- selves any personal responsibility as regards the expenses incurred or to be incurred in or about the Company, and that no such responsi- bility shall attach to them." Another of the resolutions at the same meeting was ; — " That it be a recommendation to the committee of management to endeavour to secure the valuable services of J. Locke, Esq., the eminent engineer, in addition to those of Colonel Landman, the original projector of the railway, if being clearly understood that neither of those gentlemen shall have any personal claim against any member of the provisional committee." Oct. 11, 1844, plaintiff wrote to the solicitors of the Company : — "I never understood that, unless the project were successful, the engineers were to abandon all claim ; but I did understand that the individuals comprising the committee were not to be held personally liable. I am perfectly ready to continue to devote my time and atten- tion to the perfecting of the survey and getting up of the parliament- ary documents, without making any charge for the same until suffi- cient funds may have been collected." At a meeting of the committee of management, on Oct. 17, 1844, at which plaintiff was present, it was "Resolved, that Messrs. Lake & Co. be requested to forward the survey in such manner as may be found advisable. Colonel Landman [the plaintiff] stating that he would render every assistance in his power, and that he would make no claim for his personal services, or for those of his assistant, Mr. Pinhorn, until there should be sufficient funds of the Company to meet any demand he might be entitled to make." At a meeting of the committee of management on Oct. 29, 1844, one of the resolutions was as follows : " And it appearing to the com- mittee that it is absolutely necessary to provide a fund, in order that the surveys of the line may be immediately proceeded with, it was (on the motion of Mr. Entwistle) — Resolved, that the committee bind themselves to be answerable to the extent of 1000?., to be applied to engineering and surveying purposes." At a meeting, on Nov. 18, 1844, the committee resolved, that it is expedient that the Kentish Railway Company should withdraw from 1 Statement abridged. Arguments omitted. — Ed. 250 LANDMAN V, ENTWISTLE. this undertaking in favour of the South Eastern Eailway Company. The resolution recited that there was an engagement by the South Eastern E. Co. " to reimburse to this committee the expenses hitherto incurred." The scheme was thereupon abandoned, and the deposits on shares, which amounted to 4168Z. were returned to the subscribers. At the trial, after the foregoing facts had been proved, Pollock, C. B., directed a nonsuit, reserving leave for the plaintiff to enter a verdict for him, if the Court should be of opinion that he was entitled to recover. . A rule nisi having been obtained accordingly, the Attorney General (Hoggins and Smythies with him) showed cause. Sir A. Cockhurn, Bramwell, and Wilkinson supported the rule. Paeke, B. The rule must be discharged. It is clear that the plaintiff undertook to do the work, not upon a contract with the pro- visional committee, but looking to the chance of the scheme succeed- ing, and of there being funds available for the payment of his claim. The plaintiff's letter, of the 11th of October, shews that there was no contract on the part of the provisional committee that he should be paid at all events. In the majority of cases of this kind, the contract is that the party shall look only to the funds of the Company, and not to the responsibility of the individuals who manage it. Platt, B. I am of the same opinion. This action cannot be maintained, unless there was a personal responsibility on the part of the defendant to pay the plaintiff. But, by the resolution of the 12th of August, the provisional committee distinctly repudiate any per- sonal liability; and it appears from the resolution of the 17th of October, that the plaintiff agreed to make no claim for his services "until there should be sufficient funds of the Company to meet any demand he might be entitled to make." That must surely mean suf- ficient funds of that description which the committee could properly apply in satisfaction of the plaintiff's claim. Now, the sum of 4168^., which consisted of deposits, was not a fund of that description ; for, on the abandonment of the scheme, all the depositors were entitled to call for repayment of their deposits, the consideration upon which their duty to pay was founded being at an end. The sum in ques- tion, therefore, was not available in satisfaction of the plaintiff's demand, and there were no funds out of which he was entitled to be paid. Maktin, B. I am of the same opinion. The- case has been put bo us much in the same way that a counsel puts a case to a jury. He tells them that the plaintiff has done the work, and that he is entitled to be paid for it; and laying aside the documents upon which the contract is founded, he calls upon the jury, and frequently with success, to infer a contract which renders the defendant liable. The answer is, that the true contract between the parties must be looked at for the purpose of ascertaining with whom the liability MoAETHUE V. TIMES FEINTING CO. 251 rests. Now, in this case, was there any obligation on the part of the provisional committee to go on with the scheme ? There certainly was not. They were at liberty in that respect to act as they pleased, and the engineer had no right to compel them to go on. He took the chance of payment provided the scheme succeeded, in which case he would no doubt have been paid out of the profits. Pollock, C. B. I agree with the rest of the Court that there is no foundation for setting aside the nonsuit. Rule discharged. McAETHUE v. TIMES FEINTING CO. 1892. 48 Minnesota, 319. Appeal by defendant, Times Printing Company, from an order of the district court of Hennepin county. Canty, J., made August 4, 1891, denying its motion for a new trial. Action brought by D. A. McArthur to recover damages sustained by him from the breach of a contract made by defendant with him. He was employed by it for a year from October 1, 1889, to solicit advertisements for its newspaper, and wqg__to receive $20 a week during October, and $30 a week for the residue of the year, and was also to receive, at the end of the year, five shares of its stock, of $100 each. He was discharged April 12, 1890. After the year ex- pired he brought this suit. It was tried May 5, 1891, and plaintiff had a verdict for $450. Defendant moved for a new trial. The motion was denied, and it appealed. Geo. F. Edwards, for appellant. F. B. Wright, for respondent. Mitchell, J. The complaint alleges that about October 1, 1889, the defendant contracted with plaintiff for his services as advertis- ing solicitor for one year ; that in April, 1890, it discharged him, in violation of the contract. The action is to recover damages for the breach of the contract. The answer sets up two defenses : (1) That plaintiff's employment was not for any stated time, but only from week to week; (2) that he was discharged for good cause. Upon the trial there was evidence reasonably tending to prove that in Sep- tember, 1889, one C. A. Nimocks and others were engaged as pro- moters in procuring the organization of the defendant company to publish a newspaper ; that, about September 12th, Mmocks, as such promoter, made a contract with plaintiff, in behalf of the contem- plated company, for his services as advertising solicitor for the pe- riod of one year from and after October 1st, — the date at which it was expected that the company would be organized ; that the corpo- ration was not, in fact, organized until October 16th, but that the publication of the paper was commenced by the promoters October 252 MCAETHUR V. TIMES FEINTING CO. 1st, at wMch date plaintiff, in pursuance of Ms arrangement with Nimocks, entered upon the discharge of his duties as advertising solicitor for the paper ; that after the organization of the company he continued in its employment in the same capacity until discharged, the following April ; that defendant's board of directors never took any formal action with reference to the contract made in its behalf by Nimocks, but all of the stockholders, directors, and officers of the corporation knew of this contract at the time of its organization, or were informed of it soon afterwards, and none of them objected to or repudiated it, but, on the contrary, retained plaintiff in the em- ployment of the company without any other or new contract as to his services. There is a line of cases which hold that where a contract is made in behalf of, and for the beneiit of, a projected corporation, the cor- poration, after its organization, cannot become a party to the con- tract, either by adoption or ratification of it. Ahhott v. Hapgood, 150 Mass. 248, (22 N. E. Rep. 907 ;) Beach, Corp. § 198. This, how- ever, seems to be more a question of name than of substance ; that is, whether the liability of the corporation, in such cases, is to be placed on the grounds of its adoption of the contract of its promot- ers, or upon some other ground, such as equitable estoppel. This court, in accordance with what we deem sound reason, as well as the weight of authority, has held that, while a corporation is not bound by engagements made on its behalf by its promoters before its or-, ganization, it may, after its organization, make such engagements j its own contracts. And this it may do precisely as it might make similar original contracts ; formal action of its board of directors being necessary only where it would be necessary in the case of a similar original contract. That it is not requisite that such adoption or acceptance be expressed, but it may be inferred from acts or ac- quiescence on part of the corporation, or its authorized agents, as any similar original contract might be shown. Battelle v. North- western Cement & Concrete Pavement Co., 37 Minn. 89, (33 N. W. Eep. 327.) See, also, Mor. Corp. § 648. The right of the corporate agents to adopt an agreement originally made by promoters depends upon the purposes of the corporation and the nature of the agreement. Of course, the agreement must be one which the corporation itself could make, and one which the usual agents of the company have express or implied authority to make. That the contract in this case was of that kind is very clear ; and the acts and acquiescence of the corporate officers, after the organization of the company, fully justi- fied the jury in finding that it had adopted it as its own. The defendant, however, claims that the contract was void under the statute of frauds, because, "by its terms, not to be performed within one year from the making thereof," which counsel assumes to be September 12th, — the date of the agreement between plaintiff and the promoter. This proceeds upon the erroneous theory that IN EE empHess engineering CO. 253 the act of the corporation, in such cases, is a ratification, which relates back to the date of the contract with the promoter, under the familiar maxim that "a subsequent ratification has a retroactive effect, and is equivalent to a prior command." But the liability of the corporation, under such circumstances, does not rest upon any principle of the law of agency, but upon the immediate and voluntary act of the company. Although the acts of a corporation with refer- ence to the contracts made by promoters in its behalf before its organization are frequently loosely termed " ratification," yet a " rati- fication," properly so called, implies an existing person, on whose behalf the contract might have been made at the time. There can-, not, in law, be a ratification of a contract which could not have been \ made binding on the ratifier at the time it was made, because the I ratifier was not then in existence. In re Empress Engineering Co., 16 Ch. Div. 128 ; Melhado v. PoHo Alegre, N. H. & B. Ry. Co., L. E. 9 C. P. 505 ; Kelner v. Baxter, L. E. 2 C. P. 185. What is called 1 " adoption," in such cases, is, in legal effect, the making of a contract I of the date of the adoption, and not as of some former date. The ' contract in this case was, therefore, not within the statute of frauds. The trial court fairly submitted to the jury all the issues of fact in this case, accompanied by instructions as to the law which were exactly in the line of the views we have expressed ; and the evidence justified the verdict. The point is made that plaintiff should have alleged that the con- tract was made with Nimocks, and subsequently adopted by the de- fendant. If we are correct in what we have said as to the legal effect of the adoption by the corporation of a contract made by a promoter in its behalf before its organization, the plaintiff properly pleaded the contract as having been made with the defendant. But we do not find that the evidence was objected to on the ground of variance between it and the complaint. The assignments of error are very numerous, but what has been already said covers all that are entitled to any special notice. Order affirmed. In ee EMPEESS ENGHSTEEEING- CO. 1880. Law Reports, 16 Chancery Division, 125.1 Appeal from Vice-Chancellor of Court of Chancery of the County Palatine of Lancaster. By an agreement, dated May 2, 1879, between G- and A on the one part, and C, for and on behalf of a company intended to be registered as a limited company and to be called " The Empress Engineering Company," of the other part, it was agreed that the company should 1 statement abridged. Argument and part of opinions omitted. — Ed. 254 IN EB EMPRESS ENGINEERING CO. purchase of G and A certain property ; and also that sixty guineas should be paid by the company to Jones & Pride, solicitors, for the incorporation thereof, such sum to include the preparation of the necessary documents and certain expenses. The company was incorporated under a memorandum of association, dated May 9, which adopted said agreement. The directors, on June 23, 1879, ratified the agreement. Dec. 10, 1879, an order was made for winding up the company. Jones & Pride made a claim for the amount of the above-mentioned £63. The claim was disallowed, and they appealed. Snow, for appellants. [After arguing other points.J If the court is against me on that ground, I submit that the claimants can make out their case on the principle of In re Hereford and South Wales Waggon and Engineering Company, L. E. 2 Chan. Div. 621, where it was held that there was a good equitable claim for services rendered before the formation of the company, of which the company had the benefit. [James, L. J. : — The question has never been tried whether the company has had the benefit of the claimant's services. Jessbl, M. E. : — That is a question of quantum meruit, and the subject :^r a distinct application.] Gaidar, for the liquidator, was not called upon. Jessbl, M. E. I must say that I do not see how it was possible for the Yice-Chancellor to have decided otherwise than he did. The con- tract between the promoters and the so-called agent for the- company of course was not a contract binding upon the company, for the com- pany had then no existence, nor could it become binding on the comA pany by ratification, because it has been decided, and, as it appears to \ me, well decided, that there cannot in law be an effectual ratification ' of a contract which could not have bee n made binding _siL-t^e ratifier at the time it was made, because the ratifier was not then in existence. It does not follow from that that acts may not be done by the com- pany after its formation which make a new contract to the same effect as the old one, but that stands on a different principle. I am of opin- ion, therefore, that there was no contract binding the company to pay this £63 to Messrs. Jones & Pride. Supposing, however^ that there was, it is then contended that a mere contract between two parties that one of them shall pay a cer- tain sum to a third person, not a party to the contract, will make that third person a cestui que trust. As a general rule that will not be so. . . . There is another ground suggested, namely, that as the company has had the benefit of the registration they ought to pay for it. But the answer to that is this — that was not the claim brought forward. The claim brought forward was for an agreed sum of £63, and any order we make (I do not know whether it is necessary to express it) WEATHEEFOBD, &c. K. CO. V. GEANGEK. 255 will not prejudice that claim, wliicli is merely for an amount due foi services the benefit of which has been taken by the company. James, L. J. The only thing that results from what is called ratification or adoption of such a contract is not the ratification or adoption of a contract qua contract, but the creation of an equitable liability de- pending upon equitable grounds. It is inequitable for a man not to pay for the services of which he has taken the benefit. . . . Brett, L. J. concurred. Jambs, L. J. The appeal will be dismissed with costs. It will be without prejudice to any equitable claim on a quantum meruit. . , . WEATHEEFOED, &o. E. CO. v. GEAKGEE, 1894. 86 Texas, 351.1 Gaines, Associate Justice. This suit was brought by the defendant iu error against the plaintiff in error to recover upon open account for services rendered. The plaintiff in the trial court obtained a judg- ment, which was affirmed by the Court of Civil Appeals. This writ of error is sued out for the purpose of reversing that judgment. The plaintiff in error, the defendant in the trial court, is a corpora- tion, organized under the general law of the State for the purpose of constructing and operating a railroad. The defendant in error, the plaintiff in the trial court, is a practising attorney at law. The services for which a recovery was sought were for aiding to raise a bonus and for legal advice and assistance, and were rendered both before and after the filing with the Secretary of State the company's articles of incorporation. The testimony, as shown by the statement of facts, in so far as it bears upon the question before the court, is in substance as follows : The plaintiff testified, that in March, 1889, he was employed by one Anderson to assist in raising a bonus for the defendant company, and " agreed that the said company would pay him well for his ser- vices ; " that Anderson was a promoter of the corporation, and reprcr sented himself as its general manager, and employed plaintiff not only to assist in procuring the bonus, but to attend to all the com- pany's business as its attorney ; that in September, 1889, Anderson allowed his account, and was at that time the owner of a majority of the stock, which he subsequently transferred to one Stone, the presi- dent of the company, and his associates. Stone testified, on behalf of the company, that in the spring of 1889, in Kansas City, Missouri, he employed Anderson to go to 1 Arguments omitted. — Ed, 256 WEATHERFOED, &0 E. 00. V. GEANGEB. Weatherford, and to procure a bonus of $40,000 and survey the right of wa,j for a railroad from that city to Mineral Wells, and to pay him f 1000 for his services ; that he had paid Anderson according to his agreement ; that he did not know that Anderson had ever employed plaintiff for any purpose ; that Anderson was never general manager for the company, and held no ofB.ce in it except that of director ; that he knew that the plaintiff was interesting himself in procuring the bonus, but supposed he was working for one Johnson, who was one of the charter members, and who owned certain coal lands which he wished to sell to the projectors of the railroad ; that plaintiff never said anything to him about the company owing him anything, and that the first he knew of plaintiff's claim was when this suit was brought. There was further testimony tending to show, that Anderson was the chief active promoter of the enterprise, and that he had the prin- cipal management of the business from its inception in March until he retired in September, 1889 ; and that during this time the plaintiff was frequently in attendance upon him, aiding and assisting him in procuring the bonus, and otherwise promoting the objects of the com- pany. No controversy is raised in this court as to the fact of plaintiff's services, or as to their value. The trial judge, as conclusions of fact, found, in substance, that'\ some kind of a company was formed to build the railway from Weatherford to Mineral Wells ; that Anderson was " the principal 1 mover in said scheme, and was so recognized by all parties ; " that he employed plaintiff to assist him in procuring a bonus and in other- wise advancing the enterprise, and that the plaintiff rendered service under said employment, both before and after the articles of the com- pany were filed ; that the bonus was raised, and was, after its incor- poration, accepted by said company. The Court of Civil Appeals adopt the findings of the trial judge, and add additional findings as follows : " The charter of the defend- ant company was signed and acknowledged about June 1, 1889, and was filed in the ofiice of the Secretary of State at Austin, July 2, 1889. The bonus or subsidy was not secured until after the filing of the charter. The record would have justified the trial court, and so justifies us, in finding, as we do, the fact to be, that in availing itself of the subsidy secured, the company knew of the services of the plaintiff in raising the bonus." Under the statute, the corporation came into existence when its articles of incorporation were filed in the ofBlce of Secretary of State, Eev. Stats., arts. 4104, 4105. Although the trial court found that the services for which plaintiff sued were rendered in part before and in part after the filing of the articles, their value was assessed as an entirety at $600, and judgment was rendered for the whole amount. In this there was error. We are of opinion, that under the WEATHEEFOED, &0. E. CO. V. GEANGEE. 257 circumstances of this case, as shown by the evidence, the defendant \ corporation can not be held liable to the plaintiff for any services ren- J dered by him before it was brought into legal existence. Upon the question as to the liability of a corporation growing out of contracts made on its behalf by its promoters, there is considerable diversity and some conflict of opinion. But there are some proposi- tions affecting this question upon which the authorities seem to be in substantial accord. A promoter, though he purport to act on behalf of the projected corporation, and not for himself, can not be treated as agent, because the nominal principal is not then in existence ; and hence when there is nothing more than a contract by a promoter, in which he undertakes to bind the future corporation, it is generally conceded that it can not be enforced. Kelner v. Baxter, L. E., 2 Com. PL, 174 ; Melhado v. Railway, L. E., 9 Com. PL, 603. The promoters themselves are liable upon the contract, unless the person with whom they engage agrees to look to some other fund for payment. Kerridge v. Hesse, 9 Carr. & P., 200. The statute, however, which authorizes the incorporation may pro- vide that the corporation, when formed, shall pay the necessary ex- penses of promoting the scheme ; in such a case, though the right of action is dependent u.pon the contract, the liability is created by the statute. Be Botherham, etc., Co., L. T. Eep., N. S., 217. It is now held in England, that although the articles of association bind the company to pay the expenses of its promotion, a third party can not avail himself of such a provision so as to maintain an action against the company. Be Botherham, etc., Co., supra ; Eley v. Assur- ance Co., 34 L. T. Eep., N. S., 190. It is also generally held, that contracts by promoters made on be- \ half of the corporation, within the scope of its general authority, may \ be adopted by the latter after its organization. Some of the courts j say they may be ratified; but ratification presupposes a principal existing at the time of the agent's action, and it seems to us, there- fore, that the term is not applicable in its technical sense. McArthur V. Printing Co., 51 IST. W. Eep., 215 ; Spiller v. Paris Skating Bink Co., 7 Ch. Div., 368. With the exception of the law courts of England, the rule is also very generally recognized, that if a contract be made on behalf of a corporation by its promoters, and the corporation, after its organiza- tion, with a knowledge of the facts, accept its benefits, it must take it with its burdens ; and if the other party has performed the stipula- tion binding upon him, it may be enfojeed as against the corporation. Spiller V. Bink Co., supra ; Loueke v. Warehousing Co., 6 Ch., 67. But as to the application of the rule last announced, the courts differ in opinion. A leading case upon this subject is Edwards v. Grand Junction Bailway Company, 1 Milne & Cr., 650. There the promoters of the railway company had entered into a contract with the trustees of a turnpike company, in which the latter agreed to with- 258 WEATHERFOED, &c. E. CO. V. GEANGEB. draw their opposition to an act of Parliament for the incorporation of the railway company, in consideration of an agreement by the pro- moters to insert certain clauses in the act as to the nature of the necessary constructions at the crossing of the railway and the turn- pike road, and the opposition was withdrawn, but the clauses were not inserted ; and it was held, that the railway company should be enjoined from constructing the crossing in a manner different from that specified in the clause^ which had been agreed upon and had been omitted. The correctness of the ruling in this case was seri- ously questioned in the House of Lords in Preston v. Railway, 5 House of Lords, 605, and in Caledonian Railway Co. v. Helensburg, 2 McQueen, 391. Same case, 2 Jur., N. S., 695. We presume the doubt as to this case arises from the fact that the only benefit ac- cepted by the defendant company was the exercise of the powers conferred upon it by the act of Parliament. When the promoters of a railway company have agreed with a landed proprietor through whose estates the road is projected to run, to take the requisite quantity of his land at a stipulated price, and after the corporation is formed it takes the land, it is certainly equita^ ble that the company should be made to pay the agreed compensBr tion ; and the doctrine is recognized in many English equity cases. Stanley v. Railway, 3 Milne & Cr., 773 ; Gooday v. Colchester Railway Co., L. E.., 15 Eq., 696; Preston v. Liverpool Railway Co., L. E.., 7 Eq., 124; Edwards v. Gtrand Junction Railway Co., 1 Milne & Cr., 650. The same rule has been announced also in many American cases. Little Rock Railway Co. y. Perry, 37 Ark., 164 ; Paxton Cattle Co. v. Bank, 21 Neb., 621 ; Crrape Sugar Co. v. Small, 40 Md., 395 ; Bommer V. Manufacturing Co., 81 N. Y., 468 ; Battelle v. Pavement Co., 37 Minn., 89 ; MoArthur y. Printing Co., supra. Having exercised rights and enjoyed benefits secured to it by the terms of a contract made by its promoters in its behalf, a corporation should be held estopped to deny its validity. Again, when the promoters of a corporation have made a contract in its behalf, to be performed after it is organized, it may be deemed a continuing offer on part of the other party to the agreement, unless withdrawn by him, and may be accepted and adopted by the corpo- ration after such organization ; and the exercise of any right incon- sistent with the nonexistence of such contract might be deemed con- clusive evidence of such adoption. But there are some cases which go a step further. Low v. Rail- way, 45 New Hampshire, 370, was a case of a Vermont corporation sued in New Hampshire upon a contract made in the former State. After a charter had been granted, but before an organization had been effected, a public meeting was held to promote the enterprise, at which, it is to be presumed from the opinion, the corporators were present or were represented. A proposition was made that the plain- WEATHEREORD, &C. R. CO. V. GRANGER. 259 tiff should be employed and paid to visit various towns and cities to interest capital in the projected scheme, and to solicit and procure subscriptions. The plaintiff accepted the offer and performed the ser- vices, and it was held that the corporation was liable. The court de- termined that the question of liability depended upon the law of Ver- mont, as announced in the case of Hall v. Bailway, 28 Vermont, 401. But they were also inclined strongly to think, that upon general prin- ciples the company, by accepting subscriptions which were procured by the plaintiff, bound itself to pay for his services. They also seem to recognize the doctrine, that after a charter has been granted a majority of the corporators have the power to make contracts neces- sary to perfect the organization, which may be binding upon the com- pany when formed. But they also lay stress upon the fact that the charter of the defendant corporation provided, that " the expenses of all surveys and examinations, as also of the preliminary surveys already made and making, and all manner of incidental expenses relating thereto, shall be paid by said corporation." In Hall V. Railway, supra, a corporator was held entitled to recover for necessary services in organizing the company, although there was no express promise by any one that he should be paid. Unless the charter of the company provided for the payment of such expenses, this decision we think is unsupported by authority. It is generally held, that in the absence of such provision in the act of incorporation in case of a special charter, or in the general law or in the articles of incorporation under a general law, no implied promise can be imputed to a corporation to pay for the services of a corporator or promoter before the corporation comes into existence. A contract made by promoters may be adopted by a corporation, ex- pressly or impliedly, by exercising rights under it ; but otherwise it is not binding upon such corporation. Kelner v. Baxter, supra ; Melhado V. Railway, supra; Railway v. Ketchum, 27 Conn., 170 ; Kerridge v. Hesse, 9 Carr. & P., 200 ; Munson v. Railway, 103 N. Y., 58 ; Morri- son V. Mining Co., 52 Cal., 306 ; Gent v. Ins. Co., 107 111., 652 ; Rail- way V. Sage, 65 111., 328 ; Western, etc., Co. v. Cousley, 72 111., 631 ; Buffington v. Borden, 80 Wis., 635 ; see also, Bailway v. Helensburg, 2 McQueen (H. of L.) ; same case, 2 Jur., K S., 695 ; Teft v. BanTt, 141 Pa., 650. Now, when it is said that when a corporation accepts the benefit of a contract made by its promoters, it takes it cum onere, it is impor- tant to understand distinctly what is meant. There is, so far as this matter is concerned, a radical difference between a promise made on behalf of the future corporation in the contract itself, the benefits of which the corporation has accepted, and the promise in a previous contract to pay for services in procuring the latter to be made. This is well illustrated by the facts of the present case. Here a proposi- tion was made on behalf of the company, by its promoters, that if a bonus should be subscribed and paid to it, it would build it? road be- 260 WEATHEEFORD, &c. E. CO. V. GEANGEE. tween certain points, and -would carry coal at a certain stipulated rate. By accepting the bonus, the company became bound to fulfill the stip- ulations of that contract. That was the burden which it took with the benefit of the agreement. But it also appears that one of the promoters promised the plaintiff, that if he would assist in procuring subscribers to the bonus, the company would pay him for his services. This was no part of the contract the benefits of which were taken by the defendant. The benefits of a contract are the advantages which result to either party from a performance by the other ; and in like manner its bur- dens are such as its terms impose. A more accurate manner of stat- ing the nature of the plaintiff's demand is to say, that the defendant has accepted the benefit of the plaintiff's services and should pay for them. It is true, in one sense, that the company has had the benefit of plaintiff's services, and it is equally true that it would have had that benefit if the services had been rendered under an employment by the subscribers to the bonus ; and yet in the latter case it could not be claimed that the company would be liable for such services, unless payment for them by the company were made one of the terms of the contract between the company and the subscribers. In Ee Eotherham, etc.. Company, 50 Law Times Reports, New Series, 219, in the opinion of one of the justices, this language is used : "It is said that Mr. Peace has an equity against the company, be- cause the company had the benefit of his labor. What does that mean ? If I order a coat and receive it, I get the benefit of the labor of the cloth manufacturer ; but does any one dream that I am under any liability to him ? It is a mere fallacy to say, that because a per- son gets the benefit of work done by somebody else, he is liable to pay the person who did the work." There is more doubt as to the plaintiff's right to recover for his legal services in advising as to the articles of incorporation and in correcting and preparing this paper. Such services are usually neces- sary, and it would seem that the corporation should pay for them. Such payment is frequently provided for in the act of incorporation, or in the articles when the incorporation is effected under a general law. When such is the case, persons who take stock in the company are chargeable with notice that a liability for this purpose has already been created, and it is proper for the corporation to discharge it. But in the absence of such provision in the statute or in the articles, it may be unjust to shareholders to charge the corporation with liabil- ities of which they had no actual knowledge at the time they accepted the shares. We therefore hold, with some hesitation, that claims for the necessary expenses of the organization, under our statute, should not be excepted from the general rule applicable to contracts made before the corporation has come into legal existence. Applying the rules we have announced to the case before us, it is apparent that the plaintiff has recovered, in part at least, for services WEATHEEFOED, &c. E. CO. V. GEANGEE. 261 for ■which the defendant was not bound to pay. He made his eon- tract before the company had a legal existence as a corporation, with a single promoter ; and it is a matter of no moment that the promoter was the general manager of the project and became the owner of the majority of the stock upon its organization. There were other stock- holders. The law requires that there should be ten at least. Eev. Stats., art. 4099. The evidence does not disclose that his contract with Anderson was actually known to any other person ; nor do we see any other circum- stance from which knowledge should necessarily be inferred. Since Andersoa had no power to bind the future corporation, but could bind himself, the inference from his assisting Anderson would be that he was acting gratuitously, or that Anderson had agreed to pay him. Anderson was interested in shifting his contract upon the com- pany ; and it may be doubted whether, although he became a director, notice to him could be deemed notice to the company. The Court of Civil Appeals find, however, that the company had notice. Waiving the question of the right of the court to supplement the finding of the trial judge under such evidence, and the further ques- tion whether there be any evidence to support this conclusion, it fol- lows from what we have already said, that the question of the com- pany's knowledge does not affect the case. The plaintiff's contract with Anderson, though made by the latter on behalf of the company, was not a lien, encumbrance, or burden upon the contract between the subscribers to the bonus and the defendant, and it incurred no liabil- ity on the former contract by accepting the benefit of the latter. The evidence was sufBcient to sustain a recovery by the plaintiff for the value of his services rendered after the corporation was cre- ated ; but the court below failed to find separately the reasonable worth of such services. Therefore the entire judgment must be re- versed. We deem it proper to say, in conclusion, that if the opinion in the case of MoDonough v. Sank, 34 Texas, 309, is to be construed as hold- ing that merely by accepting the benefit of the plaintiff's labor, the defendant ratified and became bound under the promoter's contract, it does not meet our approval. Whether the contract in that case was one which the bank had the power to ratify, is to say the least a doubtful question ; but it is one that does not concern us here, and upon which we express no opinion. The judgments of the District Court and of the Court of Civil Appeals are reversed and the cause remanded. Reversed and remanded. 262 DOWNING V. MOUNT WASHINGTON EOAD CO. CHAPTER VII. INTERPRETATION OF CHARTERS. DOWNING V. MOUNT WASHINGTON EOAD CO. I860. 40 New Bampshire, 230. AssiTMPSiT, brought by Lewis Downing & Sons, to recover the price of eight omnibuses, and a model for the same, one light wagon, and one baggage wagon, made for the defendants, under a contract entered into by D. O. Macomber, president of the defendant corporation, in their behalf. The light wagon was made and sent to one Cavis, the agent for building the road, and was used by him in making it. The omnibuses and baggage wagon were intended to be used in conveying passengers up and down the mountain, after the road was completed. The omni- buses were constructed in a peculiar way, and are not fit for use on ordinary roads. By their act of incorporation, passed July 1, 1853, the corporation was empowered to lay out, make and keep in repair, a road from such point in the vicinity of Mt. Washington as thej' may deem most favor- able, to the top of said mountain, &c., and thence to some point on the northwesterly side of said mountain, &c-, to take tolls of passengers and for carriages, to build and own toll-houses, and to take land for their road. The corporation was dulj' organized, and at a meeting of the direc- tors on the 31st of August, 1853, before said contract was made, it was " voted that the president be the legal agent and commissioner of the company ; " and his compensation as such was fixed. " The president " was " directed to proceed with the letting of the work for the construction of the road," " the obtaining the right of way," and ' ' what other action he shall deem proper, for the interests of the companj'," &c. A committee was appointed " to settle in relation to the right of way, &c., and in relation to land on which to build stables and other buildings, for the use of the road, and also for building all such stables and houses as may be necessary for the operations of the company." DOWNING V. MOUNT WASHINGTON EOAD CO. 263 It appeared that by an additional act, passed July 12, 1856, the corporation were authorized " to erect and maintain, lease and dispose of any building or buildings, which may be found convenient for the accommodation of their business, and of the horses and carriages and travelers passing over said road." The defendants denied the authority of Macomber to make such a \ contract in behalf of the corporation, and the power of the corporation ) under its charter either to authorize or enter into such a contract. Kittredge <& Bellows, for the plaintiffs. George & Foster, for the defendants. Bell, C. J.^ Corporations are creatures of the legislature, having no other powers than such as are given to them by their charters, or such as are incidental, or necessary to carry into effect the purposes for which they were established. Trustees v. Peaslee, 15 N. H. 330 ; Perrine v. Chesapeake Canal Co., 9 How. 172. In giving a construc-i tion to tlie powers of a corporation, the language of the charter should! in general neither be construed strictly nor liberally, but according t^ the fair and natural import of it, with reference to the purposes and objects of the corporation. Enfield Bridge v. Hartford B. B., 17 Conn. 454 ; Strauss v. JSagle Co., 5 Ohio (N. S.) 39. If the powers conferred are against common right, and trench in any way upon the privileges of other citizens, they are, in cases of doubt, to be construed strictly, but not so as to impair or defeat the objects of the incorporation. In the present case the power to take the lands of others, and to i take tolls of travelers, must be strictly construed, if doubts should i arise on those points ; but it is not seen that the other grants to the ; defendant corporation should not receive a fair and natural construction. The charter of the Mount Washington Eoad empowers them to lay out, make and keep in repair, a road from Peabody Eiver Valley to the I top of Mount Washington, and thence to some point on the north- west side of the mountain. It grants tolls on passengers and carriages, and authorizes them to take lands of others for their road, and to build and own toll-houses, and erect gates, and appoint toU-gatherers to col- ; lect their tolls. The remaining provisions contain the ordinary powers / of corporations, relating to directors, stock, dividends, meetings, &c. Laws of 1853, chapter 1486. This charter confers the usual powers heretofore granted to turnpike corporations, and no others. The most natural and satisfactory mode of ascertaining what are the powers incidentally granted to such com- panies, is to inquire what powers have been usuall3' exercised under them, without question by the public or' by the corporators. It may \ be safely assumed that the powers which have not heretofore been found necessary, and have not been claimed or exercised under such charters, are not to be considered generally as incidentally granted. 1 Bellows, J., did not sit. 264 DOWNING V. MOUNT WASHINGTON KOAD CO. Such charters have in former j-ears been ver^' common in this and other States, and they have not, so far as we are aware, been under- stood as authorizing the corporations to erect hotels, or to establish stage or transportation lines, to purchase horses or carriages, or to employ drivers in transporting passengers or freight over their roads ; and no such powers have anj'where been claimed or exercised under them. We are, therefore, of opinion that the power to establish stage ' and transportation lines to and from the mountain, to purchase car- 1 riages and horses for the purpose of carrying on such a business, was j not incidentally granted to the defendant corporation by their charter. State V. Commissioners, 3 Zab. 510. But it is contended that the power to make this contract is con- ferred by the act in amendment of the charter, passed July 12, 1856. By this act the corporation may " erect and maintain, lease and dis- pose of any building or buildings which maj' be found convenient for the accommodation of their business, and of the horses and carriages and travelers passing over their said road." By their business, which the buildings to be erected were designed to accommodate, it is said the legislature must have intended some permanent and continuing business beyond that of merely building and maintaining a road ; and that it could be no other than that of erecting a hotel on the mountain, and establishing lines of carriages, for the purpose of carrying visitors up and down the mountain. But the foundation of this implication is very slight. The express grant is of an authorit}' to erect, &c., buildings, not of all kinds, but such as may be found convenient for the accommodation of their busi- ness, and of travelers, &c. The business here referred to must be understood to be such as they are by their charter authorized to engage in. If nothing had been said of horses and travelers, there could hardlj- be any foundation for the idea that a hotel could have been contemplated b}' the legislature. Buildings suitable for the accommo- dation of their toll-gatherers and workmen emploj-ed on their road, would probably be thought every thing the legislature intended to authorize by this additional act. Connected as this authority now is with travelers, horses and carriages, there is scarce a pretence for argument, that this additional act goes any further than the original act, to authorize a stage and transportation company'. It is not unlikely that some of the projectors of this enterprise intended to secure much more extensive rights than those of a turnpike and hotel company, but it seems certain they have not exhibited this feature of their case to the legislature so distinctly as to secure their sanc- tion, and the charter and its amendment as yet justifies them in no such claim. The power of buying and selling real and personal property for the legitimate purposes of the corporation, and the power of contracting generally for the same purposes, within the limits prescribed by the charter, being granted, we understand the principle to be, that their DOWNING V. MOUNT WASHINGTON EOAD CO 265 purchases, sales, and contracts generally, will be presumed to be made within the legitimate scope and purpose of the corporation, until the contrary appears, and that the burden of showing that any contract of a corporation is beyond its legitimate powers, rests on the part^' who objects to it. Indiana v. Woram, 6 Hill 37 ; Me parte Peru Iron Company, 7 Cow. 540 ; Farmer's loan v. Clowes, 3 Comst. 470 ; Same v. Curtis, 3 Seld. 466 ; JBiers v. Pfienix Company, 14 Barb. 358. If a corporation attempt to enforce a contract made with them in a case beyond the legitimate limits of their corporate power, that fact being shown, will ordinarilj' constitute a perfect defence. Oreen v, Seymour, 3 Sandf. Ch. 285 ; Bangor Boom v. Whiting, 29 Me. 123 ; life Sc. Company v. Manufacturers <6c. Company, 7 Wend. 31 ; New- York (&c. Insurance Company v. Fly, 5 Conn. 560. And if a suit is brought upon a contract alleged to be made by the corporation, but which is shown to be beyond its corporate power to enter into, the contract will be regarded as void, and the corporation may avail themselves of that defence. Beach v. Fulton Bank, 8 Wend. 573 ; Albert v. Savings Bank, 1 Md. Ch. Dec. 407 ; Abbot v. Baltimore &c. Company, 1 Md. Ch. Dec. 542 ; Strauss v. Fagle Insurance Company, 5 Ohio (N. S.) 59 ; Baron v. Mississippi Insur- ance Company, 31 Miss. 116 ; Bank of Genesee v. Patchin Bank, 3 Kern. 315 ; Gage v. Newmarket, 18 Q. B. 457. The contract set up in this case was made not by the corporation itself, by a vote, nor by an agent expressly authorized to sign a contract alread}' drawn, but it was made bj' the president of the corporation, acting under an appointment as their general agent ; and it is argued that he was fully authorized by votes of the corporation to bind them by such a contract as the present ; but it is not necessary to consider this question, as we think it settled that the powers of the agents of corporations to enter into contracts in their behalf are limited, by the nature of things, to such contracts as the corporations are by their charters authorized to make. This principle is distinctly recognized in McCullough v. Moss, 5 Den. 567; overruling the case of Moss v. Bossie Lead Co., 5 Hill 137, and in Central Bank v. Empire Co., 26 Barb. 23 \ Bank of Genesee v. Patchin Bank, 3 Kern. 315. The same want of power to give authority to an agent to contract, and thereby bind the corporation in matters beyond the scope of their corporate objects, must be equally conclusive against any attempt to ratify such contract. What they cannot do directly they cannot do indirectly. They cannot bind themselves by the ratification of a con- tract, which they had no authority to make. 5 Den. 567, above cited. The power of the agent must be restricted to the business which the company was authorized to do. Within the scope of the business which they had power to transact, he, as its agent, may be authorized io act for it, but beyond that he could not be authorized, for its powers extend no further. 266 STOUEBEIDGE CANAL V. WHEELEY. This view seems to us entirely conclusive against the claim made for the omnibuses and model, and probably for the baggage wagon. As to the light wagon, that may stand on a different ground. Such a wagon might be useful and necessarj' for the use of the agent of the company, in conducting the undoubted business of the corporation — the building and maintaining the road. We are unable to assent to the position taken in the argument, that a ratification of part is a ratification of the whole contract. WhUe the corporation maj- be restricted from ratifying a contract beyond the scope of the objects of the corporation, there could be no such objec- tion as to any matter clearly within their power. The other contract ing party might have a right to reject such ratification, claiming that the contract is entire, and if not ratified as such, it should not be made good for a part only. But if they claim the benefit of the partial rati- fication, the corporation can hardly object. PEOPRIETOES OF THE STOURBRIDGE CANAL v. WHEELEY. " 1831. 2 Bamewall 4r Adolphus, 792. This case was argued in the last term * by Sir James Scarlett for the plaintiflf, and Campbell for the defendants. The facts of the case, the several clauses of the act of parliament upon which the question arose, and the arguments urged, are so fully stated and commented on in the judgment delivered by the Court, that it is deemed unnecessary to notice them here. Cur. adv. vult. Lord Tenterden, C. J., in the course of this term, delivered the judgment of the Court. This case was argued before us in the last term. It was an action of assumpsit brought by the plaintiffs to recover the sum of 492^. 9s. as a compensation for the use of a way or passage for boats loaded with coals and other merchandise, along a part of the plaintiffs' canal, made under the powers of the 16 G. 3, c. 28, an act of parliament for mak- ing and maintaining the Stourbridge Canal with two collateral cuts. This canal was formed upon two levels ; the upper or summit level, which communicates with the Dudley Canal, then intended to be made and since completed ; upon the whole of which level there is no lock ; and the lower or Stourbridge level, extending from Stourbridge to Stourton ; and the two levels are connected bj^ a chain of sixteen locks. The defendants have carried large quantities of coals and other goods, part from the Dudley Canal, part not, along the upper level, without 1 Before Lord Tenteedbit, C. J., Littledale, Paekb, and Taunton, Ja. STOITEBKIDGE CANAL V. WHEELEY. 267 passing through any lock. Until recently they have paid to the plain- tiffs a compensation in the nature of tonnage for the coals and goods so carried, as other persons have also done ; but tlie defendants having latterly refused to do so, this action has been brought ; and the ques- tion is, whether the plaintiffs are entitled to demand anything for the use of the part of the canal on which the defendants have so navigated ; if they are, the sum claimed is admitted to be reasonable, and the plain- tiffs are entitled to recover it : if they are not, the previous payments by the defendants cannot render them liable, and the plaintiffs cannot recover anything. The canal having been made under the provisions of an act of par- liament, the rights of the plaintiffs are derived entirely from the act. This, like many other cases, is a bargain between a company of adven- turers and the public, the terms of which are expressed in the statute ; and the rule of construction in all such cases is now fuUj' established to be this, — that an}' ambiguitj' in the terms of the contract must) operate against the adventurers, and in favour of the public ; and the / plaintiffs can claim nothing which is not clearly given to them b}' tlie act. This rule is laid down in distinct terms bj' the Court in the case of The Hull Dock Company v. La Marche, 8 B. & C. 51, where some previous authorities are cited ; and it "was also acted upon in the case of The Leeds and Liverpool Canal Companj' v. Hustler, 1 B. & C. 424. Adopting this rule, we are to decide whether a right to demand some compensation for the use of this part of the canal, is clearly and unambiguously given to the plaintiffs by this act of parliament ; and we think it is not. The act of parliament recites that the proposed canal will be of public utilitj' (p. 732) ; the company are empowered to purchase land for the use of the navigation (p. 748) ; the lands acquired bj' voluntarj- or compulsory sale are vested in the proprietors for the use of the navigation, and for no other use or purpose whatsoever (p. 759) ; and all persons whatsoever are to have free liberty " to navigate upon the canal and collateral cuts with any boats or other vessels " of certain dimensions, " and to use the wharfs and quays for loading and unload- ing any goods, wares, merchandise, and commodities ; and also to use the towing paths with horses for hauling and drawing such boats and vessels upon payment of such rates and dues as shall be demanded by the said company of proprietors not exceeding the rates before men- tioned in the statute" (p. 788). This refers to a previous clause, p. 777, which provides that, in consideration of the great charge and expense of the proprietors in making, maintaining, and supplying with water the canal and collateral cuts, &c., it shall be lawful for the com- pany from time to time to ask, demand, take, and recover for their own use and benefit for the tonnage and wharfage of iron, &c., and other commodities navigated, carried, and convej-ed thereon, such rates and duties as they shall think fit, not exceeding the sum of sixpence for every ton of iron, &c., navigated on any part of the canal, and 268 STOUEBEIDGE CANAL '0. WHEELEY. which shall pass through any one or more qf the locks which shall be erected on the said canal. A similar provision is made for the tonnage and whai'fage of goods in vessels navigated on the collateral cuts ; and a power of bringing an action for arrears or distraining is given to the company. Now, it is quite certain that the company have no right expressly given to receive any compensation except the tonnage paid for goods carried through some of the locks on the canal or the collateral cuts ; and it is therefore incumbent upon them to show that thej' have a right clearly given by inference from some of the other clauses. One of the clauses relied upon by the plaintiffs is that which gives the public the use of the canal, p. 788, and it is contended that no per- sons have a right to use any part of the canal under that clause, except those who actually do pay some of the rates or dues, and consequently pass some of the locks ; and that if individuals have no right to navi- gate a particular part, the company may make their own bargain as to the terms upon which they maj' be permitted to do so. But the clause in question is capable of two constructions ; one, that those persons who pass the locks, and therefore paj- the rates, and those only, are entitled to navigate, any part of the canal or cuts ; the other, that all persons are entitled to use it, pajing rates when rates are due. The former of these constructions is against the public and in favour of the company, the latter is in favour of the public and against the compan}-, and is therefore, according to the rule above laid down, the one which ouglit to be adopted. And indeed the more obvious meaning of tliis clause is, to declare that the canal is dedicated to the public, but, at the same time, to pre- serve the right of the company to the rates already given ; and ic is reasonable to suppose that, bj- the section p. 777, which gives the rates as a compensation for the expenses of the proprietors, the legislature meant to include aU the benefit they were to derive from the canal, and not to leave the company to make what agreement they pleased with the public in cases not provided for, and to gain an unlimited profit from a particular part of it. They probably did not contemplate tlie case of persons using the canal who did not pass any lock ; but whether the omission was intentional, or arose from inadvertence, it is still an omission in that clause which provides for the emolument of the company. Another section upon which some reliance was placed, was that in page 789, which gives to the owners of adjoining lands the power to use any pleasure boats on the canal, &c. (so as the same do not pass through any lock), without paying any rates or dues for the same, and so as such boat be not used for carrying any goods ; and it is argued that the inference arising from the latter part of this clause is, that pleasure boats carrying goods would be liable to pay rates, though they should pass no locks ; and if pleasure boats, then all other boats should be equally liable. And there is no doubt but that tliis provision does CENTRAL TEANSPOETATION CO. V. PULLMAN CAR CO. 269 afford some colour for this argument. The object of the clause appears to have been, partly to secure the right of the proprietors to use the canal with pleasure boats ; (and in that respect it was introduced pro majore cautela ;) and partly to prevent the company being injured by their passing through locks ; and the framer of the clause seems to have added the last provision in the section merely to put pleasure boats with goods on board, on the footing of loaded vessels, without consid- ering whether loaded vessels were liable to duties or not. At any rate this clause is not suflBcient, in our judgment, to enable us to say that it is clear the legislature intended to give the plaintiffs the right to the compensation claimed for the use of a part of the canal where there is no lock. Upon the principle of construction, therefore, above laid down, viz., that the company are entitled to impose no burthen on the public for their own benefit except that which is clearly given by the act, we are of opinion that, as their right to claim this compensation is not clearly given by the act, the plaintiffs are not entitled to recover. Judgment for defendants, Gray, J., in CENTRAL TEANSPOETATION CO. v. PULL- MAN CAE CO. 1891. 139 U. S. 24, p. 49. By a familiar rule, every public grant of property, or of privileges or franchises, if ambiguous, is to be construed against the gran- tee and in favor of the public ; because an intention, on the part of the government, to grant to private persons, or to a particular corpo- ration, property or rights in which the whole public is interested, cannot be presumed, unless unequivocally expressed or necessarily to be implied in the terms of the grant ; and because the grant is sup- posed to be made at the solicitation of the grantee, and to be drawn up by him or by his agents, and therefore the words used are to be treated as those of the grantee; and this rule of construction is a wholesome safeguard of the interests of the public against any attempt of the grantee, by the insertion of ambiguous language, to take what could not be obtained in clear and express terms. Charles River Bridge v. Warren Bridge, 11 Pet. 420, 544-548 ; Dubuque & Pacific Railroad v. Litchfield, 23 How. QQ, 88, 89 ; Slidell v. Grandjean, 111 U. S. 412, 437, 438. This rule applies with peculiar force to articles of association, which are framed under general laws, and which are a substitute for a legislative charter, and assume and define the powers of the corporation by the mere act of the associates, without any supervision of the legislature or of any public authority. - Oregon Railway v. Oregonian Railway, 130 U. S. 26, 27. 270 OREGON KY. & NAV. CO. V. OEEGONIAN EY. CO. MiLLEK, J., IN OEEGON KAIL WAY & NAVIGATION CO. v. OEEGONIAN EAILWAY CO. 1889. 130 U. S. 1, pp. 26, 27. It is to be remembered that -where a statute making a grant of property, or of powers, or of franchises, to a private individual, or a private corporation, becomes the subject of construction as regards the extent of the grant, the universal rule is that in doubtful points the construction shall be against the grantee and in favor of the gov- ernment or the general public. As was said in the case of Charles River Bridge v. Warren Bridge, 11 Pet. 420, " in this court the prin- ciple is recognized that in grants by the public nothing passes by im- plication." See also Dubuque and Pacific Railroad Co. v. Litchfield, 23 How. 66 ; Turnpike Co. v. Illinois, 96 U. S. 63. Therefore if the articles of association of these two corporations, instead of being the mere adoption by the corporators themselves of the declaration of their own purposes>and powers, had been an act of the legislature of Oregon conferring such powers on the corporations, they would be subject to the rule above stated and to rigid construc- tion in regard to the powers granted. How much more, then, should this rule be applied, and with how much more reason should a court, called upon to determine the powers granted by these articles of asso- ciation, construe them rigidly, -with the stronger leaning in doubtful cases in favor of the public and against the private corporation. We have to consider, when such articles become the subject of con- struction, that they are in a sense ex parte ; their formation and exe- cution — what shall be put into them as well as what shall be left out — do not take place under the supervision of any ofS.cial authority whatever. They are the production of private citizens, gotten up in the interest of the parties who propose to become corporators, and stimulated by their zeal for the personal advantage of the parties con- cerned rather than the general good. These articles, when signed by the corporators, acknowledged before any justice of the peace or notary public, and filed in the office of the Secretary of State and the clerk of the proper county, become com- plete and operative. They are, so far as framed in accordance with law, a substitute for legislation, put in the place of the will of the people of the State, formerly expressed by acts of the legislature.' Neither the officer who. takes such acknowledgment, nor those who file the articles, have any power of criticism or rejection. The duty of the first is to certify to the fact, and of the second to simply mark them filed as public documents, in their respective offices. These articles, which necessarily assume by the sole action of the corporators enormous powers, many of which have been heretofore considered of a public character, sometimes afEecting the interests of WHITAKEE V. DELAWARE AND HUDSON CANAL CO. 271 the public very largely and very seriously, do not commend them- selves to the judicial mind as a class of instruments requiring or justifying any very liberal construction. Where the question is whether they conform to the authority given by statute in regard to corporate organizations, it is always to be determined upon just construction of the powers granted therein, with a due regard for all the other laws of the State upon that subject, and the rule stated above. WHITAKEE V. DELAWARE & HUDSON CANAL CO. 1878. 87 Pa. State, 34.1 Case to recover for damages to plaintiff's lumber rafts while passing through the schute of defendants' dam, alleged to have resulted from the improper construction and maintenance of such dam. At the trial, in the Court of Common Pleas, after evidence had been intro- duced by both sides, Wallee, P. J., directed a verdict for defendants. Plaintiit took a writ of error. 6r. (?. Waller, for plaintiff in error. jET. JH. Seely, for defendant In error. Trunket, J. The defendants were incorporated under the laws oi New York, and by divers statutes of this state, are vested with certain public franchises. For the purposes of the grant the dam across the Delaware river was built about fifty years ago, and the right to main- tain it is conceded. In the Act of 1825, Pamph. L. 142, is a pro- vision "That the said company shall not erect any works, or make any improvement, connected with the Delaware river, unless the same shall be so constructed as to leave the channel of said river as safe and as convenient for the descent of rafts as it now is." The plaintiff com- plains that the river is not as safe and convenient for navigation as before the erection of the dam. Unquestionablj' this is so. A dam in a stream is an impediment and in some degree renders its navigation less safe and convenient. A literal construction of this provision makes it impossible to build and maintain the dam, and the conceded right vanishes. The statutes of this state, recognizing those of New York, and in connection therewith, conferring the power to construct a great public highway, are nugatory under a strict construction of the section providing for safe and convenient navigation of the river. This was not the legislative intent. It could not have been intended to grant a franchise to build a public highway, in connection with one in a sister state, and so clog it that the work could never be executed. Various statutes, from time to time, have been enacted authorizing public improvements, some of which would obstruct or impede the 1 Statement abridged. Arguments, and part of opinion, omitted. — Ed. 272 WHITAKEE V. DELAWAKE AND HUDSON CANAL CO. navigation of rivers, and others the use of streets and roads, which contained provisions forbidding such obstructions and impediments. The courts have uniformly' held that these provisions should be liberally construed, so as not to destroy the grant. For instance, the act of in- corporation of the Monongahela Bridge Company contained a declara.. tion that nothing therein contained should authorize the erection of a bridge over the Monongahela river "in such manner as to injure, stop, or interrupt the navigation of the said river, by boats, rafts or other vessels.'' It was held that the proviso was not intended to prevent the erection of piers in the bed of the river, yet piers in the bed of a navi- gable stream inevitably endanger navigation and render it more difficult. They do not necessarily " injure, stop or interrupt the navigation " in the sense in which these words were used bj- the legislature. A strict literal meaning was not intended, and in the very nature of things, it never could have been. When the purpose of the franchise is the performance of a public act, the grant is to be so interpreted as to enable the act to be done. The extension of one highway over an- other is a public act, and not less so because of the power to exact tolls: Monongahela Bridge Co. v. Kirk, 10 Wright, 112. The charter of the Erie and North East Kailroad Company had a provision that " The said railroad shall be so constructed as not to impede or obstruct the free use of any public road, street, lane or bridge now laid out, opened or built." " These words taken literally and in their strongest sense would prevent the railroad from being made on the streets at all. But we follow authority in saying they are not to be so interpreted. The defendants have a right to use a street if thej' take care to obstruct it as little as the nature and character of their improvement will permit, if they create no material or unnecessary impediment — no obstruction which could be avoided bj' any reasonable expenditure of money or labor. They cannot occupj' the whole of a street and drive the public away from it altogether. But any street which is wide enough for the railroad and public both may be used on the terms mentioned." Per Black, C. J., Commonwealth v. E. & N. E. Railroad Co., 3 Casey 365. It is no departure from the current of decisions, but in its direct line, to hold that the defendants can enjoy their franchise, can lawfully construct and maintain their dam, taking care to obstruct the channel as little as the nature and character of the improvement will permit, and leaving it as safe and convenient for the navigation of rafts as could be by any reasonable expenditure of money and labor. Their franchise is for the construction of one highway over another. The whole community are interested in both. Private charters are strictly interpreted. In them what is not expressed or necessarily implied, is not granted, and what is doubtful is resolved in favor of the sovereign. But when the sovereign grants a public franchise over a highway, a clause relative to the use of said highway will not be so construed as to defeat the grant. The plaintiff does not claim merely for consequential damages, re- CHAELES KIVEE BRIDGE V. WAEEEN BRIDGE. 273 Bultiiig solely from the construction of the dam. If he did, the defendants' answer would be found in Clark v. Birmingham and Pitts. Bridge Co., 5 Wright 147, and Monongahela Bridge Co. v. Kirk, supra. He claims further for an immediate injury, consequent upon the de- fendants' negligence, in that they " built and left the said dam in and across said highway, in a dangerous, insecure and impassable state and condition." His averment implies much more than such obstruction as was necessary for the purposes of the franchise, and, if established, and there was no contributory negligence, his right to recover is clear. If he adduced suflBcient proof of such negligence, it should have been submitted to the jury. [After considering the evidence, the Court held, that it was insufH- cient to warrant a finding that the defendants were guilty of neg- ligence.] Judgment affirmed. PROPRIETORS OF CHARLES RIVER BRIDGE v. PROPRIE- TORS OF WARREN BRIDGE. 1837, 11 Peters U. S. 420.1 Errok to Supreme Court of Massachusetts. Bill in equity to enjoin the building of Warren Bridge, and for general relief. In 1650, the Massachusetts Legislature granted to Harvard College the power to dispose, by lease or otherwise, of the ferry from Charles- town to Boston. In 1785, the legislature incorporated " The Proprie- tors of Charles River Bridge," for the purpose of erecting a bridge in the place where the ferry was then kept. The charter was limited to forty years from the opening ; the company were to pay 200? annually to Harvard College ; and at the end of the fortj' years the bridge was to be the property of the commonwealth, saving to the college a reason- able annual compensation for the annual income of the ferry. The bridge was opened in 1786. In 1792, the legislature chartered The Proprietors of West Boston Bridge to bridge the same river at a point about a mile and a half from the first bridge. The 7th section of the act of 1792 extends the charter of Charles River Bridge to seventy years from its opening ; inasmuch as the erection of West Boston Bridge " may diminish the emoluments of Charles River Bridge." In 1828, the legislature incorporated Proprietors of Warren Bridge to erect another bridge across Charles River, distant only sixteen rods on the Charlestown side and about fifty rods on the Boston side from the bridge of the plaintiffs. Warren Bridge, by the terms of its charter, was to be ^ Statement abridged. Arguments omitted. — Ed. 274 CHAKLES EIVER BRIDGE V. WAEEEN BEIDGE. surrendered to the State, as soon as the expense of building and sup- porting it should be reimbursed ; and this period was in no event to exceed six years from the time of beginning to receive toll. A supple- mental bill was filed, alleging that the Warren Bridge had been so far completed as to be open for travel. In the argument in the U. S. Supreme Court, it was admitted that sufficient toll had been received bj- the owners of the Warren Bridge to reimburse their expenses, that the bridge has now become the property of the state and has been made a free bridge ; and that the value of the franchise granted to the owners of the Charles River Bridge has, bj' this means, been entirely destroyed. In the Supreme Court of Massachusetts the judges were equally divided in opinion ; and the bill was there dismissed by a decree pro formd. 7 Pick. 344. Dutton and Webster, for plaintiffs. Greenleaf a,n& Davis, contra. Taney, C. J. The plaintifiEs in error insist mainly upon two groimds : 1. That by virtue of the grant of 1650, Harvard College was entitled, in perpe- tuity, to the right of keeping a ferry between Charlestown and Bos- ton ; that this right was exclusive ; and that the legislature had not the power to establish another ferry on the same line of travel, because it would infringe the rights of the college ; and that these rights, upon the erection of the bridge in the place of the ferry, under the charter of 1785, were transferred to, and became vested in " the proprietors of the Charles River Bridge ; " and that under and by virtue of this trans- fer of the ferry right, the rights of the bridge companj' were as exclu- sive in that line of travel as the rights of the ferry. 2. That independently of the ferry right the acts of the legislature of Massachu- setts of 1785, and 1792, by their true construction, necessarily implied that the legislature would not authorize another bridge, and especiall3- a free one, by the side of this, and placed in the same line of travel, whereby the franchise granted to the " Proprietors of the Charles River Bridge " should be rendered of no value ; and the plaintiffs in error con- tend that the grant of the ferry to the college, and of the charter to the proprietors of the bridge, are both contracts on the part of the State ; and that the law authorizing the erection of the Warren Bridge, in 1828, impairs the obligation of one or both of these contracts. It is very clear that in the form in which this case comes before us, being a writ of error to a state court, the plaintiffs in claiming under either of these rights must place themselves on the ground of contract, and cannot support themselves upon the principle that the law d evests rested rights. It is well settled by the decisions of this courttKaTa Stale law' may be retrospective in its character, and may devest vested rights, and yet not violate the constitution of the United States, unless it also impairs the obligation of a contract. CHARLES KIVER BRIDGE V. WARREN BRIDGE. 275 [The learned judge then held, that the ferr}' rights, and all franchises connected therewith, were extinguished, and not transferred to the Charles River Bridge corporation.] This brings us to the act of the legislature of Massachusetts, of 1785, by which the plaintiffs were incorporated by the name of " The Pro- prietors of the Charles River Bridge," and it is here, and in the law of 1792, prolonging their charter, that we must look for the extent and nature of the franchise conferred upon the plaintiffs. Much has been said in the argument, of the principles of construc- tion by which this law is to be expounded, and what undertakings, on the part of the State, ma}' be implied. The court think there can be no serious difBculty on that head. It is the grant of certain franchises by the public to a private corporation, and in a matter where the public interest is concerned. The rule of construction in such cases is well settled, both in England, and by the decisions of our own tribunals. [The learned judge here cited and commented upon Stourbridge Canal v. Wheeky, 2 B. & Ad. 793, ante.'] Borrowing, as we have done, our system of jurisprudence from the English law ; and having adopted, in every other case, civil and crim- inal, its rules for tlie construction of statutes ; is there anything in our local situation, or in the nature of our political institutions, which should lead us to depart from the principle where corporations are concerned ? Are we to apply to acts of incorporation, a rule of construction differing from that of the English law, and, by implication, make the terms of a charter in one of the States, more unfavorable to the public, than upon an act of parliament, framed in the same words, would be sanctioned in an English court? Can any good reason be assigned for excepting this particular class of cases from the operation of the general principle ; and for introducing a new and adverse rule of construction in favor of corporations, while we adopt and adhere to the rules of construction known to the English common law, in e\-ery other case, without excep- tion? We think not; and it would present a singular spectacle, if, while the courts in England are restraining, within the strictest limits, the spirit of monopoly, and exclusive privileges in nature of monopo- lies, and confining corporations to the privileges plainly given to them in their charter ; the courts of this country should be found enlarging these privileges by implication ; and construing a statute more unfavor- ably to the public, and to the rights of the community, than would be done in a like case in an English court of justice. But we are not now left to determine, for the first time, the rules by which public grants are to be construed in this country. The subject has already been considered in this court ; and the rule of construction, above stated, fully established. [After referring to U. 8. v. Arredondo, 6 Peters, 738 ; Jackson v. Lamphire, 3 Peters, 289 ; and Beaty v. Lessee of Knowles, 4 Peters, 168 ; the opinion proceeds, j 276 CHARLES EIVER BRIDGE V. WARREN BRIDGE. But the ease most analogous to this, and in which the question came more directly before the court, is the case of the Providence Bank v. Billings and Pittman, 4 Pet. 514, and which was decided in 1830. In that case, it appeared that the legislature of Rhode Island had char- tered the bank, in the usual form of such acts of incorporation. The charter contained no stipulation on the part of the State, that it would not impose a tax on the bank, nor any reservation of the right to do so. It was silent on this point. Afterwards, a law was passed, imposing a tax on all banks in the State ; and the right to impose this tax was resisted by the Providence Bank, upon the ground that, if the State could impose a tax, it might tax so heavily as to render the franchise of no value, and destroy the institution ; that the charter was a con- tract, and that a power which maj' in effect destroj' the charter is in- consistent with it, and is impliedly renounced by granting it. But the court said that the taxing power was of vital importance, and essential to the existence of government ; and that the relinquishment of such a power is never to be assumed. And in delivering the opinion of the court, the late chief justice states the principle, in the following clear and emphatic language. Speaking of the taxing power, he saj's, "as the whole community is interested in retaining it undiminished, that community has a right to insist that its abandonment ought not to be presumed, in a case in which the deliberate purpose of the State to abandon it does not appear." « The case now before the court, is, in principle, precisely the same, /it is a charter from a State. The act of incorporation is silent in relation to the contested power. The argu- ment in favor of the proprietors of the Charles Eiver Bridge, is the same, almost in words, with that used bj' the Providence Bank ; that is, that the power claimed by the State, if it exists, maj' be so used as to destroy the value of the franchise they have granted to the corporation. The argument must receive the same answer ; and the fact that the power has been already exercised so as to destroy the value of the franchise, cannot in any degree affect the principle. The existence of the power does not, and cannot depend upon the circumstance of its having been exercised or not. It may, perhaps, be said, that in the case of the Providence Bank, this court were speaking of the taxing power ; which is of vital impor- tance to the very existence of every government. But the object and end of all government is to promote the happiness and prosperity of the community by which it is established ; and it can never be assumed, that the government intended to diminish its power of accomplishing the end for which it was created. And in a country like ours, free, active, and enterprising, continually advancing in numbers and wealth, new channels of communication are daily found necessary, both for travel and trade ; and are^essential to the comfort, convenience, and prosperity of the people. fA State ought never to be presumed to sur- render this power, because, like the taxing power, the whole community have an interest in preserving it uadiminishedT\ And when a corpora- CHARLES EIVER BRIDGE v. WARREN BRIDGE. 277 tion alleges, that a State has surrendered for seventy j-ears, its power of improvement and public accommodation, in a great and important line of travel, along which a vast number of its citizens must dail}- pass ; the community have a right to insist, in the language of this court above quoted, " that its^abaadoninent^iug ht not to be presume d, in a case, in which the deliberate .pjjrpQa£L_Qf_the^ate to abandon it does TTorappear: " TEe~continued existence of a government would be of no great value, if by implications and presumptions, it was disarmed of the powers necessary to accomplish the ends of its creation ; and the functions it was designed to perform, transferred to the hands of priv- ileged corporations. The rule of construction announced bj' the court, was not confined to the taxing power ; nor is it so limited in the opinion delivered. On the contrary, it was distinctly placed on the ground that the interests of the community were concerned in preserv- ing, undiminished, the power then in question ; and whenever an}' power of the State is said to be surrendered or diminished, whether it be the taxing power or any other affecting the public interest, the same principle applies, and the rule of construction must be the same. No one will question that the interests of the great bodj- of the people of the State, would, in this instance, be affected by the surrender of this great line of travel to a single corporation, with the right to exact toll, and exclude competition for sevent}' j'ears. While the rights of private property are sacredly guarded, we must not forget that the community also have rights, and that the happiness and well-being of ever}- citizen depends on their faithful preservation. Adopting the rule of construction above stated as the settled one, we proceed to apply it to the charter of 1785, to the proprietors of the Charles Eiver Bridge. This act of incorporation is in the usual form, and the privileges such as are commonly given to corporations of that kind. It confers on them the ordinary faculties of a corporation, for the purpose of building the bridge ; and establishes certain rates of toll, which the company are authorized to take. This is the whole grant. There is no esslus i ve privilege given to them over the waters of Charles River, above or below their bridge. No right to erect another bridge themselves, nor to prevent other persons from erecting one. No engagement from the State that another shall not be erected ; and no undertaking not to sanction competition, nor to make improvements that may diminish the amount of its income. Upon all these sub- jects the charter is silent ; and nothing is said in it about a line of travel, so much insisted on in the argument, in which they are to have exclusive privileges. No words are used, from which an intention to grant any of these rights can be inferred. If the plaintiff is entitled to them, it must be implied, simply, from the nature of the grant ; and cannot be inferred from the words by which the grant is made. The relative position of the Warren Bridge has alread)' been de- scribed. It does not interrupt the passage over the Charles River Bridge, nor make the way to it or from it less convenient. None of 278 CHARLES EIVEE BRIDGE V. -WARREN BRIDGE. the faculties or franchises granted to that corporation have been re- voked by the legislature, and its right to take the tolls granted by the charter remains unaltered. In short, all the franchises and rights of property' enumerated in the charter, and there mentioned to have been granted to it, remain unimpaired. But its income is destroyed by the Warren Bridge ; which, being free, draws off the passengers and prop- erty which would have gone over it, and renders their franchise of no value. This is the gist of the complaint. For it is not pretended that the erection of the Warren Bridge would have done them anj- injury, or in any degree affected their right of propertj', if it had not diminished the amount of their tolls. In order then to entitle themselves to relief, it is necessary to show that the legislature contracted not to do the act of which they complain, and that thej' impaired, or, in other words, violated that contract by the erection of ttie Warren Bridge. The inquiry then is. Does the charter contain such a contract on the part of the State? Is there any such stipulation to be found in that instrument? It must be admitted on all hands that there is none, — no words that even relate to another bridge, or to the diminution of ttieir tolls, or to the line of travel. If a contract on that subject can be gathered from the charter, it must be by implication, and eannoyse found in the words used. Can such an agreement be implied ?.LlPBe rule of construction before stated is an answer to the quest ion A In charters of this description, no rights are taken from the public, or given to the corporation, bej'ond tliose which the words of the charter, by their natural and proper construction, purport to convey. There are no words which import such a contract as the plaintiffs in error contend for, and none can be implied ; and the same answer must be given to them that was given by this court to the Providence Bank. 4 Pet. 514. Tl:e whole community are interested in this inquiry, and they have a right to require that the power of promoting their comfort and convenience, and of advancing the public prosperitj-, by providing safe, convenient, and cheap ways for the transportation of produce and clie purposes of travel, shall not be construed to iiave been surrendered or diminislied by the State, unless it shall appear bj- plain words that it was intended to be done. But the case before the court is even still stronger against any such implied contract as the plaintiffs in error contend for. The Charles River Bridge was completed in 1786. The time limited for the dura- tion of the corporation, by their original charter, expired in 1826. When, therefore, the law passed authorizing the erection of the Warren Bridge, the proprietors of Charles River Bridge held their corporate existence under the law of 1792, which extended their charter for thirty years ; and the rights, privileges, and franchises of the company, must depend upon the construction of the last-mentioned law, taken in connection with the act of 1785. The act of 1792, which extends the charter of this bridge, incorpo- rates another company to build a bridge over Charles River ; furnish- CHARLES RIVER BRIDGE V. WARREN BRIDGE. 279 ihg another communication with Boston, and distant only between one and two miles from the old bridge. The first six sections of this act incorporate the proprietors of the West Boston Bridge, and define the privileges, and describe the duties of that corporation. In the 7th section there is the following recital : " And whereas the erection of Charles River Bridge was a work of hazard and public utility, and another bridge in the place of West Boston Bridge may diminish the emoluments of Charles River Bridge ; therefore, for the encouragement of enterprise," they proceed to extend the charter of the Charles River Bridge, and to continue it for the term of seventy years from the day the bridge was completed, subject to the conditions prescribed in the original act, and to be entitled to the same tolls. It appears, then, that by the same act that extended this charter, the legislature established another bridge, which they knew would lessen its profits ; and this, too, before the expiration of the first charter, and onlj' seven years after it was granted ; thereby showing, that the State did not suppose that, by the terms it had used in the first law, it had deprived itself of the power of making such public improvements as might impair the profits of the, Charles River Bridge ; and from the language used in the clauses of the law by which the charter is extended, it would seem that the legislature were especially careful to exclude any inference that the extension was made upon the ground of com- promise with the bridge companj', or as a compensation for rights impaired. On the contrary, words are cautiously employed to exclude that con- clusion ; and the extension is declared to be granted as a reward for the hazard they had run, and " for the encouragement of enterprise." The extension was given because the company had undertaken and executed a work of doubtful success ; and the improvements which the legislature then contemplated, might diminish the emoluments they had expected to receive from it. It results from this statement, that the legislature, in the very law extending the charter, asserts its rights to authorize improvements over Charles River which would take oflf a por- tion of the travel from this bridge and diminish its profits ; and the bridge company accept the renewal thus given, and thus carefully con- nected with this assertion of the right on the part of the State. Can they, when holding their corporate existence under this law, and deriv- ing their franchises altogether from it, add to the privileges expressed in their charter an implied agreement which is in direct conflict with a portion of the law from which they derive their corporate existence ? Can the legislature be presumed to have taken upon themselves an im- plied obligation, contrary to its own acts and declarations contained in the same law ? It would be diflBcult to find a case justifying such an implication, even between individuals ; still less will it be found where sovereign rights are concerned, and where the interests of a whole com- munity would be deeplj' affected by such an implication. It would, indeed, be a strong exertion of judicial power, acting upon its own 280 CHAKLES RIVEE BEIDGE V. WAEEEN BEIDGE. views of what justice required, and the parties ought to have done, to raise, by a sort of judicial coercion, an implied contract, and infer from it the nature of the very instrument in which the legislature appear to have taken pains to use words which disavow and repudiate any inten- tion, on the part of the State, to make such a contract. Indeed, the practice and usage of almost everj' State in the Union, old enough to have commenced the work of internal improvement, is opposed to the doctrine contended for on the part of the plaintiffs in error. Turnpike roads have been made in succession on the same line of travel ; the later ones interfering materially with the profits of the first. These corporations have, in some instances, been utterly' ruined by the introduction of newer and better modes of transportation and travelling. In some cases, railroads have rendered the turnpike roads on the same line of travel so entirely- useless, that the franchise of the turnpike corporation is not worth preserving. Yet in none of these cases have the corporation supposed that their privileges were invaded, or any contract violated on the part of the State. Amid the multitude of cases which have occurred, and have been daily occurring for the last fortj' or fifty 3-ears, this is the first instance in which such an im- plied contract has been contended for, and this court called upon to infer it from an ordinary act of incorporation, containing nothing more than the usual stipulations and provisions to be found in every such law. The absence of any such controversy, when there must have been so many occasions to give rise to it, proves that neither States, nor individuals, nor corporations, ever imagined that such a contract could be implied from such charters. It shows that the men who voted for these laws, never imagined that they were forming such a contract ; and if we maintain that they have made it, we must create it by a legal fiction, in opposition to the truth of the fact, and the obvious intention of the party. We cannot deal thus with the rights reserved to the States, and b}' legal intendments and mere technical reasoning, take away from them anj' portion of that power over their own internal police and improvement, which is so necessary to their well being and prosperity. And what would be the fruits of this doctrine of implied contracts on the part of the States, and of property in a line of travel by a corpora- tion, if it should now be sanctioned by this court? To what results would it lead us ? If it is to be found in the charter to this bridge, the same process of reasoning must discover it in the various acts which have been passed, within the last forty years, for turnpike companies. And what is to be the extent of the privileges of exclusion on the dif- ' ferent sides of the road ? The counsel who have so ably argued this case, have not attempted to define it by any certain boundaries. How far must the new improvement be distant from the old one? How near maj- you approach without invading its rights in the privileged line? If this court should establish the principles now contended for, what is to become of the numerous railroads established on the same line of CHARLES RIVER BRIDGE V. WARREN BRIDGE. 281 travel with turnpike companies ; and whicli have rendered the fran- chises of the turnpike corporations of no value? Let it once be under- stood that such charters carry with them these implied contracts, and give this unknown and undefined property in a line of travelling, and you will soon find' the old turnpike corporations awakening from their sleep, and calling upon this court to put down the improvements which have taken their place. The millions of property which have been, invested in railroads and canals, upon lines of travel which had been before occupied by turnpike corporations, will be put in jeopardj'. We shall be thrown back to the improvements of the last century, and obliged to stand still, until the claims of the old turnpike corporations shall be satisfled, and they shall consent to permit these States to avail themselves of the lights of modern science, and to partake of the bene- fit of those improvements which are now adding to the wealth and prosperit}-, and the convenience and comfort of every other part of the civilized world. Nor is this all. This court will And itself compelled to fix, b3' some arbitrg,ry rule, the width of this new kind of property in a line of travel ; for if such a right of property exists, we have no lights to guide us in marking out its extent, unless, indeed, we resort to the old feudal grants, and to the exclusive rights of ferries, by pre- scription, between towns ; and are prepared to decide that when a turnpike road from one town to another had been made, no railroad or canal, between these two points, could afterwards be established. This court are not prepared to sanction principles which must lead to such results. Manj' other questions of the deepest importance have been raised and elaboratelj' discussed in the argument. It is not necessarj' for the decision of this case, to express our opinion upon them ; and the court deem it proper to avoid volunteering an opinion on any question, in- volving the construction of the constitution, where the case itself does not bring the question directly before them, and make it their duty to decide upon it. Some questions, also, of a purely technical character, have been made and argued, as to the form of proceeding and the right to relief. But enougii .ippcars on the record, to bring out the great question in contest ; and it is the interest of all parties concerned, that the real controversy should be settled without further delay ; and as the opinion of the court is pronounced on the main question in dispute here, and disposes of the whole case, it is altogether unnecessary to enter upon the examination of the forms of proceeding, in which the parties have brought it before the court. The judgment of the supreme judicial court of the commonwealth of Massachusetts, dismissing the plaintiflFs' bill, must, therefore, be aflSrmed, with costs. [McLean, J. delivered an opinion in favor of dismissing the bill for want of jurisdiction. Story, J. delivered an opinion dissenting from 282 CHAELES EIVEE BEIDGE V. WAEEEN BEIDGE. " , the conclusions of Taney, C. J. Thompson, J. concurred in the views of Stort, J. The following extracts are from the opinion of Stort, J.] Story, J. ... It is a well-known rule in the construction of private grants, if the meaning of the words be doubtful, to construe them most strongly against the grantor. But it is said that an opposite rule pre- vails in cases of grants by the king ; for where there is any doubt, the construction is made most favorably for the king, and against the grantee. The rule is not disputed. But it is a rule of very limited application. To what cases does it apply ? To such cases only where there is a real doubt ; where the grant admits of two interpretations, one of which is more extensive, and the other more restricted ; so that a choice is fairlj' open, and either may be adopted without any violation of the apparent objects of the grant. If the king's grant admits of two interpretations, one of which will make it utterly void and worthless, and the other will give it a reasonable effect, then the latter is to pre- vail, for the reason, (saj's the common law,) " that it will be more for the benefit of the subject, and the honor of the king, which is to be more regarded than his profit." Com. Dig. Grant, G-. 12; 9 Co. E. 131, a; 10 Co. E. 67, b; 6 Co. E. 6. And in every case the rule is made to bend to the real justice and integrity' of the case. No strained or extravagant construction is to be made in favor of the king. And if the intention of the grant is obvious, a fair and liberal interpretation of its terms is enforced. But what, I repeat, is most material to be stated, is, that all this doctrine in relation to the king's prerogative of having a construction in his own favor, is exclusively confined lo cases of mere donation, flowing from the bounty of the crown. Whenever the grant is upon a valuable consideration, the rule of construction ceases ; and the grant is expounded exactly as it would be in the case of a private grant, favorably to the grantee. Why is this rule adopted ? Plainl}-, because the grant is a contract, and is to be interpreted according to its fair meaning. It would be to the dishonour of the government, that it should pocket a fair consideration, and then quibble as to the obscuri- ties and implications of its own contract. If, then, the present were the case of a royal grant, I should most strenuously contend, both upon principle and authority, tliat it was to Teceive a liberal, and not a strict, construction. I should so contend upon the plain intent of the charter, from its nature and objects, and from its burdens and duties. It is confessedly a case of contract, and not of bounty ; a case of contract for a valuable consideration ; for ob- jects of pubhc utility ; to encourage enterprise ; to advance the public convenience; and to secure a just remuneration for large outlays of private capital. What is there in such a grant of the crown, which CHARLES EIVEE BRIDGE V. WARREN BRIDGE. 283 sliould demand from any court of justice a narrow and strict interpreta- tion of its terms ? • • •••■•• The present, however, is not the case of a royal grant, but of a legislative grant, by a public statute. The rules of the common law in relation to royal grants, have, therefore, in reality, nothing to do with the case. We are to give this act of incorporation a rational and fair construction, according to the general rules which govern in all cases of the exposition of public statutes. We are to ascertain the legislative intent ; and that once ascertained, it is our duty to give it a full and liberal operation. What solid ground is there to say, that the words of a grant in the mouth of a citizen, shall mean one thing, and in the mouth of the legis- lature shall mean another thing? That, in regard to the grant of a citizen, every word shall, in case of any question of interpretation or implication, be construed against him, and in regard to tiie grant of the government, every word shall be construed in its favor? That language shall be construed, not according to its natural import and implications from its own proper sense, and the objects of the instrument ; but shall change its meaning, as it is spoken bj' the whole people, or by one of them ? There may be very solid grounds to say, that neither grants nor charters ought to be extended beyond the fair reach of their words ; and that no implications ought to be made which are not clearly de- ducible from the language and tlie nature and objects of the grant. There is great virtue in particular phrases ; and when it is once sug- gested, that a grant is of the nature or tendency of a monopoly,, the mind almost instantaneouslj' prepares itself to reject every construction which does not pare it down to the narrowest limits. It is an honest prejudice, which grew up in former times from the gross abuses of the royal prerogatives ; to which in America, there are no anal ogous au- thorities. But what is a monopoly, as understood in law? Tlijs_ain e xclusive r ig ht granted to a few, of s omgthing which was »e*6re of co mmon right.~"\ No sound lawj'er will, I presume, assert that the grant of a right to erect a bridge over a navigable stream, is a grant of a common right. Before such grant, had all the citizens of the State a right to erect bridges over navigable streams? Certainly they had not; and, there- fore, the grant was no restriction of any common right. It was neither a monopolj' ; nor in a legal sense, had it any tendency to a monopoly. It took from no citizen what he possessed before ; and had no tendency to take it from him. It took, indeed, from the legislature the power of granting the same identical privilege or franchise to any other persons. But this made it no more a monopoly, than the grant of the public stock or funds of a State for a valuable consideration. Even in cases of 284 CHAELES EIVEE BEIDGE V. WAEREN BEIDGE. monopolies, strictly so called, if the nature of the grant be such that it is for the public good, as in cases of patents for inventions, the rule has always been to give them a favorable construction in support of the patent, as Lord Chief Justice Eyre said, ut res magis valeat quani pereat; Boulton v. Bull, 2 H. Bl. 463, 500. Taking this to be a grant of a right to build a bridge over Charles River, in the place where the old ferry between Charlestown and Boston was then kept, (as is contended for b^- the defendants,) still it has, as all such grants must have, a fixed locality ; and the same question meets us, is the grant confined to the mere right to erect a bridge on the proper spot, and to take toll of the passengers who may pass over it, without any exclusive franchise on either side of the local limits of the bridge ? Or does it, by implication, include an exclusive franchise on each side, to an extent which shall shut out any injurious compe- tition? In other words, does the grant still leave the legislature at liberty to erect other bridges on either side, free or with tolls, even in juxtaposition with the timbers and planks of this bridge? Or is there an implied obligation, on the part of the legislature, to abstain from all acts of this sort which shall impair or destroj- the value of the grant? The defendants contend that the exclusive right of the plaintiffs extends no further than the planks and timbers of the bridge, and that the legislature is at full liberty to grant any new bridge, however near ; and although it may take away a large portion, or even the whole of the travel which would otherwise pass over the bridge of the plaintiffs. And to this extent the defendants must contend ; for their bridge is, to all intents and purposes, in a legal and practical sense, contiguous to that of the plaintiffs. The argument of the defendants is, that the plaintiffs are to take nothing by implication. Either (say they) the exclusive grant extends only to the local limits of the bridge, or it extends the whole length of the river, or at least up to Old Cambridge bridge. The latter con- struction would be absurd and monstrous, and therefore the former must be the true one. Now, I utterly deny the alternatives involved In the dilemma. The right to build a bridge over a river, and to take toll, may well include an exclusive franchise beyond the local limits of the bridge, and yet not extend through the whole course of the river, or even to any considerable distance on the river. There is no diffi- culty in common sense or in law in maintaining such a doctrine. But then, it is asked, whatjimits can be assigned to such a franchise? The answer is obvious ;^the grant carries with it an exclusive franchise to a reasonable distance on the river, so that the ordinarj' travel to the bridge shalljiot be diverted by any new bridge to the Injury or ruin of the francliiseA A new bridge which would be a nuisance to the old bridge, wetTlabe within the reach of its exclusive righte" TTjje question would not be so mugji as to the fact of distance, as it wiSuld be as to the fact of nuisance! There is nothing new in such expositions of CHARLES EIVER BRIDGE V. WARREN BRIDGE. 285 incorporeal rights, and nothing new in thus administering, upon this foundation, remedies in regard thereto. The doctrine is coeval with the common law itself. Suppose an action is brought for shutting up the ancient lights belonging to a messuage, or for diverting a water- course, or for flowing back a stream, or for erecting a nuisance near a dwelling-house ; the question in such cases is not a question of mere distance, of mere feet and inches, but of injury ; permanent, real, and substantial injur}', to be decided upon all the circumstances of the case. But it is said that there is no prohibitory covenant in the charter, and no implications are to be made of any such prohibition. The pro- prietors are to stand upon the letter of their contract, and the maxim applies, de non apparentibus et non existentibus, eadem est lex. And yet it is conceded, that the legislature cannot revoke or resume this grant. Why not, I pra}' to know? There is no negative covenant in the charter ; there is no express prohibition to be found there. The reason is plain. The prohibition arises by a natural, if not by neces- sary implication. It would be against the first principles of justice to presume that the legislature reserved a right to destroy its own grant. That was the doctrine of Fletcher v. Peck, 6 Cranch, 87, in this court, and in other cases turning upon the same great principle of political and constitutional duty and right. Can the legislature have power to do that indirectly which it cannot do directly ? (If it cannot take away or resume the franchise itself, can it take away its whole substance and value ?) If the law will create an implication that the legislature shall not resume its own grant, is it not equally as natural and as necessary an implication, that the legislature shall not do any act directly to pre- judice its own grant or to destroy its value ? But then again, it is said, that all this rests upon implication, and not upon the words of the charter. I admit that it does ; l)ut I again saj', that the implication is natural and necessary. It is indispensable to the proper effect of the grant. The franchise caBjJst subsist without it, at least for any valuable or practical purpose. T jSQiat objection ca n there be to i milications, if they arise from the very n aturean d objec ts ofjthe_gran$H If it be indispensable to the full enjoyment of the right 'totakeTJBTfTtMt it should be exclusive within certain limits, is it not just and reasonable, that it should be so construed ? If the legislative power to erect a new bridge would annihilate a franchise already granted, is it not, unless expressly reserved, necessarily excluded by intendment of law ? Can any reservations be raised by mere implication to defeat the operation of a grant, especially when such a reservation would be coextensive with the whole right granted, and amount to the reserva- tion of a right to recall the whole grant? The truth is, that the whole argument of the defendants turns upon 286 THE BINGHAMTON BRIDGE. an implied reservation of power in the legislature to defeat and destroy its own grant. THE BINGHAMTON BRIDGE. [CHENANGO BRIDGE CO. v. BINGHAMTON BRIDGE CO.] 1865. 3 Wallace U. S. 51.1 Erroe to the New York Court of Appeals. Bill in equity by Chenango Bridge Co. to enjoin Binghamton Bridge Co. The plaintiflf company was chartered by Section 4 of the Act of 1808, " for the purpose of erecting and maintaining a toll-bridge across the Chenango River, at or near Chenango Point." The corporation was " to have perpetual succession, under all the provisions, regula- tions, restrictions, clauses and provisions of the before-mentioned Sus- quehanna Bridge Company," (referred to in Section 3 of the same Act of 1808.) The latter company was incorporated by Section 38 of the Act of 1805, which gave the Susquehanna Bridge Co. all the "powers, rights, privileges, immunities, and advantages," contained in the incor- poration of the Delaware Bridge Co. by Section 31 of the same Act of 1805. Said Section 31 enacted : [^' I t shall not be lawful for any per- son or persons to erect any bridge, or establish any ferry across the said west and east branches of Delaware River, within two miles either above or below the bridges to be erected and maintained in pursuance of this act?\ Soon after the passage of the Act of 1808, the plaintiff companjiJiTtlTlt a toll-bridge across the Chenango River, at Chenango Point. iltrl855, the legislature granted a charter to the Binghamton Bridge Co., purporting to authorize the building of a bridge in close proximity to that of the plaintiffs^ The latter company built a bridge a few rods above the old oflST The old companj- filed a bill in the Supreme Court of New York to enjoin the new company. The plain- tiffs contended that the exclusive rights given by Section 31 of the Act of 1805 to the Delaware Bridge Co. were imported by Section 38 of that Act into the charter of the Susquehanna Co. ; that these again, thus imported, were translated into Section 3 of the Act of 1808 ; and that these last were carried finally into Section 4 of the latter Act ; thus making a contract by the State with the Chenango Bridge Co., that no bridge should ever be built over the Chenango River within two miles of their bridge, either above or below it. The answer denied the contract thus set up. The Supreme Court of New York dismissed the bill ; and this decree was affirmed by the Court of Appeals. Mr. D. S. Dickenson, for Binghamton Bridge Co. 1 Statement abridged. Arguments, and parts of opinions, omitted. E& ' THE BINGHAMTON BEIDGK 287 Mr. Mygatt, contra. Mr. Justice Davis delivered the opinion of the Court.' The Constitution of the United States declares that no State shall pass anj' law impairing the obligation of contracts ; and the 25th sec- tion of the Judiciary Act provides, that the final judgment or decree of the highest court of a State, in which a decision in a suit can be had, may be examined and reviewed in this court, if there was drawn in question in the suit the validity of a statute of the State, on the ground of its being repugnant to the Constitution of the United States, and the decision was in favor of its validity. The plaintiffs in error brought a suit in equity in the Supreme Court in New York, alleging Dhat they were created a corporation by the legislature of that State, on the first of April, 1808, to erect and main- tain a bridge across the Chenango Eiver, at Binghamton, with perpetual succession, the right to take tolls, and a covenant that no other bridge should be built within a distance of two miles either way from their bridge ; which was a grant in the nature of a contract that can- not be impaired. The complaint of the bill is, that notwithstanding the Chenango Bridge Company have faithfully kept their contract with the State, and maintained for a period of nearly fifty years a safe and suitable bridge for the accommodation of the public, the legislature of New York, on the fifth of April, 1855, in plain violation of the con- tract of the State with them, authorized the defendants to build a bridge across the Chenango River within the prescribed limits, and that the bridge is built and open for travel. The bill seeks to obtain a perpetual injunction against the Bingham- ton Bridge Company, from using or allowing to be used the bridge thus built, on the sole ground that the statute of the State, which authorizes it, is repugnant to that provision of the Constitution of the United States which saj^s that no State shall pass any law impairing the obli- gation of contracts. Such proceedings were had in the inferior courts of New York, that the case finally reached and was heard in the Court of Appeals, which is the highest court of law or equity of the State in which a decision of the suit could be had. And that court held that the act, by virtue of which the Binghamton bridge was built, was a valid act, and rendered a final decree dismissing the bill. Everything, therefore, concurs to bring into exercise the appellate power of this court over cases decided in a State court, and to support the writ of error, which seeks to re-examine and correct the final judgment of the Court of Appeals in New York. The questions presented by this record are of importance, and have received deliberate consideration. It is said that the revising power of this court over State adjudica- tions is viewed with jealousy. If so, we say, in the words of Chief Justice Marshall, " that the course of the judicial department is marked 1 Nelson, J., not sitting, being indisposed. 288 THE BINGHAMTOK BRIDGE. out by law. As this court has never grasped at ungranted jurisdiction, so it never will, we trust, shrink from that which is conferred upon it." The constitutional right of one legislature to grant corporate privileges and franchises, so as to bind and conclude a succeeding one, has been denied. We have supposed, if anj'thing was settled by an unbroken course of decisions in the Federal and State courts, it was, that an act of incorporation was a contract between the State and the stockholders. All courts at this day are estopped from questioning the doctrine. The securit}' of property rests upon it, and every successful enterprise is undertaken, in the unshaken belief that it will never be forsaken. A departure from it now would involve dangers to societj' that can- not be foreseen, would shock the sense of juBtice of the country, un- hinge its business interests, and weaken, if not destroy, that respect which has always been felt for the judicial department of the Govern- ment. An attempt even to reafBrm it, could only tend to lessen its force and obligation. It received its ablest exposition in the case of Dartmouth College v. Woodward,'^ which ease has ever since been considered a landmark by the profession, and no court has since dis- regarded the doctrine, that the charters of private corporations are contracts, protected from invasion bj' the Constitution of the United States. And it has since so often received the solemn sanction of this court, that it would unnecessarily lengthen this opinion to refer to the cases, or even enumerate them. The principle is supported by reason as well as authoritj'. It was well remarked by the Chief Justice, in the Dartmouth College case, " that the objects for which a corporation is created are universally such as the Government wishes to promote. They are deemed bene- ficial to the countrj', and this benefit constitutes the consideration, and in most cases the sole consideration for the grant." The purposes to be attained are generally beyond the ability of individual enterprise, and can only be accomplished through the aid of associated wealth. This will not be risked unless privileges are given and securities fur- nished in an act of incorporation. The wants of the public are often so imperative, that a duty is imposed on Government to provide for them ; and as experience has proved that a State should not directly attempt to do this, it is necessary to confer on others the faculty of doing what the sovereign power is unwilling to undertake. The legis- lature, therefore, says to public-spirited citizens : " If you will embark, with your time, money, and skill, in an enterprise which will accommo- date the public necessities, we will grant to you, for a limited period, or in perpetuity, privileges that will justify the expenditure of your money, and the employment of your time and skill." Such a grant is a contract, with mutual considerations, and justice and good policy alike require that the protection of the law should be assured to it. It is argued, as a reason why courts should not be' rigid in enforo- 1 4 Wheaton, 418. THE BINGHAMTON BRIDGE. 289 ing the contracts made bj- States, that legislative bodies are often overreached by designing men, and dispose of franchises with great reclilessness. If the Icnowledge that a contract made by a State with individuals is equally protected from invasion as a contract made between natural persons, does not awaken watchfulness and care on the part of law- makers, it is difficult to perceive what would. The corrective to im- provident legislation is not in the courts, but is to be found elsewhere. A gi'eat deal of the argument at the bar was devoted to the consider- ation of the proper rule of construction to be adopted in the interpreta- tion of legislative contracts. In this there is no difficult}'. All contracts are to be construed to accomplish the intention of the parties ; and in determining their different provisions, a liberal and fair construction will be given to the words, either singly or in connection with the subject-matter. It is not the duty of a court, by legal subtlety, to overthrow a contract, but rather to uphold it and give it effect ; and no strained or artificial rule of construction is to be applied to any part of it. If there is no ambiguity', and the meaning of the parties can be clearly ascertained, effect is to be given to the instrument used, whether it is a legislative grant or not. In the case of the Charles River bridge,' the rules of construction known to the English common law were adopted and applied in the interpretation of legislative grants, and the principle was recognized, that charters are to be construed most favorably to the State, and that in grants by the public nothing passes by implication. This court has repeatedly since reasserted the same doctrine ; and the decisions' in the several States are nearly all the same way. The principle is this : that all rights which are asserted against the State must be clearlj- defined, and not raised by inference or presumption ; and if the charter is silent about a power, it does not exist. If, on a fair reading of the instrument, reasonable doubts arise as to the proper interpretation to be given to it, those doubts are to be solved in favor of the State ; and where it is susceptible of two mean- ings, the one restricting and the other extending the powers of the corporation, that c onstru ction is to be adopted which works the least harm to the State./ Bui if there is no ambiguity in the charter, and the powers conferred" are plainly' marked, and their limits can be readily ascertained, then it is the duty of the court to sustain and uphold it, and to carry out the true meaning and intention of the parties to it. Any other rule of construgtiaii would defeat all legislative grants, and overthrow all other contracts. JWhat, then, are the rights of the parties to this controversy ? -""^'^ [After considering the various N. Y. Acts in reference to Bridge Companies, and adopting substantially the construction contended for by plaintiffs, the opinion proceeds as follows :] The legislature, therefore, contracted with this company, if they 1 11 Peters, 544. 290 THE BINGHAMTON BRIDGE. would build and maintain a safe and suitable bridge across the Chen- ango River at Chenango Point, for the accommodation of the public, the}- should have, in consideration for it, a perpetual charter, the right to take certain specified tolls, and that it should not be lawful for anj- person or persons to erect anj' bridge, or establish anj- ferry, within a distance of two miles, on the Chenango River, either above or below their bridge. Has the legislature of 1855 broken the contract, which the legislatures of 1805 and 1808 made with the plaintiffs? The foregoing discussion affords an easy answer to this question. The legislature has the power to license ferries and bridges, and so to regulate them, that no rival ferries or bridges can be established within certain fixed distances. No individual without a license can build a bridge or establish a ferry for general travel, for " it is a well-settled principle of common law that no man ma}' set up a ferrj' for all passen- gers, without prescription time out of mind, or a charter from the king. He may make a ferry for his own use, or the use of his family, but not for the common use of all the king's subjects passing that way, because it doth in consequence tend to a common charge, and is become a thing of public interest and use ; and every ferry ought to be under a public regulation." ^ As there was no necessit}' of laj'ing a restraint on un- authorized persons, it is clear that such a restraint was not within the meaning of the legislature. The restraint was on the legislature itself. The plain reading of the provision, " that it shall not be lawful for any person or persons to erect a bridge within a distance of two miles," is, that the legislature will not make it lawful by licensing any person, or association of persons, to do it. And the obligation includes a free bridge as well as a toll bridge, for the security would be worthless to the corporation if the right by implication was reserved, to authorize the erection of a bridge which should be free to the public. The Bing- hamton Bridge Company was chartered to construct a bridge for gen- eral road travel, like the Chenango bridge, and near to it, and within the prohibited distance. This was a plain violation of the contract which the legislature made with the Chenango Bridge Company, and as such a contract is within the protection of the Constitution of the United States, it follows that the charter of the Binghamton Bridge Company is null and void. Decree of the Court of Appeals of New York reversed, and a man- date ordered to issue, with directions to enter a judgment for the plain- tiff in error, the Chenango Bridge Companj', in conformity with this opinion. [Chase, C. J., delivered a dissenting opinion.] Chase, C. J., Field, J., and Gkiee, J., dissented. 1 Hargrave's Law Tracts, ch. ii, 16; The Enfield Toll Bridge Co. v. The Hartford and New Haven Kailroad Co., 17 Connecticut, 63 ; Hooker v. Cummings, 20 Johnson, 100 ; Bowman v. Wathan, 2 McLean, 383. PARKOTT V. CITY OF LAWRENCE. 291 PAEROTT V. CITY OF LAWEENCE et als. 1872. 2 Dillon U. S. Circuit Court Reports, 332.1 Motion to dissolve temporary injunction restraining tiie defendants, the Messrs. Wilso n, from operating the ferry hereinafter described. Plaintiff is a citizen of Ohio, and a stockholder in the Lawrence Bridge Co. In his bill in equity, he alleges that the maintenance of the ferry infringes upon the rights of the Bridge Co. ; and, to show his right to maintain the bill, alleges that th e Bridge Co. and its oiBcers have refused to proceed in the St,;it,p. n nnnt-q... tr> ol^tain rpHrpsg iv words of succession. But this is now changed bj' our Revised Statutes. Words of inheri- tance or succession are no longer necessary, and, in their absence, we look, not to the term of existence of the grantee to ascertain the estate, but to the amount of interest owned by the grantor at the time he conveyed. All his estate is deemed to have passed by the grant. (1 B. S., 748, § 1.) All this is applicable only to cases where the grant is silent as to the extent of interest conveyed. Where that interest is expressly described, as in this case, the law never, either before or since our j-evision, did violence to the intent of the parties, by cutting down the estate agreed to be conveyed to the measure of the grantee's term of existence. It has long been one of the maxims of the law, that " no implication shall be allowed against an express estate limited by express words." (Viner's Ab., Implication, A., 5 ; 1 8alk., 236.) It is erroneous to say that an estate in fee cannot be fully enjoyed by a natural person, or by a corporation of limited duration. It is an enjoyment of the fee to possess it, and to have the full control of it, including the power of alienation, by which its full value may at once be realized. It is well settled that corporations, though limited in their duration, may purchase and hold a fee, and they may sell such real estate when- ever they shall find it no longer necessary or convenient. (5 Denio, 389; 2 Preston on Estates, 50.) Kent says: "Corporations have a fee simple for the purpose of alienation, but they have only a deter- 300 NICOLL V. NEW YORK AND ERIE RAILROAD CO. minable fee, for the purpose of enjoyment. On the dissolution of the corporation, the reverter is to the original grantor or his heirs ; * but the grantor will be excluded by the alienation in fee, and in that way the corporation may defeat the possibility of a reverter. (2 Kent, 282 ; 6 Denio, 389 ; 1 Comst. R. 509.) Large sums of money are accord- ingly expended by railroad companies in erecting extensive station houses and depots, and by banking corporations in erecting banking houses, because, holding the land in fee, they may be able to reimburse themselves for the outlay by selling the fee before the termination of their corporate existence. The Hudson and Delaware Railroad Company then, bj- their grant from Dederer, took a title in fee, but it was a fee upon condition, there being in the grant an express condition that the road should be con- structed by the company within the time prescribed by the act of incor- poration. This was not a condition precedent, as was argued by the plaintiff's counsel, but a condition subsequent. Kent says (4 Kent, 129) : "Conditions subsequent are not favored in the law and are construed strictly, because they tend to destroy estates." They can only be reserved for the benefit of the grantor and his heirs, and no others can take advantage of a breach of them. (4 Kent Gom. 122, 127; 2 Black. Com., 154.) The plaintiff took his deed of the farm on the first of April, 1844. This was one j-ear before the expiration of the time for constructing the road, and two years before the Hudson and Delaware Eailroad Company conveyed to the defendants. At that time, therefore, there bad been no breach of the condition ; on the contrary, the right of the company was expressly recognized and reserved in the deed. Certainly, then, Dederer, when he conveyed, had no assignable interest. [The concurring opinion of Gaedineb, C. J., is omitted.] Judgment affirmed. 1 This view is now rejected. See Bacon v. Sohertson, post ; also Gray on the Rnia against Perpetuities, §§ 44-51 ; and 2 Kent's Com. 307, note 6. — Ed. WHITE V. HOWARD. 301 SECTION II. Power to Acquire Property by Pevise. WHITE V. HOWAED. 1871. 38 Conn. 342.1 Bill in equitt by the executors of the will of William Bostwick, praying for advice in the construction of the will. The residue, both real and personal, was devised to trustees, to be, applied for the benefit of testator's daughter during her life. If the daughter should die leav- ing no husband or issue, a certain part of the trust fund was to be divided between six societies, pf which the American Tract Society, a New York corporation, was one. The daughter died, leaving neither husband nor children. Counsel for the heirs-at-law of the testator contend that the American Tract Society is incapable of taking real estate in Connecticut bj' devise, and that the residuary clause must fail so far as it attempts to devise real estate in Connecticut to that corporation. ff. White and J. S. Beach, for petitioners. PooKttle and L. N. Bristol, for heirs of testator. J). B. Beach, for heirs of daughter. J. W. Edmunds, Cook, Campbell, G. N. Titus, T. Westervelt, A. L. Edwards, S. E. Baldwin,, for various Societies. Foster J. It is asserted that the American Tract Society can take neither real or personal property under this will. That it cannot take real, because its charter of incorporation, granted by the state of New York, does not confer the power of taking by devise ; that it cannot take personal, because the charter provides that the net income of said society arising from real and personal estate shall not exceed the sum of $10,000 annu- ally. This limit it is claimed has been reached and exceeded, and so the capacity of the society to take property is exhausted. This society was incorporated by a special act of the legislature of the state of New York, passed Maj' 26, 1841. The third section of its charter provides that the corporation shall possess the general powers, and be subject to the provisions, contained in title .3d of chapter 18 of the first part of the revised statutes, so far as the same are applicable and have not been repealed. The title and chapter referred to enumerate the powers of corporations, and the clause which bears directly upon this subject reads thus: "to hold, purchase, and convey such real and personal 1 Statement abridged. Only so much of the opinion is given as relates to one point. Arguments omitted. — Ed. 302 WHITE V. HOWAED. estate as the purposes of the corporation shall require, not exceeding the amount limited in its charter." This charter was amended by the legislature of New York on the Slsfof March, 1866, but as this was after the death both of the testator and of his daughter, that amend- ment need not be particularlj' considered, as it cannot materially affect the question involved. Now it is manifest that this corporation has express power bj^ its charter to hold, purchase and convey real and per- sonal estate, for specified purposes and to a limited amount. There is no express power to take by devise, nor is the power so to take expressly prohibited. We suppose there could be no doubt that this corporation could take bj' devise in New York, if the Statute of Wills of that state empowered corporations generally to take in that manner. The English Statute of Wills, passed in the time of Henry VIII, authorized every person having a sole estate in fee simple of any manors &c., " to give, dispose, will, or devise, to any person or per- sons, except to bodies politic and corporate, bj' his kist will and testa- ment in writing, or otherwise by any acts lawfully executed in his lifetime, all his manors &c., at his own will and pleasure, any law, stat- ute, custom, or other thing theretofore had, made, or used to the con- trary notwithstanding." Thus corporations, by express exception in these statutes, were not enabled to take lands directly by devise in England, and the Statute of Wills of the state of New York makes the same exception. By that statute it is enacted, that all persons, except idiots, persons of unsound mind, married women, and infants, may devise their real estate by a last will and testament duly executed &c, " Such devise may be made to every person capable by law of holding real estate ; but no devise to a corporation shall be valid, unless such corporation he expressly' authorized by its charter, or b}' statute, to take by devise." 3 N. Y. Kev. Stat., 138, (5th ed.). This corpora- tion therefore, prior to the recent amendment of its charter, could not take by devise in New York,^ and such is the decision of their Supreme Court and Court of Appeals in this very case. And so it is earnestly contended that it cannot take by devise in Connecticut. We yield readily to the doctrine laid down in this connection in regard to cor- porations ; indeed it is too thoroughly established to be doubted or questioned. That doctrine perhaps is nowhere better stated than in the ease o^ Heady. Providence Ins. Go., 2 Cranch, 127, by the then illustrious head of the Supreme Court of the United States, the late Chief Justice Marshall. "It [a corporation] may correctly be said to be precisely what the incorporating act has made it ; to derive all its powers from that act, and to be capable of exerting its faculties only in the manner which that act authorizes." Now this corporation stands at the bar of this court claiming the right to take lands within ' Corporations " always had the right at common law to take personal property by bequest ; . . . and I entertain no doubt that they hare that right under our stat- utes." Wright, J., in Sherwood v. Am. Bible Society, 4 Abbott, N. Y. App. Dec. 227, p 231. — Ed. WHITE V. HOWARD. 303 Dur territory by devise. It is clottied with such powers as have been conferred by its charter. Those, a portion of them, as we have seen, are to hold, purchase, and convey real estate. It is not expressly authorized to take by devise, nor is it prohibited from so taking. Can it then take by devise ? Not in New York, as we have seen. There- fore not in Connecticut, say the counsel for the heirs at law, for being a New York corporation, and by the law of that state devoid of power to take by devise, no argument is needed to show its inabihty to take by devise in Connecticut. This conclusion is too hastily drawn. If the inabilitj- to take bj' devise arose out of a prohibitory^ clause in the charter, the conclusion would be legal and logical. But the inability does not so arise. There is no prohibition in the charter ; the inability is created by the New York Statute of Wills, expressly excepting cor- porations from taking liy devise. Now this corporation brings with it from New York its charter, but it does not bring with it the New York Statute of Wills and cannot bring it to be recognized as law within this jurisdiction. There is an obvious distinction between an incapa- city to take created by the statute of a state, which is local, and a prohibitorj- clause in the charter, which everywhere cleaves to the cor- poration. The reasoning is fallacious, not recognizing this distinction. There being no prohibition in the charter, and the power to hold and convey real estate being expressly given, we must look to our own statutes and laws, and not to those of New York, to determine whether or not this corporation can take by devise in Connecticut. The state of New York has partially' adopted the policy of England in regard to devises to corporations, though the English statutes, usu- ally called the statutes of mortmain, have not been reenacted in that state. Those statutes began with Magna Charta, in 9 Henry III, and embrace a succession of acts down to and including 9 George II. Thej- were intended to check the ecclesiastics of the Roman church from absorbing in perpetuity, in dead clutch, all the lands of the king- dom, and so withdrawing them from public and feudal charges. Shel- ford on Mortmain, 2. By the statute of 43 Eliz., ch. 4, known as the Statute of Charitable Uses, lands may be devised to a corporation for a charitable use, and the court of chancery will support and enforce such devises. Whether a court of equity has power to execute and enforce such trusts, as charities, independent of &\\y statute, is a question which has been much discussed, and very high authorities can be quoted both in favor and against the exercise of such a power. We think the latter and better opinion to be in favor of an original and necessary jurisdiction in courts of equity as to devises in trust for charitable purposes, when the general object is sufHciently certain, and not contrary to any positive rule of law. It is unnecessary however to decide this question, for in this state we have no statntes of mortmain ; no exception in our Stat- ute of Wills prohibiting corporations from taking by devise ; aliens, resident in this state or in any of the United States, may purchase, bold, inherit, or transmit real estate, in as full and ample a manner as 304 ■WHITE V. HOWARD. native born citizens ; their wives are entitled to dower ; their children and other lineal descendants may inherit ; and we have besides a stat- ute, passed in our colonial days in 1702, in effect reenacting the statute of 43 Elizabeth, and containing indeed more liberal and comprehensive provisions to sustain devises of this description than are contained in the 43 Elizabeth. That act provides, that " all lands, tenements, or other estates, that have been or shall be given or granted by the Gen- eral Assembly, or any town or particular person, for the maintenance of the ministry of the gospel, or of schools of learning, or for the relief of the poor, or for any other public and charitable use, shall forever remain to the uses to which they have been or shall be given or granted, according to the true intent and meauiig of the grantor, and to no other use whatever." We therefore entertain no doubt that the American Tract Society can take by devise in this state. As to the other objection, that hav- ing an income greater in amount than is allowed by its charter it has exhausted its power to take, it suflSees to say that no such fact is found by the very competent committee whose report is on the record.^ • • •••••• 1 As to the alleged '[distinction between acts of the foreign corporation, which the charter does not authorize, or which it may forbid, and acts which upon the faca^wfthe charter are authorized, but which the general laws of the foreign state may prohibjiZlU '* ■ • * it is submitted that the distinction indicated above is neither convenient nor cor- rect on principle. It is not convenient, for nowadays the vast majority of corporations are incorporated under general statutes, and have no 'charters' properly speaking; so thp distinction is fast losing its applicability. And the distinction seems incorrect on prin- ciple ; it being a curious comity which will rgciignize in corporations powers which, under their own constitutions, they do not possess. \_The constitution of a corporation is composed of all the laws affecting the corporation; and embraces just as much statutes affecting cor- porations generally, as. the particular statute -^enabling act or special charter — imme- diately under which the corporation was organ ized! "The correct distinction seems rather as follows :|jf the validity of an act, forbidden by the legislature of the state incorporating 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 legislature 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 enforced by the c^wts of other states, at least in regard to acts and matters outside of the state enacting i t." \ Taylor on Corporations, 3d ed., ss. 390, 391. " The main objection to allowing corporations, in the State of their creation, to hold lands not occupied and used in, or necessary to, the exercise of their franchises, is based upon the idea that it might be prejudicial to the public interest of that State, to allow cor- porations to become speculators in lands, or to hold them in large amounts, keeping them out of market for an unreasonable time, and preventing improvement, &c. ; but this ob- jection could not well be urged in the State of their creation, against their holding lands in other States, taken in payment of debts justly due them, accruing in the course of their legitimate business. The State in which the land lies might, if it chose, object ; but the State of their creation could not be interested in raising such objection, but so far as it was interested at all, it would seem to be in favor of sustaining the right ; . . ." Christiancy, C. J., in Thompson v. Waters, (A. D. 1872,) 25 Michigan, 214, p. 220. — Ed. AUEOKA, &0. SOCIETY V. PADDOCK; 305 SECTION III. Power to Alienate.^ Power to Mortgage. 1 Kyd on Cokpokations, 1st ed., a. d. 1793, pp. 107, 108. Hav- ing considered the capacity of corporations to take property, we are naturally led, in the next place, to treat of the power they have to dispose of it. All civil corporations, such as the corporations of mayor and com- monalty, bailiffs and burgesses of a town, or the corporate companies of trades in cities and towns, and all corporations established by act of parliament for some specific purpose, unless expressly restrained by the act which establishes them, or by some subsequent act, have, and always have had an unlimited control over their respective properties, and may alienate in fee, or make what estates they please for years, for life, or in tail, as fully as any individual may do with jespect to his own property. AUEOEA, &c. SOCIETY v. PADDOCK. 18T5. 80 Illinois, 264.2 Cbaig, J. This was a bill in equity, brought by appellees, to foreclose a mortgage executed by the Aurora Agricultural and Horticultural Society of Aurora, on the 28th day of December, 1870, to secure the payment of $6000 loaned by John R. Coulter to the society. The court, on a hearing of the cause, rendered a decree direct- ing a sale of the mortgaged premises in satisfaction of the mortgaged debt. The society has prosecuted this appeal, and in order to obtain a reversal of the decree, it is insisted by the counsel for appellant : Pirst — That the society had no power whatever to mortgage. Second — That the mortgage in question was wholly unauthorized. The appellant was organized on the 6th day of March, 1869, under an act approved Eeb. 15, 1855, which authorized the incorporation of agricultural societies. (Gross' Statutes, 1869, page 119.) By the third section of the act, the society was made a body corporate, with power to sue and be sued, to acquire and hold real estate not exceed- ing five hundred acres, to construct the necessary improvements and 1 As to involuntarly alienation see post, chapter as to rights and remedies of creditors against corporate property and franchises. — Ed. 3 Statement, and part of opinion, omitted. — Ed. 306 MOEISETTE V. HOWARD. buildings for its purpose, to have and employ capital, machinery, live stock, etc., not exceeding in value $10,000. While it is true, no section of the act confers direct authority upon the society to sell or mortgage its property, except upon a dissolution of the corporation, yet the act does not prohibit or restrict the society from selling or giving a mortgage upon its real estate. The power to mortgage, when not expressly given or denied, must be regarded as an incident to the power to acquire and hold real estate and make contracts. We understand it to be the common law rule, that corporations have an incidental right to alien or dispose of their lands and per- sonal property, unless specially restrained by the act under which they are organized or by statute. It is said in Angell & Ames on Corporations, p. 153 : " Independent of positive law, all corporations have the absolute jus disponendi nei- ther limited as to objects nor circumscribed as to quantity." The same doctrine is clearly laid down by Kent, vol. 2, page 280. We are, therefore, of opinion, as the society was not prohibited from mortgaging its lands, it possessed the power to do so as an in. cident to the power to purchase and hold real estate and make con- tracts. Decree affirmed. \ MOEISETTE (Plaintiff in Eeeoe) v. HOWAED. Supreme Court of Kansas, 1901. 63 Pacific Reporter, 756. Johnston, J. This action was brought by W. H. Howard, trus- tee, to recover the possession of a stock of merchandise from A. Morisette, sheriff of Cloud county, who had seized it as the property of the Clyde Mercantile Company, at the instance of the creditors of that company. After the action was begun, Fannie L. Holman inter- vened, and alleged that she had previously purchased and paid for the merchandise, and was the actual owner and entitled to the posses- sion of the same. The creditors of the mercantile company, through the sheriff, claimed that the sale of the goods to Holman was fraudu- lent as against them, and was made by the company without power or authority lawfully exercised, and therefore was invalid. The trial resulted in a verdict in favor of the purchaser, and is, in effect, a finding that the sale was made in good faith and for a sufB.cient con- sideration. The honesty of the transaction was decided by the jury, and is no longer open to question ; but there is a contention that the mercantile company had no power to transfer property, and that, if it had, the power was not exercised in a legal and effective manner. The stock of goods, business, and good will which constituted the MORISETTE '0. HOWARD, 307 entire assets of the corporation, were sold to Holman for f 3000 in money, payable in installments, and also for certain real estate in Kansas City, Mo., known as the " Eamsey Flats," upon which there was a mortgage. It is argued that the transfer of the entire assets ajid good will of the corporation would disable it from continuing the business for which it was organized, and that the attempt to do so is ultra vires and void. It is also contended that the acceptance of real property in consideration of the transfer, as well as holding of the same, are not within the purposes for which the mercantile company was organized. Our statute, which is only declaratory of the common law, provides that a corporation shall not employ its stock, means, asse.s, or other property for any other purpose than to carry out the objects for which it was created. Gen. St. 1899, § 1243. The mer- cantile company was organized for the purpose of buying and selling merchandise at retail, but that does not preclude the company from disposing of its property and closing out its business, if it is done in good faith and not for the purpose of delaying or defrauding its cred- itors. State V. Western Irrigating Canal Co., 40 Ka.n. 96, 19 Pac. 349. Counsel cites a number of cases to the effect that a corporation can- not abdicate its corporate functions or relieve itself from carrying out the object of its creation by a transfer of its entire property, or by otherwise disabling itself from performing corporate duties. The doctrine of these cases is applicable to corporations established for quasi public purposes, such as railroads and other companies having the right of eminent domain and other extraordinary privileges ; but it has no application to corporations of a strictly private character, like the one in question. Holmes & Griggs Mfg. Co. v. Holmes & Wessell Metal Co., 127 N. Y. 252, 27 N. E. 831 ; Treadwell v. Manu- facturing Co., 7 Gray, 393 ; Howe v. Carpet Co., 16 Gray, 493 ; Hodges V. Screw Co., 1 E. I. 312 ; Evans v. Heating Co., 157 Mass. 37, 31 N. E. 698 ; 27 Am. & Eng. Enc. Law, 387. The mercantile company exercises no powers of a public nature, and a sale of its property and a retirement from business do not contravene public policy or affect the public in any way. It does not appear that the mercantile com- pany obtained the real estate with a view of carrying on a real estate business, but, on the other hand, that the mercantile business was unprofitable, and the stockholders desired to wind up the affairs of the company by a sale and transfer of the business ; and the real estate was taken in part payment, and as a step in the closing up of the corporate business. It appears to have been done in good faith, with the consent of the stockholders ; and we see no reason why a mere trading corporation, like this one, may not close up its business in the manner pursued in this instance. The money consideration of the sale was used in paying creditors of the corporation other than those contesting ; but it has been held that a corporation has the same dominion and control over the disposition of its assets and prop- erty as a partnership or an individual, and may make any honest 308 COMMONWEALTH V. SMITH. disposition of them, and also that it has the same power and right to prefer its creditors that a partnership or an individual has. Grand de Tour Flow Co. v. Bude Bros. Mfg. Co., 60 Kan. 146, 65 Pac. 848. Under the general finding of the jury, it must be assumed that the company and its agents acted in good faith in making the sale, anfl also in taking real estate in exchange for the goods, not as an invest- ment, but as the most advantageous way of disposing of an unprofit- able business, and closing it up with the least possible loss. [Eemainder of opinion omitted.] Judgment affirmed. COMMONWEALTH v. SMITH et als. 1865. 10 Allen [Mass.), 449. Bill in equity seeking to impeach the validity of a mortgage, exe- cuted on the 30th of July 1855 by the Troy and Greenfield Railroad Company to the defendants as trustees, covering by its terms the fran- chise, railroad, and all other property of the corporation, then owned or thereafter to be acquired, to secure bonds to the amount of $900,000, to be issued to the contractor as part compensation for constructing the railroad, payable in thirty j'ears from date. This mortgage recited the provisions of a contract for the construction of the railroad, dated December 30, 1854, to the effect that such bond should be given ; and It was made subject to a prior mortgage to the Commonwealth to secure state bonds to the amount of $2,000,000, which the Commonwealth were to issue under the provisions of St. 1854, c. 226. The following facts were agreed : Since the execution of the mort- gage to the defendants, the Commonwealth have received two other mortgages upon the railroad and franchise of the Troy and Greenfield Railroad Companj', one of which was dated on the 6th of July 1860, and the other on the 5th of March, 1862 ; and also a surrender from the corporation of all their property subject to redemption under St. 1862, c. 156. On the 4th of September 1862 the Commonwealth took possession of the mortgaged premises in various towns, for breach of condition, in the manner shown bj- various certificates thereof, which are now immaterial. The Commonwealth under their various mort- gages have at various times, from October 1858 to July 1861, advanced to the Troy and Greenfield Railroad Company, large sums of money, amounting in all to several hundred thousand dollars. The corpora- tion, under their mortgage to the defendants, have at various times, from August 1855 to July 1861, issued bonds to the amount in all of $600,000, payable in thirty years from date. All of these bonds were issued in good faith, and are held by bona fide holders, and the corpo- ration have issued no other bonds than the above. Before advancing any money to the corporation, the Commonwealth had actual notice of COMMONWEALTH V. SMITH. 309 the execution of the mortgage to the defendants, and of the fact that a number of bonds had been issued under the same. The amount of capital stock of the corporation which, in December 1856, had been paid in was $143,905.77. Upon these facts, and others which are now immaterial, the case was reserved by the chief justice for the determination of the whole court. D. Foster, for the Commonwealth. The mortgage to the defendants has never been sanctioned or ratified bj' the legislature, and its validity must depend on the question whether the common law powers of railroad corporations in Massachusetts permit them to execute mortgages, and if so to what extent. At common law, a railroad corporation has no power to execute any mortgage. This is clearly the English rule. Winch v. Birkenhead, t&c. Railway, 7 Railw. & Canal Cas. 384. Beman v. Ruf- ford, lb. 48. South Yorkshire Railway, &c. v. Great Northern Rail- way, 9 Exch. 84. Shrewsbury, Se. Railway v. North Western Railway, 6 H. L. Cas. 113. It is also the prevailing opinion in this country. Pierce v. Emery, 32 N. H. 504. Hall v. Sullivan Railroad, 21 Law Reporter, 138. Tippets v. Walker, 4 Mass. 595. Ghj,e v. Tide Water Canal Co. 24 How. 257. Worcester v. Western Railroad, 4 Met. 564. Treadwell v. Salisbury Manuf. Go. 7 Gray, 404. Opinion of Jus- tices, 9 Cash. 611. Salem Mill Dam v. Ropes, 6 Pick. 32. The statutes of Massachusetts confer no such authority, St. 1854, c. 286. Gen. Sts. c. 63, §§ 120-123. [Remainder of argument omitted.] S. Bartlett & C Allen, for the defendants. Even if it be conceded that the franchise to be a corporation and the delegated right of emi- nent domain are inalienable, there is nothing in the nature of a fran- chise to operate a railroad which is of that character. A corporation enters into no contract with the state that it will go on and act under its charter. The security of the state is founded upon the rules which it prescribes and the restrictions which it imposes and the power which it reserves to repeal or alter at will ; and upon the power which resides in courts to enforce the due execution of the powers which are granted, or exact forfeitures in case of abuse. It is quite immaterial what per- sons may compose the corporation ; the individuals may all change, but tlie same duties will rest upon the corporation. The great weight of American authority is in favor of the existence of this power. Jfefor- rill V. Noyes, 3 Amer. Law Reg. (N. S.) 18. Miller v. Rutland, <&c. Railroad,, 36 Verm. 452, and cases cited. Piatt v. New York, &c. Railroad, 26 Conn. 544. Mall v. Sullivan Bailroad, 21 Law Re- porter, 138. Bowman v. Watken, 2 McLean, 393, 394. Union Bank V.' Jacobs, 6 Humph. (Tenn.) 515. Dinsm,ore v. Racine, d;o. Rail- road, 12 Wisconsin, 649. Macon, <&c. Railroad v. Parker, 9 Georgia, 377. Pollard v. Maddox, 28 Alab. 321. Allen v. Montgomery Rail- road, 11 Alab. 454. The course of legislation in Massachusetts has recognized this as a common law power. Sts. 1857, c. 178, §§1,5; 1854, c. 423 ; c. 286, § 3 ; 1841, c. 44; Rev. Sts. c. 39, § 88 ; c. 44, 310 COMMONWEALTH V. SMITH. § 1,1, et sej. The valiilit3- of a conveyance executed by full aiitfaority of a eorporaiion, cannot be questioned by third parties, on the ground that the corporation itself had no authoritj' to execute it. Although a corporation has exceeded its authority, yet the question cannot be tried collaterally, but it is a matter between the corporation and the state. In this case, the Commonwealth stands in the attitude of an individual. The corporation itself, while retaining the consideration could not maintain a bill in equity to escape from its contracts and conveyance. Chester Glass Co. v. Dewey, 16 Mass. 102, and cases cited. Parish v. Wheeler, 22 N. Y. 502. The Commonwealth, taking onlj' a quitclaim title, take subject to all equities of which they have notice. They succeed to the rights of the corporation and to no more. To hold that the Commonwealth can question this conveyance would be to hold that they have greater rights than their grantor had. This cannot 1)«. Parker v. Nightingale, 6 Allen, 344, 345. Joslyn v. Wyman, 5 Allen, 62. Taylor v. Dean, 7 Allen, 251. Vermont, &e. Railroad v. Vermont Central Railroad, 34 Verm. 1. Morrill v. Noyes, ubi supra. Silver Lake Bank v. North, 4 Jolms. Ch. 370. [Remainder of argument omitted.] HoAK J. The question whether the mortgage made to the defend- ants by the Troy and Greenfield Railroad Company is of any validity against the Commonwealth requires the court to give a construction to the provisions of St. 1854, c. 286. To ascertain what the legislature intended to authorize or prohibit by that statute, it will be expedient first to consider what were the powers of railroad companies in rela- tion to the issue of bonds and the making of mortgages at common law, or before the statute was enacted. There seems to be no reason why a railroad corporation should not be considered as having power to make a bond for any purpose for which it maj- lawfully contract a debt, without any special authority to that effect, unless I'estrained by some restriction, express or implied, in its charter, or in sopie other legislative act. A bond is merely an obligation under seal. A corporation having the capacity to sue and be sued, the right to make contracts, under which it may incur debts, and the right to make and use a common seal, a contract under seal is not only within the scope of its powers, but was originally the usual and peculiarly appropriate form of corporate agreement. The general power to dispose of and alienate its property is also incidental to every corporation not restricted in this respect by express legislation, or by " the purposes for which it is created, and the nature of the duties and iiabilities imposed by its charter." Treadwell v. Salisbury Manuf. Co. 7 Gray, 404. But in the case of a railroad companj', created for the express and Bole purpose of constructing, owning, and managing a railroad ; author- ized to take land for this public purpose under the right of eminent flomain ; whose powers are to be exercised by officers expressly desig- nated bj' statute ; having public duties, the discharge of which is the COMMONWEALTH V. SMITH, 311 leading object of its creation ; required to make returns to the legisla- ture ; there are certainlj- great, and, in our opinion, insuperable objec- tions to the doctrine that its franchise can be alienated, and its powers and privileges conferred hy its own act upon another person or body, without authority- other than that derived from the fact of its own incorporation. The franchise to be a corporation clearly cannot be transferred by any corporate body, of its own will. Such a franchise is not, in its own nature, transmissible. The power to mortgage can only be coextensive with the power to alienate absolutely, because every mortgage may become an absolute conveyance by foreclosure. And although the franchise to exist as a corporation is distinguishable from the franchises to be enjoyed and used by the corporation after its creation, 5-et the transfer of the latter differs essentiallj' from the mere alienation of ordinary corporate property. The right of a railroad companj- to continue in being depends upon the performance of its public duties. Having once estabUshed its road, if that and its fran- chise of managing, using and taking tolls or fares upon the same are alienated, its whole power to perform its most important functions is at an end. A manufacturing company may sell its mill, and buj' another ; but a railroad company cannot make a new railroad at its pleasure i The whole reasoning of the court in the case of Whittenton Mills v. Upton, 10 Gra}', 582, in which it was held that a manufacturing cor- poration has no power to make a contract of co-partnership applies with much greater force to the transfer of its. franchise by a railroad company-. No case has been cited in which the exercise of such a power has ever been judiciall}' sanctioned in this commonwealth, where there was not express legislative authority for it ; and the cases in which the legislature has expressly conferred the power, or confirmed its exercise, furnish at once a strong implication that it would not otherwise exist, and afford a solution of the allusion to railroad mortgages which occurs in the statutes. [The learned Judge then held, that the issue of bonds was in con- travention of Statute 1854, chapter 286 ; and said that ' ' the bonds being invalid, the mortgage to secure them is invalid likewise." The opinion concludes as follows :] We find no evidence that the Commonwealth has ever known and sanctioned the irregular and illegal issue of the bonds in question, either directh' or by implication,. Nor do we think that thej' fall within the class of cases in which it has been held that a violation of corpo- rate powers cannot be taken advantage of collaterally. The second mortgage to the Commonwealth gives it a direct interest in the prop- ertj-, and, not being made expressly subject to any prior incumbrance, gives the right to maintain and prove that the supposed conveyance to the defendants was illegal and void. The result to which the point decided leads is this : that, the defend 312 CHADWICK V. OLD COLONY E. E. CO. ants having no title wMcli they can maintain against either of the mort- gages to the Common-wealth, the plaintiffs have a plain, complete and adequate remedy at law for any interference with the mortgaged prop- erty, and the bill must be dismissed. CHADWICK V. OLD COLONY R. E. CO. 1898. 171 Massachusetts, 239.1 Action by the assignee of Wardwell, an insolvent debtor, to recover the sum of $10,000, previously paid by Wardwell to the defendant. The payment was made under an agreement whereby Wardwell was to purchase from the defendant a note and mortgage given by the Martha's Vineyard E. E. Co. to the defendant. The mortgage was on the property and franchises of the M. V. E. E. Co. The note and mortgage were given in accordance with the provisions of St. 1874, c. 372, s. 57, which authorizes a railroad corpo- ration to aid in the construction of any " connecting railroad within the limits of this Commonwealth, whether connected by railroad or steamboat lines, by subscribing for shares of stock in such corpora- tion, or by taking its notes or bonds, to be secured by mortgage or otherwise, as the parties may agree." The note was in terms negotiable, and the mortgage contained a power to the mortgagees to sell the property and franchises at auction for a breach of the conditions of the mortgage. The mortgage was made to two individuals as trustees for the defendant. These trustees were parties to the agreement with Wardwell. After making partial payments under the agreement, Wardwell failed to pay the balance of the purchase money, and became insolvent. His assignee, Chadwick, sued to recover the sums paid. His con- tention was, in substance, that such a mortgage as the statute author- izes could not give a title to the road that could pass by a foreclosure or otherwise to the hands of any natural person, or to any railroad company except the one which aided in the construction by taking the notes or bonds. Kjtowlton, J. . . . The questions raised in the action at common law involve a consideration of the rights of mortgagees of railroads. Our statutes authorize railroad corporations to mortgage railroads in certain cases, but they do not particularly define the rights of the mortgagees. Pub. Sts. c. 112, §§ 62-80. The general language used implies that their rights are like those of mortgagees of other kinds of property, except so far as they are affected by the provisions of the statutes for the management or use of the property. It has sometimes been contended that the franchises of a corpora- 1 Statement abridged. Only part of the report is given. — Ed. CHA.DWICK V. OLD COLONY K. E. CO. 31b tion cannot be conveyed by mortgage in connection witli its property. It is true that the franchise to be a corporation is not assignable, or in any way transferable. The distinction between the franchise to be a corporation, and the franchise to use the corporate property for the purposes for which the corporation was organized, was pointed out by Mr. Justice Curtis in Hall y. Sullivan Railroad, 21 Law Kep. 138, (2 Redf. Am. Ry. Cas. 621,) and has been recognized many times by courts of high authority. In Memphis & Little Bock Railroad v. Railroad Commissioners, 112 U. S. 609, 619, the court says : " The franchise of being a corporation need not be implied as necessary to secure to the mortgage bondholders, or the purchasers at a foreclosure sale, the substantial rights intended to be secured. They acquire the ownership of the railroad, and the property incident to it, and the franchise of maintaining and operating it as such ; and the corporate existence is not essential to its use and enjoyment. All the franchises necessary or important to the beneficial use of the railroad could as well be exercised by natural persons. The essential properties of corporate existence are quite distinct from the franchises of the cor- poration." In the opinion in New Orleans, Spanish Fort, & Lake Railroad v. Delamore, 114 U. S. 501, 509, is this language: "The authority to mortgage the franchises of a railroad company necessarily implies the power to bring the franchises so mortgaged to sale, and to transfer them with the corporeal property of the company to the purchaser. It could not be held that, when a mortgage on a railroad and its franchises was authorized by law, the attempt of the mortgagor to enforce the mortgage would destroy the main value of the property by the destruction of its franchises." In Bank of Middlebury v. Edgerton, 30 Vt. 182, 190, the court says : " The right to build, own, manage, and run a railroad, and take the tolls thereon is not of neces- sity of a corporate character or dependent upon corporate rights. It may belong to and be enjoyed by natural persons, and there is nothing in its nature inconsistent with its being assignable." A similar doc- trine has been stated or recognized in many other cases. See Morgan V. Louisiana, 93 U. S. 217, 223 ; Trash v. Maguire, 18 Wall. 391, 409 ; Chesapeake & Ohio Railway v. Miller, 114 U. S. 176 ; Jackson v. Lude- limg, 21 Wall. 616 ; Jackson v. Ludeling, 99 U. S. 513 ; State v. Sher- man, 22 Ohio St. 411, 428; Meyer v. Johnston, 53 Ala. 237, 327; Chaffe V. Ludeling, 27 La. An. 607 ; Willink v. Morris Canal & Bank- ing Co., 3 Green Ch. 377. So far as we are aware, the cases bearing upon \ the subjects all hold that a mortgage of a railroad and other property of a railroad corporation includes the franchise to use the property for the purposes for which it is held by the corporation. This right ' will pass to a purchaser at a foreclosure sale, whether the sale is to a corporation or to an individual. A mortgage of property necessarily implies the right in the mortgagee to make the property available. This may be either by a sale or by use. There is no good reason why the right to sell should be restricted to cases in which an existing 314 OHADWIOK V. OLD COLONY E. B. CO. railroad corporation is willing to become the purchaser. With such a restriction a mortgage on the property and. franchises of a railroad ordinarily could only be made available through an actual use by the mortgagee, or through a contract under the Pub. Sts. c. 112, § 66, with the mortgagor. . . . The right to foreclose such a mortgage by a sale, and the right of an individual, as well as a corporation, to purchase at the sale and to transfer to others the title which he acquires, is recognized by the St. 1886, c. 142, § 1, which is as follows : " A purchaser of a railroad at a sale under a valid foreclosiire of a legal mortgage thereof, and his grantee and successors in title, shall be subject to all and the same duties, liabilities, restrictions, and other provisions respecting such railroad, or arising from the construction, maintenance, and operation thereof ; and have all and the same powers and rights relating to said railroad, and the construction, maintenance, and operation thereof, which the corporation by which said mortgage was made was subject to, and had at the time of said sale." This statute is declaratory of the law as it exists without legislation in other jurisdictions, and as doubtless it would have been held to be in this Commonwealth upon general principles before the enactment of the statute. It follows that the agreement under which the payments were made by Ward- well was not contrary to public policy, and it gave him equitable rights in the mortgaged property and franchises that furnish a valuable consideration for his payments. It also follows that the original mortgage was not illegal in that it was made to secure a negotiable promissory note. ... The fact that St. 1874, c. 372, § 57, (Pub. Sts. c. 112, § 80,) in authorizing the making of mortgages of railroads, does not expressly mention their franchises, is immaterial. The franchise to use the railroad and its appurtenances goes with the railroad by implication when an entire' railroad is conveyed. That a mortgage can be made originally only to a connecting railroad under this statute does not indicate that the mortgagee can make it available only by operating the railroad, and that the franchises cannot be used by a purchaser. So to hold would put a limitation upon the mortgage, for which there is no warrant in the statute. The grounds upon which the plaintiff seeks to recover are unten- able. Judgment for defendant. J. H. Benton, Jr., for E. E. Co. W. H. Cobb & L. LeB. Holmes, for Chadwick. PITTSBURGH, C. 0. & ST. L. E. CO. V. STICKLEY. 315 PITTSBUEGH, C. C. & ST. L. E. CO. v. STICKLEY. 1900. 155 Indiana, 312.1 Fkom the Eandolph Circuit Court. The controversy related to the ownership of land, conveyed to the railway company in 1866. " This land the company intended to use for depot purposes, but has not done so." The original plaintiff, Stickley, claimed title by adverse possession for twenty-five years. Judgment below for Stickley, and the R. R. Co. appealed. N. 0. Boss and O. E. Ross, for appellant. J. S. Engle and W. G. Parry, for appellee. Bakek, C. J. [After stating the case, and disposing of other points.] Appellant finally insists that land acquired by a railway company for right of way or station purposes cannot be taken from it by ad- verse possession, because a railroad is a public highway, and because the statute forbids interference with the company's exclusive use. A railway company owes certain duties to the public, but it holds and uses its property for the profit of its stockholders. The cases hold- ing that the statute of limitations affords no defense to actions for encroachment upon streets and roads are inapplicable. A railroad is not a public highway in the sense that it belongs to the people. Rail- road officers are not governmental agents whose laches creates no bar. It is true that, for reasons of public policy, a judgment creditor will not be permitted to destroy a railroad by cutting it into parcels on execution sales, if the company resists. Farmers, etc.. Go. v. Canada, etc., R. Co., 127 Ind. 250, 11 L. R. A. 740. If a company voluntarily disable itself to perform its duties to the public, its charter may be forfeited. But there is no reason why a railway company should not be permitted to dispose of land it does not need in fulfilling its public duties, or why, if it disposes of land it does need, it should not be compelled, if it wishes to avoid a forfeiture of its charter, to reac- quire the land by purchase or condemnation. It is true that the statute entitles a railway company to take land in fee and forbids interference with the company's exclusive use. But the right to the exclusive use (which is an incident to every unqualified ownership) must be asserted. If one occupies adversely for twenty years land owned by a railway company, the statute of limitations should raise the presumption of a grant, for the company holds its lands for pri- vate gain as a private proprietor. The State confers the power of eminent domain to enable railway companies to perform efficiently their duties as common carriers. But it is not apparent why the State should be concerned in preventing investors in railway stocks from sustaining loss through the negligence of their agents. Illinois, etc., R. Co. V. Houghton, 126 111. 233, 18 N. E. 301, 1 L. E. A. 213; 1 Statement abridged. Only part of the case is given. — Ed. 316 COLLINS V. TOWNSBND. minois, etc., B. Co. v. O'Connor, 164 111. 650, 39 N. E. 563; Illinois, etc., B. Co. V. Moore, 160 111. 9, 43 N. E. 364 ; Donahue v. Illinois, etc., B. Co., 165 111. 640, 46 N. E. 714; Illinois, etc., B. Co. v. Wake- field, 173 111. 664, 60 N. E. 1002 ; Matthews v. Lake Shore, etc., B. Co., 110 Micli. 170, 67 N. W. 1111 ; Bobhett v. South Eastern B. Co., L. R. 9 Q. B. Div. 424 ; Norton v. London, etc., B. Co., L. E. 13 Ch. Div. 268 ; Erie, etc., B. Co. v. Bousseau, 17 Ont. App. 483. Judgment affirmed. Collins, J., in NOETHERN PACIFIC E. CO. v. TOWNSEND. Supreme Court of Minnesota, July 12, 1901. 86 Northwestern Reporter, 1007, pp. 1009, 1010. Collins, J. . . . The real object of this statute of limitations is to prevent litigation, and to quiet title to land which has remained in the possession of another adversely and in hostility to its true owner for the specified period of time. Such a law is a continual and deci- sive notice to owners that, if they allow others to adversely occupy, use, and improve their land for fifteen years continuously, they must be deemed to have acquiesced in the assertion of the occupants' claim of right to use the same, and to have abandoned all opposition thereto. There may be exceptional instances in which the nature of the right affected or the character of the party in whom the title is vested will prevent the operation of the statute, but the facts here do not come within the exception. That a railway company may be deprived of a part of its right of way by adverse occupation for the statutory period of time, and that such an occupation will bar its right to eject its ad- versary, has often been determined by the courts of this country. Bailway Co. v. Stiokley, 155 Ind. 312, 58 N. E. 192 ; Matthews v. Bail- way Co., 110 Mich. 170, 67 N. W. 1111 ; Littlefield v. Bailroad Co., 146 Mass. 268, 15 N. E. 648 ; Bailroad Co. v. Wakefield, 173 111. 564, 50 N. E. 1002, and cases cited. See, also, upon this subject, 15 Harv. Law Eev. 146. It has also been decided that it is immaterial whether title is held by the company in fee simple, or is a mere easement, or a qualified fee, or an absolute fee ; for, whichever it is, the right con- ferred is a possessory one, and sufficient to sustain an action of eject- ment. Nor is it material whether the statute under which the defend- ant's claim is regarded as one indulging in the presumption of a grant by the true owner or is simply a statute of repose. We have held that it is the latter in Dean v. Goddard, 65 Minn. 290, 56 N. W. 1060. We have also decided that real property belonging to municipal corpora- tions and quasi public corporations can be lost under the statute by adverse possessiqn. City of St. Paul v. Chicago M. & St. P. By. Co. 45 Minn. 387, 48 N. W. 17 ; St. Paul, M. & M. By. Co. v. City of Minneapolis, 45 Minn. 400, 48 K W. 22 ; Village of Wayzata v. G^eat BEADBUEY V. BOSTON CANOE CLUB. 317 Northern By. Co., 50 Minn. 438, 52 N.W. 913.^ Municipal corporations hold real property for public use and for public purposes in a greater sense than do railway companies hold their right of way. There is no reason whatever for determining that the former are subject to the operation of the statute, and at the same time hold that the latter are exempt from the operation of the same law. Such a conclusion would take front rank among the legal absurdities. . . . No matter what rights the beneficiary of the grant may have to use and occupy, if it so chooses, its right of way over and through public domain to the full extent of 400 feet, it is obvious that it must take this right subject to the statute relating to adverse possession. No other conclusion can be tolerated. . . -^ SECTION IV. Power to borrow Money. Power to issue Negotiable Notes? BRADBURY v. BOSTON CANOE CLUB. 1891. 153 Massachusetts, 77. Holmes, J. This is an action upon a promissory note for one hundred and fifty dollars and interest, given by the defendant to the plaintiff for money lent to it by the plaintiff to be used in building a club-house. There is a second count for money lent. At a meeting, duly called, the corporation passed a vote authorizing its treasurer to borrow money in terms sufflcientlj' broad to cover the loan in question. The suggestion that no sufficient notice of the business to be transacted was given, does not seem to us fairly open on the agreed facts. More- over, it would be impossible to argue that the defendant had not recog- nized and ratified the act of its treasurer in borrowing from the plaintiff. 1 But see 1 Dillon, Mun. Corp. Hh. ed. s. 675. — Ed. 2 In the same direction is Midland R. Co. t. Wright, L. E. (1901), 1 Chan. 738. For a different view, see Southern Pacific R. Co. v. Hyatt, California, 1901, 64 Pacifio Reporter, 272. In Sapp V. Northern Central R. Co., 1878, 51 Maryland, 115, it was held, that an ease- ment of a footway by the side of a railroad track cannot be acquired by prescription. So in Canadian Pacific R. Co. v. Guthrie, Supreme Court of Canada, Feb. 19, 1901, it was held, that user of a way across (or under) a railway line " could never ripen into a title by pre- scription of the right of way." 37 Canada Law Journal, 272. — Ed. 's Logically, a discussion of the question whether a corporation has power to incur any indebtedness at all should precede the discussion as to its power to incur indebtedness in the form of borrowing. It is generally assumed that corporations are not bound to do a strictly cash business; but are impliedly authorized to incur debts, in the ordinary way of business, for objects within the scope of the corporate purposes as defined by the charter. See Green's Brice's Ultra Vires 2d Am. ed. pp. 207, 208. And "a limitation upon the right of a corporation to borrow money does not necessarily restrict the right of the company to incur debts ia the sourse of its usual business." 1 Morawetz, Corp. 2d ed. s. 344. — Ed. 318 BATEMAN V. MID-WALES RAILWAY 00. The money was received by the corporation, and was used by it for the purpose mentioned. The only question for us is, whether the corpora- tion acted illegally in borrowing money for the purpose of erecting a club-house upon land of which it held a lease. The defendant is a corporation formed under the Pub. Sts. c. 115, § 2, for encouraging athletic exercises. By § 7 it " may hold real and personal estate, and may hire, purchase, or erect suitable buildings for its accommodation, to an amount not exceeding five hundred thousand dollars," etc. We are of opinion that under these words the defendant had power to take a lease of land and to erect a suitable club-house upon it. Having this power, it was entitled to raise money for the pur- pose. No argument is needed to show that the power at the end of § 7, to receive and hold in trust funds received by gift or bequest, does not confine the corporations to that mode of raising it. Borrowing money is a usual and proper means of accomplishing what the statute ex- pressly permits. See Fay v. Nohle, 12 Cush. 1, 18 ; MorviUe v. Ameri- can Tract Society, 123 Mass. 129, 136 ; Davis v. Old Colony Rail- road, 131 Mass. 258, 271, 275. As this is a suflacient reason forgiving the plaintiff judgment, it is unnecessary to consider whether there are not others. Judgment for the plaintiff. C. J. Mclntire cfc F. Hunt, for the plaintiff. G. H. Sprague, for the defendant. BATEMAN v. MID-WALES EAILWAY CO. NATIONAL, &c., CO. v. SAME. OVEREND, GURNET, & CO. (Limited) v. SAME.- 1866. Law Reports, 1 Common Pleas, 499. These were actions brought by the respective plaintiffs against the defendants, a railway company, incorporated under the 22 & 23 Vict, c. Ixiii., the 5th section of which prescribed the limit of their capital (170,000?.), and the 7th and 9th the mode of raising it; the 37th and 38th impowered them to contract for working the traffic upon the rail- way, and the 1st section incorporated the provisions of the Companies Clauses Consolidation Act, 1845 (8 & 9 Vict. c. 16) ; the Lands Clauses Consolidation Act, 1845 (8 & 9 Vict. c. 18), and the Railwaj-s Clauses Consohdation Act, 1845 (8 & 9 Vict. c. 20) ; but there was no pro- vision in terms impowering them to draw, accept, or indorse bills of exchange or promissory notes. The declaration in each case charged the company as the acceptors of several bills of exchange, drawn respectively by John Watson & Co, !/ ^ Arguments omitted ; also the concurring opinions of Bylf.s J., and Keating J — Ed. BATEMAS V. MID-WALES RAILWAY CO. 319 and purporting to be accepted in the following foi'm : — " Accepted hy order of the board of directors, and payable at the Agra and Master- man's Bank. John Wade, secretary," with the seal of the company annexed. It was proved (or admitted) in each case, that the company had actually commenced business as a railway companj^, and that there was a resolution of a board of directors authorizing the acceptance ot the bills in question, as above. Under the plea traversing the acceptance, it was contended on the part of the defendants, at the trial before Erie, C. J., at the sittings in London after last Hilary Term, that the company had no power by law to accept bills of exchange ; and further, that, assuming that they had such power, the bills declared on were not accepted in such form as to be binding on them. His Lordship directed verdicts to be entered for the plaintiffs in each action, reserving leave to the defendants to move to enter nonsuits if the Court should think the objections or either of them well founded. Karslake, Q. C, obtained rules nisi. ■ E. James, Q.C., and Sir Q. Honyman, for plaintiffs in first and second actions. Kar slake, Q.C., and Holland, for the defendants. Bovill, Q. C, and Mathew, for plaintiffs in third action. Ekle, C.J. These were actions by the indorsees against the accept- ors of several bills of exchange. The defendants pleaded in each action that they did not accept. It appeared that the defendants are a com- pany incorporated by an act of 22 & 23 Vict. c. Ixiii. for the purpose of making and working a railwaj- in Wales. The precise purposes for which they are incorporated, and the powers which are intrusted to them, are limited and defined by the special act and the provisions of the general acts incorporated therewith. I take it to be well estab- lished that a corporation established for a specific purpose cannot bind itself by a contract which is entirely unconnected with the purposes of its incorporation. The question then is, whether this compan}-, being a corporation created for the specific purpose of making a railway, can lawfully bind itself by accepting a bill of exchange. I am of opinion J f that it cannot. The bill of exchange is a cause of action, a contract by '' itself, which binds the acceptor in the hands of any indorsee for value ; and I conceive it would be altogether contrary to the principles of the law which regulates such instruments that they should be valid or not according as the consideration between the original parties was good or bad, — or whether, in the case of a corporation, the consideration in respect of which the acceptance is given is sufficiently connected with the purposes for which the acceptors are incorporated. It would be inconvenient to the last degree if such an inquiry could be gone into. Some bills might be given for a consideration which was valid, as for work done for the company, and others as a security for money obtained on loan beyond their borrowing powers. It would be a pernicious thing to hold that, in respect of the former, the corporation might be sued by 820 BATEMAN V. MID-WALES RAILWAY CO. an indorsee, but in repect of the latter not. So much for the general bearing of the question upon principle. How stands the matter as to authority? Subject to three exceptions, I find no case in which an action upon a bill of exchange or promissory note has been sustained against a corporation : and these exceptions prove the rule. In Slark V. Highgate Archway Company,'^ the company was impowered by its act of parliament to accept bills for the specific purpose : and in the cases of the Bank of England and the East India Company, the negoti- ation of bills and notes was within the very scope and object of their incorporation. In no other case that I am aware of has the liability of a corporation ever been enforced. In JBroughton v. Manchester Water- works Company ^^ the doctrine I have stated is laid down in general terms : and Bayley, J., entertained a doubt whether the holder of a bill of exchange accepted by a corporation could sue the corporation with- ' out shewing that the acceptance was given for a purpose for which it was competent to the corporation to accept. That proposition derives much more force when applied to the case of a corporation created for a specific purpose, as we have judicial notice from the act of parliament that this is. Upon both principle and authority, therefore, I am of opinion that the acceptances given by this company are not binding acceptances, and that the plea is established. MoKTAGUE Smith, J. I am of the same opinion. The plaintiffs are indorsees, and not immediate parties to these bills, and therefore cannot recover unless the bills are in their inception valid instruments. I am clearly of opinion that it was not within the competency of this company to accept bills. It is a company incorporated for the formation of a railway, with a limited capital and limited powers of borrowing monej'. If such a company had power to accept bills of exchange, the conse- quence would be either that they might bind themselves by acceptances to an unlimited extent, or there must in each case be an inquirj^ whether the bill was given for the payment of a just debt, or for a purpose not warranted by their incorporation. I think that it was not the intention i of the legislature that they should accept bills at all. The shareholders I advance their money upon the faith of the limited borrowing powers. This limit would be illusory if the directors could be held bound by acceptances. There is no authority to shew that they have power to f accept, and there is much authoritj' in analogous • cases the other way. It has been held that mining companies, waterworks companies, gas companies, salt and alkali companies, and many others, all more in the nature of trading companies than this company, are incapable of draw- ing, accepting, or indorsing bills of exchange. The first object of a railway is the making of a railway, though they may and practically always do carry on the business of carriers. That corporations created for the purpose of trading may have power to issue negotiable instru- ments is the well-known exception. But that applies where the pri- - a Taunt. 792. 2 3 B. & ^. j. UNION BANK V. JACOBS. 321 mary object of the incorporation is the carrying on of trade as other persons carry it on, viz. by buying and selling. In addition to the cases alreadj' referred to, there is the distinct authoritj- of many emi- nent text-writers that a railway company cannot accept. I will refer to one considerable authority, the late J. W. Smith. In his treatise on Mercantile Law, after speaking of the disability of corporations in general to accept bills he says : ^ " However, it has been considered that a t rading corporation may differ from others as to its powers of contracting, ancl its remedies on contracts relating to the purposes for which it was formed. Thus, such a corporation may in some cases bind itself by promissory notes and bills of exchange ; and it was even held that the Bank of England might without deed appoint an agent for such purposes. But a corporation will not have these extra- ordinary powers unless the nature of the business in which it is engaged raises a necessary implication of their existence." No express power to accept is given to this companj- : nor is there, in mj' judgment, any necessary implication from the purposes for which it was created. For these reasons, I am of opinion that the rule in each of these actions should be made absolute. Rules absolute to enter a nonsuit. ^^O't^a^-^m-^^y^'Z^' ^ ^' UNION BANK v. JACOBS. y<^J-- Z::^ 4L 1845. f> Humphrey (Temiessee), h\b? d,-„-~t-» « ** " • ^ Suit against Jacobs, as endorser of the negotiable note of the Hiwassee Rail Road Company. By Act of the Tennessee Legislature, in 1835-6, the Hiwassee R. R. Co. was created a body corporate, with perpetual succession, with' power to sue and be sued, and to possess and enjoy all the rights, privileges and immunities, with power to make such by-laws, ordi- nances, rules, and regulations, not inconsistent with the laws of ttiis State and the United States, as shall be necessary to the well ordering and conducting the affairs of said company. By the 2d section, the capital stock was declared to be $600,000, and the corporate powers were to commence when $400,000 were subscribed. By the 4th section, after 4000 shares shall have been subscribed, there was to be paid on each share such sum as the company might direct, and in such instalment, not exceeding one fourth of the subscrip- tions in any one year. By the 12th section, if the capital stock of the company be found insufficient for the purposes of the road, the company may enlarge it from time to time, so as not to exceed in the whole $1,500,000, and new subscriptions for that purpose to be opened. 1 7th ed. by Dowdeswell, pp. 105-6. " Statement abridged. — Ed 322 UNION BANK V. JACOBS. By the 13th section, the president and directors are invested with all the powers and rights necessary for the building, constructing, and keep- ing in repair of the railroad ; and they may cause to be made, or con- tract with others for maliing of said road or any part thereof. Under the provisions of the charter, the company was legally organ- ized and proceeded to construct the road. The company became in- debted to Lonergin, a contractor, for grading the road, in the sum of $5000. For the pajment of this debt, the company, by its president/ Jacobs, executed its promissory note to Jacobs, negotiable and payablei at the Union Banic four months after date. The note was indorsed by\ Jacobs to Trautwine, and bj- him to the Union Bank, and the proceeds were passed by the bank to the credit of Lonergin. At maturity the note was protested, and notice given to the endorsers. Suit was brought against Jacobs as endorser. The circuit Judge charged the jury " that the note was drawn by the Hiwassee Eail Koad Company \ in violation of its corporate powers ; that it was therefore null and void ; \ and that the plaintiffs were not entitled to recover." ^ Verdict for defendant, and Judgment. Plaintiff' brought error. Lyon, for plaintiff. W. Swan, Maynard, and Sneed, for defendant. TuBLET, J. [After stating the facts.] It is contended against the plaintiff's right to recover, that there is no power given, either ex- pressly or by necessary implication, by the charter to the Hiwassee Eail Eoad Company, to borrow money or to execute promissory notes ; and that, therefore, the note executed and endorsed to the Bank is void, both as against the maker and endorsers, and that no action can be maintained against them thereon. The construction of the powers of corporations has been a fruitful source of litigation, both in the courts of Great Britain and the United States. In the earlier cases they were construed with great strictness, and a stringent rule, as to the mode of exercising them enforced. Whatever of strictness may have existed in the earlier cases, in re- stricting their power of contracting to the express grant of authority, has been also greatly relaxed, and the doctrine upon the subject been made more conformable to reason and necessity, the powers granted to corporations being now construed like all other grants of power, not according to the letter, but the spirit and meaning. In Angell & Ames on Corporations, page 192, sec. 12, it is said, " a corporation ^ having been created for a specific purpose, can not only make no con- tracts forbidden by its charter, which is, as it were, the law of its nature, but in general can make no contract which is not necessary, either directly or incidentally, to enable it to answer that purpose. In deciding, therefore, whether a corporation can make a particular con- 1 The above is the charge as recited in the opinion of the Supreme Court. The state- ment by the reporter says that the Judge charged "that the Hiwassee Company had no power to borrow money, and that the note given in execution of a void contract was null and void also." — Ed. UNION BANK V. JACOBS. 323 tract, we are to consider, in the first place, w hether its cha rter, or so me statute binding upon it, forbids or pernait s it to make such a contract; and if th e charter and valid statutory law are sile nt_upon the suBjectj in the~secolld place, whet her th e power to make such a con tract may n ot_beimpiied on the part of t he corporation, as direc tly o r incidentally necessary t o en"atfe-Tt-to"fiinri the purpose of its"exist- ence , or, whether the contr act is entirely foreign to tha t purpose. In general, an express authority is not indispensable to confer upon a corporation the right to become drawer, endorser, or acceptor of a bill of exchange, or to become a party to any other negotiable paper. It is sufficient, if it be implied as the usual and proper means to accom- plish the purposes of the charter. — Chitty on Bills, 5th Ed. 17 to 21 ; Baily on Bills, ch. 2, sec. 7, p. 69 (6th Ed.) Story on Bills of Exchange,, sec. 79, p. 94." In the case of Munn vs. Commission Co., 16th John- son 52, Spencer, J., who deliyered the opinion of the court, says : " It has been strongly urged, that, under the act incorporating this com- pany, they could neither draw nor accept bills of exchange. Their power is undoubtedly limited ; they are required to employ their stock solely in adyancing money, when required, on goods and articles manu- factured in the United States, and the sale of such goods and articles on commission. The acceptance of a bill is an engagement to pay money ; and the company may agree to pay or advance money at a future day, and they may engage to do this by the acceptance of a bill." When a charter or act of incorporation and valid statutory law are silent as to what contracts a corporation may make, as a general rule, it has power to make all such contracts as are necessary and usual in the course of business, as means to enable it to attain the object for which it was created, and none other. The creation of a corporation for a specific purpose, implies a power to use the necessary and usual means to effectuate that purpose. — Angell & Ames on Corp. 200, sec. 3. Mr. Story, in his treatise on bills of exchange, p. 95, speaking of the poner of corporations to draw, endorse, and accept bills of exchange, says : " it is sufficient if it be implied as a usual and appropriate means to accomplish the objects and purposes of the charter. But when the drawing, indorsing or accepting such bills is obviously foreign to the purposes of the charter, or repugnant thereto, then the act becomes a nullity, and not binding on the corporation." In the case of the People vs. the Utica In. Co., 15th Johns., Thomp- son, Chief J., who delivered the opinion of the court, saj-s, at page 383, " an incorporated eompan}' has no rights but such as are speciall}' granted, and those that are necessarj' to carry into effect the powers so granted." In the case of Mott vs. Hicks, a quantity of wood was purchased for the president and directors of the Woodstock Glass Company, by White- head Hicks, the president thereof, for which he executed the promis- Bory note of the company at six months. It appears, from a reference 324 UNION BANK V. JACOBS. in argument to the charter of the company, that there was no clause authorizing it to issue bills or notes, or making such, if issued, bind- ing and obligator}' upon the company ; yet it was held by the court, that an action would lie against the corporation upon the note, it hav- ing been executed by its legally authorized agent, acting within the. scope of the legitimate purposes of such corporation. — 1st Cowen 513. In the case of Hayward vs. the Pilgrim Society, 21st Pick. 270, it was held that the trustees of a society incorporated for the purpose of building a monument, in virtue of their authority to manage the finances and property of the society, were held competent to bind the society by a promissory note through the agency of their treasurer. These authorities fully establish the proposition, that in the construc- tion of charters of corporations, the power to contract, and the mode of contracting, is not limited to the express grant, but may be extended by implication to all necessary and proper means for the accomplish- ment of the purposes of the charter. Now, what are necessary and proper means? Mr. Story, as we have seen, says, if the means are usual and appropriate, the implication of power arises. — Story on Bills, 95. Chief Justice Marshall, in the case of McCullock vs. the State of Maryland, 4th Wheaton 413, says : " But the argument on which most reliance is placed, is drawn from the peculiar language of this clause of the constitution. Congress is not empowered by it to make all laws which may have relation to the powers conferred on the government, but such only as may be necessary and proper for carrying them into execution. The word ' necessary ' is considered as controlling the whole sentence, and as limiting the right to pass laws for the execution of the granted powers, to such as are indispensable, and without which the power would be nugatory. That it excludes the choice of means, and leaves Congress, in each case, that only which is most direct and simple. Is it true, that this is the sense in which the word ' necessary ' is always used ? Does it always import an absolute physical necessitj', so strong that one thing to which another may be termed necessary cannot exist without that other ? We think it does not. If reference be had to its use in the common affairs of the world, or in approved authors, we flrjd that it frequently imports no more than that one thing is convenient or useful or essential to another. To employ the means necessary to an end, is generally understood as employing any means calculated to pro- duce the end, and not aa being confined to those single means, without which the end would be entirely unattainable. Such is the character of the human mind, that no word conveys to it, in all situations, one single, definite idea, and nothing is more common than to use words in a figurative sense. Almost all compositions contain words which, taken in their rigorous sense, would convey a meaning different from that which is obviously intended. It is essential to just construction, that many words, which import something excessive, should be understood in a more mitigated sense — in that sense which common usage justifies. UNION BANK V. JACOBS. 825 The word ' necessavj- ' is of this description. It has no fixed character peculiar to itself. It admits of all degrees of comparison, and is often connected with other words, which increase or diminish the impression the mind receives of the urgency it imports. A thing may be neces- sary, very necessary, absolutely or indispensably necessary. To no mind would the same idea be conve3'ed by these several phases." In conclusion upon this subject, he says, page 421, same case : " We admit, as all must admit, that the powers of the government are lim- ited, and that its limits are not to be transcended. But we think the sound construction of the constitution must allow to the National Legislature that discretion, with respect to the means by which the powers it confers are to be carried into execution, which will enable that body to perform the high duties assigned to it, in the manner most beneficial to the people. Let the end be legitimate, let it be within the scope of the constitution, and all the means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional." Now, if this be true doctrine in relation to the constitution of the United States, surely it will not be contended that a more stringent rule will be applied in the construction of the powers of a corporation, than is applied in the construction of the powers of Congress under the constitution of the United States. To apply these principles as established by the authorities cited, to the case under consideration. The Hiwassee Rail Road Company is chartered to construct a rail road, a thing of itself necessarily involv- ing a heavy expenditure of money ; but in addition thereto, it is em- powered to sue and be sued, to acquire and hold, sell, lease and convey estates real, personal and mixed, which necessarily involves the power of making contracts for the same. How shall these contracts be made, both for the construction of the road and the purchase of the property ? It is argued, that the capital stock of the companj^ is the only means provided for the payment, and that no other can be resorted to for that purpose ; or, in other words, that it must pay cash for every contract, for that no power is given by which it may contract upon time ; for if it may create a debt, of necessary consequence, it may create written evi- dences of that debt, and these may be either promissory notes or bills of exchange. It is true, that the capital stock of the company is the source from whence an ultimate payment of the debts of the company must be made, but to hold that a sufficient amount of this stock must al- ways be on band, to pay immediately for every contract made, would be destructive of the operations of the company. By the provisions of the charter, not more than one fourth of the stock shall be called for in any one j'ear, and this upon thirty days notice ; and if, within thirty days after such notice, the amount called for be not paid, the company is authorized to take steps against the delinquent stockholders, to enforce payment. Now, it is obvious that it never was intended that all the stock should be paid in before the company commenced operations 826 UNION BANK V. JACOBS. The early completion of the road was a desirable object for commercia. purposes, and can it be pretended, that the expenditures of the corn- pan}' were to be limited and restricted to the amount of capital actually paid in by the stocljholders, and that under no circumstances were the company to exceed them? If, upon a failure of the means on hand, the stockholders should neglect to paj' upon a proper call, are the works to be suspended until such time as payments could be enforced? Are the persons who may have done work for it, and for which they have not been paid, to wait the slow process of the law before they can receive satisfaction ? And shall the company not be permitted to use its credit in such emergency ? It is so argued for the defendant. This construction of the charter would be ruinous in its consequences. The company might be compelled to suspend all operations at a time when great loss would result from deterioration to unfinished work, and be greatly injured also in its credit. The restriction contended for is too refined and technical. It might have suited the days of the Year Books, when it was held that a corpo- ration could contract for nothing except under its corporate seal ; but it is strange that it should be urged at this day of enlightened jurispru- dence, when the substance of things is looked to rather than forms. A corporation is, in the estimation of law, a body created for special purposes, and there is no good reason why it should not, in the execu- tion of these purposes, resort to anj' means that would be necessary and proper for an individual in executing the same, unless it be pro- hibited by the terms of its charter, or some public law, from so doing. There is no principle which prevents- a corporation contracting debts within the scope of its action ; and, as has been observed, if it may contract a debt, it necessarily may make provision for its pay- ment, by drawing, or endorsing, or accepting notes or bills. It Is not pretended that this power extends to the drawing, endorsing or I accepting bills or notes generally, and disconnected from the purposes I for which the corporation was created. J Tlie corporation, in the present case, was indebted to one of its con- tractors for work done upon the road, for the payment of which, the note in question was drawn. This, upon principle and authority, was a usual and appropriate means for accomplishing the object and pur- poses of the cliarter, viz : the construction of the road. Not onl^' do all the elementary writers sustain this view of the subject, but as we have seen, there are three adjudicated cases in courts of high authority directly in its favor. The case of Munn vs. Commission Company, 15th John. 52 ; the case of Mott vs. Hicks, 1st Cowen, 513 ; and the case of Hayward vs. the Pilgrim Society, 21st Pickering, 270. There has not been produced a single case to the contrary. The cases cited relied upon are decided upon different grounds entirely. [The learned Judge here commented upon the cases relied upon by the defendant.] NOEKIS V. STAPS. 327 We are then of opinion, (to use the words of Chief Justice Mar- shall, in the case of McCuUock vs. the State of Maryland,) that the end proposed by the Hiwassee Eail Road Company, in executing the note in question, was legitimate, and within the scope of its charter ; that as a means it was appropriate, and plainly adapted to that end, which is not prohibited, but consistent with the letter and spirit of the charter and therefore not void, but binding and effectual upon the company and the endorsers. Let the judgment of the circuit court be reversed, and the case be remanded for a new trial.^ SECTION V. Power to make By-Laws. HoBAET, C. J. [?], IN NOEEIS V. STAPS. 1614-1625 [?]. Bobart's Reports, p. 211 a. Now I am of opinion, that though power to make laws is given by special. clause in all incorporations, yet it is needless ; for I hold it to be included, by law, Jn the very act of incorporating, as is alsoThe power to sue, to purchase, and the like. For, as reason is given to the natural body for the governing of it, so thel)ody corporate must have laws, as a politic reason to govern it ; but those laws must ever be subject to the geiieral law of the" realm, as subordinate to it. And therefore, though there be no proviso for that purpose, the law sup- plies it. 1 The reporter has printed, as an appendix to this case (pp. 528-532), an opinion given by Ex-Cliancellor Kent, of New York, as counsel. He came to the conclusion that the company had not power to borrow money ; and-*hat the notes, being illegal and impliedly prohibited, could not be enforced against any of the parties thereto. After stating the substance of the charter provisions. Chancellor Kent said l^nter alia) ; "Here we have the delineation of the powers of the company, and it cannot but strike any attentive reader of the act, that those powers are very specially designated and con- fined within strict and narrow limits. "Tte road is to b^ made out of capital or funds raised by subscriptions, and to be called for from time to time, under reasonable" and guarded checks, from the subscribers or stockholders. The pt)wer of acquiring and making the road, the extent of the e;!£penditures to be bestowed in making it, the source from which the moneys requisite for the work are to be procured, and the manner in which they are to be raised, are all declared in the charter with a certainty and precision that cannot be mistaken ; and here we maj' contidently conclude that the charter contains no power in the president and directors to borrow moiiey upon loan, or to give their promis- sory notes to the lender of money, for the purpose of making the road and carrying into effect the object of the charter. The mode of raising the funds, and the limitation to th* amount of those funds, are specifically prescribed, and all the other modes are necessarily excluded. " That it is an established and deemed a salutary rule in the construction of corporate f powers, where the charter is for special purposes, and the powers and the manner of exe- cuting them specially designated, that no other powers and no other mode of exercising 1 tfie powers granted can be deemed lawfully to exist, I would refer to the English and I American cases." — Ed. ' 828 HORNE V. IVY. CHAPTEE IX. MODE OF CONTKACTING AND OF APPOINTING AGENTS. HOKNE V. IVY. 20 Car. 2. 1 Modern, 18. Trespass for taking awaj' a ship. The defendant justifies as servant under the patent whereby The Canary Company is incorporated, and whereby it is granted, "That none but such and such should trade thither, on pain of forfeiting their ships and goods, &c." and says, that the defendant did trade thither, &c. The defendant demurs. PoLLEXFEN /(:)?• *Ae ^toWj^ contended, that the defendant ought to have shewn the deed whereby he was authorized by the Company to seize the goods ; ^ though he agreed, that for ordinary employments and services a corporation may appoint a servant without deed, as a cook, a butler, &c.^ A corporation cannot license a stranger to fell trees without deed.' Nor can they make a disseisor without deed, nor deliver a letter of attorney without deed.' Secondly, The plea is double ; for the defendant alledges two causes of a breach of their charter, viz. their taking in wines at the Canaries, and importing them here ; which is double. Then there is a clause that gives the forfeiture of goods and imprisonment, which cannot be by patent.* This patent I take also to be contrary to some acts of parliament, viz. 2. £Idw. 3. c. 1. 2. £:dw. 3. c. 2. 2. Etch. 2. c. 1. 11. Mich. 2. c. 2 ; and these statutes the king cannot dispense withal by a non obstante. TwiSDEN, Justice. For the first point, I think, they cannot seize without deed, no more than they can enter for a condition broken with- out deed. Kelynge, Chief Justice. We desire to be satisfied. Whether this is a monopoly or not? — It was ordered to be argued again.* 1 26, Hen. 6. pi. 8. 14 Edw. 4. pi. 8. Bro. "Corporation " 59. 2 Plowd. 95. ' 12. Hen. 4. pi. 17. 4 9. Edw. 4. pi. 59. Bro. "Corporation," 24. 34. 14. Hen. 7. pi. 1. 7. Hen. 1. pi. 9. 1. Roll. Abr. 6 8. Co. 125. Noy, 123. 8 It appears in Keble and Ventris, that judgment was given in this case for the plaintiff, on the first objection, because the defendant justified by the command of a corporation, without shewing that his authority to seize the ship was by a deed ; and S. C. Siderfin says, that the Court also held the bar bad in substance, because the king by his patent cannot create a forfeiture for the doing those things which his patent prohibits. See 3. Peer. Wms. 424. Hardres, 55. Skinner, 135, 224. 8. Co. 125 Palmer, 5. 3. Lev. 353. 1. Salk. 32. 5. Com. Dig. "Trade," (B.). I. Burr B26. 1. Term Rep. 118. BANK OF UNITED STATES V. DANDEIDGE. 329 Marshall, C. J., in BANK OF TJ. S. v. DANDRIDGE. 1827. 12 Wheaion, 64. [In this case the majority of the Court heM, that the acceptance of a cashier's bond by the board of directors of a bank may be proved with- out the production of a written record ; and that, although there was no recorded vote of acceptance, the acceptance might be proved by evidence of the facts that the person acted as cashier and was recog- nized as such by the directors, and that the bond was required to be given as a condition precedent to his so acting, and was actually found among the corporate documents. Marshall C. J., delivered a dissenting opinion, from which the following extracts have been made.] Marshall C. J. The plaintiff is a corporation aggregate ; a being created by law, itself impersonal, though composed of many individuals ; these indi- viduals change at will ; and, even while members of the corporation, can, in virtue of such membership, perform no corporate act, but are responsible in their natural capacities, both while members of the corpo- ration and after the}^ cease to be so, for every thing they do, whether in the name of the corporation, or otherwise. The corporation being one entire impersonal entitj-, distinct from the individuals who compose it, must be endowed with a mode of action peculiar to itself, which will always distinguish its transactions from those of its members. This faculty must be exercised according to its own nature. Can such a being speak, or act otherwise than in writing? Being destitute of the natural organs of man, being distinct from all its mem- bers, can it communicate its resolutions, or declare its will, without the aid of some adequate substitute for those organs? If the answer to this question must be in the negative, what is that substitute ? I can imagine no other than writing. The will to be announced is the aggregate will. The voice which utters it must be the aggregate voice. Human organs belong only to individuals. The words they utter are the words of individuals. These individuals must speak collectively to speak corpo- rately, and must use a collective voice. They have no such voice, and must communicate this collective will in some other mode. That other mode, as it seems to me, must be by writing. A corporation will generally act by its agents ; but those agents have no self-existing power. It must be created by law, or communicated by the body itself. This can be done only b^' writing. If, then, corporations were novelties, and we were required now to devise the means by which they should transact their affairs, or communi- cate their will, we should, I think, from a consideration of their nature, of their capacities and disabilities, be compelled to say, that where other 330 BANK OF UNITED STATES V. DANDEIDGE. means were not provided by statute, such will must be expressed in writing. But they are not novelties. They are institutions of verj' ancient date ; and the books abound with cases in which their character and their means of action have been thoroughlj- investigated. In Brooke's Abridgment (title Corporation), we find manj' cases, cited chiefly from the Year Books, from which the general principle is to be extracted, that a corporation aggregate can neither give nor receive, nor do anj-- thing of importance, without deed. Lord Coke, in his commentary on Littleton (66 b.), says: "But no corporation aggregate of many persons capable can do homage." "And the reason is, because homage must be done in person, and a corporation aggregate of manj- cannot appear in person ; for, albeit, the bodies natural, whereupon the bod3' politic consists, may be seen, jet the body politic or corporate, itself, cannot be seen, nor do any act, but bj* attornej'." So, too, a corpora- tion is incapable of attorning otherwise than by deed (6 Co. 386), or of surrendering a lease for j-ears (10 Co. 676), or of presenting a clerk to a living (Br. Corp. 83), or of appointing a person to seize forfeited goods (1 Vent. 47), or agreeing to a disseisin to their use (Br. Corp. 34). These incapacities are founded on the impersonal character of a corpo- ration aggregate, and the principle must be equally applicable to every act of a personal nature. Sir William Blackstone, in his Commentaries (v. 1, p. 475), enumer- ates, among the incidents to a corporation, the right " to have a" com- mon seal." " For," he adds, "a corporation being an invisible bod}-, cannot manifest its intention by any personal act or oral discourse. It therefore acts and speaks only by a common seal. For though the particular members may express their private consents to any acts, by words, or signing their names, j-et this does not bind the corporation ; it is the fixing of the seal, and that only, which unites the several assents of the individuals who compose the community, and makes one joint assent of the whole." Though this general principle, that the assent of a corporation can appear only by its seal, has been in part overruled, yet it has been over- ruled so far only as respects the seal. The corporate character remains what Blackstone states it co be. The reasons he assigns for requiring their seal as the evidence of their acts, are drawn from the nature of corporations, and must always exist. If the seal maj- be exchanged for something else, that something must j-et be of the same character, must be equally capable of " uniting the several assents of the individuals who compose the community, and of making one joint assent of the whole." The declaration that a seal is indispensable, is equally a declaration of the necessity of writing ; for the sole purpose of a seal is to give full faith and credit to the writing to which it is appended. The seal in itself, not affixed to an instrument of writing, is nothing ; is meant as nothing, and can operate nothing. The writing is the sub« stance, and the seal appropriates it to the corporation. BANK OF COLUMBIA V. PATTERSON'S ADMINISTRATOR. 331 The English cases on this subject are very well summed up by Mr. Kyd, p. 259. The result of the whole appears to be, that in England the general rule is that a corporation acts and speaks b}- its common seal, at least so far as respects the appointment of officers, whose duties and powers are important. In those transactions where the use of the seal would be unnecessarj' and extremely inconvenient, it is frequentlj- dispensed with ; but in all of them, I think, writing is indispensable. In almost everj' case which 1 can imagine, there ought to be and is a record in the corporation books. With respect to the necessity of a seal, the difference is certainly great between ancient and modern times ; and between corporations whose principal transactions respected land, and those which are commercial in their character. This distinc- tion maj' and ought to influence the use of the seal, but not the nse of writing. The inability of a corporation aggregate to speak or act other- wise than by writing, is constitutional, and must be immutable, unless it be endowed hy the legislature with other qualities than belong to the corporate character. The English cases, so far as I have had an oppor- tunity- of examining them, concur in the principle that a corporation aggregate can act only by writing. When a being is created without the organs of speech, and endowed only with the faculty of communicating its will by writing, we need not look in the laws given by its creator for a prohibition to speak or a man- date to write. These are organic laws which it is compelled to observe. If we find, in the act of its creation, an enumeration of duties and powers which are to be performed and exercised by writing, it is evidence that the creator considered it as certain that the creature would write, and that the evidence of its conformity to the will of the creator would be found in writing. It is equivalent to a declaration that it shall act by writing. BANK OF COLUMBIA v. PATTERSON'S ADMINISTRATOR. 1813. 7 Cranch, 299.1 Error to the Circuit Court for the District of Columbia. Indebitatus assumpsit by Patterson's Adm'r against the Bank of Columbia. In 1804, a written agreement was made between Patterson and a committee of the directors, whereby the committee agreed to pay Patterson for carpenter work which he was to do upon a new bank building agreeably' to a certain plan and in a particular manner. In 1807, a sealed agreement was entered into between Patterson and u 1 Statement abridged. Part of opinion omitted. — Ed. 332 BANK OF COLUMBIA V. PATTERSON'S ADMINISTKATOK. committee of the directors, under their private seals. It recites, that a difference of opinion had arisen between Patterson and the com- mittee for building the new banking-house, as to certain work extra of an agreement made between Patterson and the said committee, in 1804, and thereto annexed ; whereupon it was agreed., that all the work done by Patterson should be measured and valued by two persons therein mentioned, according to certain rates, called in George- town old prices, and the sum certified by them should be taken by both parties, in their settlement, as the amount thereof. It was also thereby agreed, that the outhouses, respecting which there had been no specific agreement, should be measured and valued by the same persons in the same manner. Evidence was offered as to the work done, including a paper of par- ticulars of the work, certified by the persons named in the agreement of 1807. It was proved that, while the work was going on, the defend- ants paid Patterson sundry large sums of money on account thereof. Defendants requested an instruction that the plaintiff was not enti- tled to recover, which was refused. Defendants also asked an instruction — that the plaintiff could not recover, unless he should prove that the defendants, after the meas- urement and valuation, expressly promised to pay the amount thereof to the plaintiff; and that the jury could not, from the evidence offered, presume any such promise. This request was also refused. Morsell and Key, for plaintiffs. Jones and C. Lee, for defendants. Stort, J. [The court overruled various objections. Among other points they Jield: 1st, that indebitatus assumpsit will lie to recover the stipulated price due on a special contract, not under seal, where the contract has been completely executed ; and that it is not in such case necessary to declare upon the special agreement : 2d, that a prom- ise which would be implied by law for the extra work, against the cor- poration, was not extinguished, bj' operation of law, by the provisions of the sealed contract of 1807 ; the said sealed instrument merelj' recognizing an existing debt, and providing a mode to ascertain its amount and liquidation. After deciding the above and other points, the opinion proceeds as follows :] The case has thus been considered all along, as though the con- tracts were made between the plaintiff's administrator and the corpora- tion, and indeed some points in the argument have proceeded upon^ this ground. It is very clear, however, that neither the first nor sec- ond ageeements were made by the corporation, but by the committee, in their own names. In consideration of the work being done, the committee, and not the corporation, personally and expressly agree to pay the stipulated price. A question has therefore occurred, how far the corporation were capable of contracting, except under their corpo- rate seal ; and if it were capable, as no special agreement is found in BANK OF COLUMBIA V. PATTERSON'S ADMINISTEATOE. 333 the case, how far the facts proved show an express or an implied con- tract on the part of the corporation. Anciently, it seems to have been held, that corporations could not do anything without deed. 13 H. 8, 12 ; 4 H. 6, 7 ; 7 H. 7, 9. Afterwards, the rule seems to have been relaxed, and they were, for conveniency's sake, permitted to act in ordinary matters without deed ; as to retain a servant, cook, or butler. Plow. 91, b. ; 2 Sand. 305 ; and gradually this relaxation widened to embrace other objects. Bro. Corp. 51 ; 1 Salk. 191 ; 3 Lev. 107 ; Moore, 512. At length, it seems to have been established, that though they could not contract directly, except under their corporate seal, yet they might by mere vote or other corporate act, not under their corporate seal, appoint an agent, whose acts and contracts, within the scope of his authority, would be binding on the corporation. 'Eex v. Bigg, 3 P. Wms. 419 : and courts of equity, in this respect seeming to follow the law, have decreed a specific performance of an agreement made by a major part of a cor- poration, and entered in the corporation books, although not under the corporate seal, 1 Fonb. 296, Phil. ed. note (o.) The sole ground upon which such an agreement can be enforced, must be the capacity of the corporation to make an unsealed contract. As it is conceded, in the present case, that the committee were fully authorized to make agreements, there could then be no doubt, that a contract made by them in the name of the corporation, and not in their own names, would have been binding on the corporation. As, how- \ ever, the committee did not so contract, if the principles of law on this '^ subject stopped here, there would be no remedy for the plaintiff, except against the committee. The technical doctrine, that a corporation could not contract, except under its seal, or, in other words, could not make a promise, if it ever had been fully settled, must have been productive of great mischiefs. Indeed, as soon as the doctrine was established that its regularly ap- pointed agent could contract in their name without seal, it was impos- sible to support it ; for otherwise the party who trusted such contract would be without remedy against the corporation. Accordingly, it \ would seem to be a sound rule of law, that wherever a corporation is acting within the scope of the legitimate purposes of its institution, all parol contracts made b}' its authorized agents, are express promises of / the corporation ; and all duties imposed on them b}' law, and all bene- fits conferred at their request, raise implied promises, for the enforce- ment of which an action may well lie. And it seems to the court, that adjudged cases fullj' support the position. Bank of England v. Moffat, 3 Bro. Ch. Eep. 262 ; Rex v. Bank of England, Doug. 524, and note ib. ; Gray v. Portland Bank, 3 Mass. Rep. 364; Worcester Turnpike Corporation v. Willard, 5 Mass. Eep. 80 ; Gilmore v. Pope, 5 Mass. Eep. 491 ; Andover & Medford Turnpike Corporation v. Gould, 6 Mass. Rep. 40. In the case before the court, these principles assume a peculiar 334 BANK OF COLUMBIA V. PATTERSON'S ADMINISTKATOE. importance. The act incorporating the Bank of Columbia, (act of Marj'land, 1793, ch. 30,) contains no express provision authorizing the corporation to make contracts. And it follows that upon principles ot the common law, it might contract under its corporate seal. No power is directly given to issue notes not under seal. The corporation is made capable to have, purchase, receive, enjoy, and retain, lands, tenements, hereditaments, goods, chattels, and effects, of what kind, nature, or quality', soever, and the same to sell, grant, demise, alien, or dispose of — and the board of directors are authorized to determine the manner of doing business, and the rules and forms to be pursued ; to appoint and pay the various officers, and dispose of the money or credit of the bank, in the common course of banking, for the interest and benefit of the proprietors. Unless, therefore, a corporation, not expressly authorized, may make a promise^ it might be a serious ques- tion, how far the bank notes of this bank were legally binding upon the corporation, and how far a depositor in the bank could possess a legal remedy for his property confided to the good faith of the corpora- tion. In respect to insurance companies also, it would be a difficult question to decide, whether the law would enable a partj^ to recover back a premium, the consideration of which had totally failed. Public policy, therefore, as well as law, in the judgment of the court, fully justifies the doctrine which we have endeavored to establish. Indeed, the opposite doctrine, if it were yielded to, is so purely technical, that it could answer no salutary purpose, and would almost universally con- travene the public convenience. Where authorities do not irresistibly require an acquiescence in such technical niceties, the court feel no dis- position to extend their influence. Let us now consider what is the evidence in this case, from which the jur3' might legally infer an express or an implied promise of the corporation. The contracts were for the exclusive use and benefit of the corporation, and made by their agents for purposes authorized bj- their charter. The corporation proceed, on the faith of those con- tracts, to pay money from time to time to the plaintiffs intestate. Although, then, an action might have laid against the committee per- sonally, upon their express contract, yet as the whole benefit resulted to the corporation, it seems to the court, that from this evidence the jury might legally infer that the corporation had adopted the contracts of the committee, and had voted to paj' the whole sum which should become due under the contracts, and that the plaintiffs intestate had accepted their engagement. As to the extra work respecting which there was no specific agreement, the evidence was yet more strong to bind the corporation. In every way of considering the case, it appears to the court that there was no error in the court below, and that the judgment ought to be affirmed- SHERMAN V. FITCH. 335 SHERMAN V. FITGH. 1867. 98 Massachusetts, 59.1 Bill in equity by assignees of the Northampton Street Sugar Refinery, an insolvent corporation, praying for a decree that a recorded mortgage of personal property, held forth by the respondent as having been made to him by the corporation, might be declared void. The mortgage (dated Jan. 19, 1865) purported, by the lan- guage of the grant, covenants, and condition, to be the mortgage of the corporation. It was signed "George R. Sampson, President of Northampton Street Sugar Refinery. [Seal.] " After a demurrer had been overruled, the respondent filed an answer putting in issue the validity of the mortgage as a mortgage of the cor- poration. The case was reserved for determination by the full court on agreed facts, which were, in part, as follows : — For some time prior to January 19, 1865, the respondent had been, and then was, selling agent of the corporation, which owed him about eighteen thousand dollars, to secure the payment of which by the cor- poration, George R. Sampson, who was president and a director, and was also manager of the manufacturing department, executed and de- livered to him the instrument in question. At that date there were four directors (who were the principal stockholders) : Sampson ; his son ; a nephew ; and one Tappan, who was in Europe. That was the full number of the board required by the by-laws, which also provided that " the board of directors shall manage and control the business, property and affairs of the corporation." The records of the cor- J poration contained no express vote of either directors or stockholders j authorizing the execution and delivery to the respondent of a mortgage ] on the corporate property ; but the execution and delivery of the instru- 1 ment was known to all the directors except Tappan, at the time thereof, " and was approved by them, provided their neglect to make any ob- jection to the same can be construed as an approval." C. H. Drew, for complainants [argument omitted.] D. -P. Kimball, for respondent. Wells, J. [The court held, that the mortgage 'feas, upon its face, the mortgage of the corporation, and not the individual contract of Sampson. The court then said :] The remaining consideration relates to the authority of Sampson to execute the mortgage in behalf of the corporation. It is not necessary that the authority should be given by a formal vote. Such an act by the president and general manager of the business of the corporation, with the knowledge and concurrence of the directors, or with their sub- sequent and long continued acquiescence, may properly be regarded as the act of the corporation. Authority in the agent of a corporation 1 Only so mnch of the case is given as relates to a single point. — Ed. {J36 ROBERTS V. DEMING WOODWORKING CO. may be inferred from the conduct of its officers, or from their knowl- edge and neglect to -make objection, as well as in the case of indi- viduals. Emmons v. Providence Sat Manufacturing Co. 12 Mass. 237. Milledge v. Boston Iron Co. 5 Gush. 158. Lester v. Webb, 1 Allen, 34. The absence of one of the directors in Europe could not deprive the corporation of the capacity to act and bind itself by the acts of the officers in actual charge of its affairs. EGBERTS V. P. A. DEMING WOODWORKING CO. 1892. Ill Nm-th Carolina, 432. This was a civil action, tried at the August Term, 1892, of Buncombe Superior Court, before Bynum, J., for the value of work and labor done for the defendant corporation. The defendant denied the debt, and resisted paj'ment upon the fur- ther ground that the contract was not in writing under seal of the cor- poration, nor signed by an}' authorized officer thereof, and therefore void under section 683 of The Code}^ When the plaintiff rested his case, the Court intimated he could not recover on his own showing j the contract, being above flOO, was not according to the formalities prescribed by The Code, s. 683. Whereupon the plaintiff submitted to a nonsuit and appealed. H. B. Carter, for plaintiff. T. H. Cobb, for defendant. CtARK J. The court ruled that the plaintiff could not recover in any aspect of the evidence, because the contract of the defendant com- pany was not " in writing and under the seal of the corporation, or signed by some officer of the company duly authorized," as required by The Code, s. 683. That section and its purport was construed in Curtis v. Piedmont Company, 109 Nor. Car. 401. It is there held that it 1 applies to executory contracts and protects corporations from enforce- ment of such unless evidenced in the manner prescribed by the statute. But the Court adds that it does not apply to cases where the corpora- tion has received and availed itself of property sold and actually deliv- ered to it. In such cases, the company can be compelled to pay the fair value of such propertj'. In the present case the claim is for work and labor done at a specified rate. The contract not being in writing and signed (or sealed), as required b}' the statute, the plaintiff cannot force the defendant to continue the contract as to the unexecuted part, 1 " Every contract of every corporation, by which a liability may be incurred by the company exceeding one hundred dollars, shall be in writing, and either under the common seal of the corporation or signed by some ofScer of the company authorized thereto."— Code, s. 683. — Ed. EOYAL BANK OF LIVERPOOL V. GEAND JUNCTION, ETC. CO. 337 but the plaintiff is entitled to recover a fair value for the labor already performed, and which the company has accepted, and of which it has enjoyed the benefit. The defendant contends, however, that this action is brought upon the express contract, and that no recovery can be had upon a quantum meruit, and that if this is not so, still there was no evidence to justify a verdict for the value of the services. The complaint is sufficient to warrant a recover}-, either upon express contract or for the value of the work and labor done. Stokes v. Taylor, 104 Nor. Car. 394, and cases there cited ; Fulps v. Mock, 108 Nor. Car. 601 . No amendment was necessar}', but if desirable, the Court, in accordance with the present system of procedure, which, without undue neglect of form, favors a trial upon the merits, could and should have allowed an amendment of the complaint after a verdict in favor of the~plaintiff, if successful. The Code, s. 273. As to the second objection raised, the contract price agreed upon between the authorized agent of the company and the plaintiff, while not conclusive (since the express contract was perforce abandoned) , was certainly some evidence sufficient to go to the jury as to the value of the services. The nonsuit must be set aside, and the case remanded for further proceedings in accordance with this opinion.* Fee Curiam. Error. FosTEB, J., IN EOYAL BANK OF LIVEEPOOL v. GEAND JUNCTION E. & D. CO. 1868. 100 Massachusetts, page 445. A [In an action of contract on corporate bonds.] • yjifj^,)^^^ Foster, J. A sealed instrument conclusivelj' imports a consideration. And these bonds, having been duly executed and delivered, the holders could have maintained an action upon them, if their delivery had been merely gratuitous, and no value had ever been given for them.* 1 For a more elaborate opinion reacMng substantially the same result upon a somewhat similar statute, see Fixley v. W. P. B. B. 33 Calif. 183; and compare Foulke v. B. Co. 6t CaUf. 365. 2 But •«« 1 Morawetz on Corporations, 2d ed. s. 341. — £d. 338 MAYOR, ETC. OF NORWICH V. NORFOLK R. CO. LoED Campbell, C. J., in MAYOE, &c. OF NORWICH V, NORFOLK R. CO. 1855. 4 Ellis 4r Blackburn, p. 443 top. 445. [In an action against a railway company on a covenant under their seal that, unless certain works were completed within twelve months, whether an Act of Parliament then agreed to be obtained should be obtained or not, the company would pay lOOOZ. as liquidated damages.] Lord Campbell C. J. Although the agreement be under seal, we may examine to see whether there was any, and what, consideration for the contract to pay money, when we are to determine whether the contract was or was not ultra vires. The mere circumstance of a cov- enant by directors in the name of the Company being ultra vires, as between them and the shareholders, does not necessaril3' disentitle the covenantee to sue upon it. For example, if the directors of a rail- waj- company were to enter into a contract under the seal of the Com- panj- for the purchase of a large quantity of iron rails and to paj- for them at a fixed price, as the vendor had reasonable ground for suppos- ing that the rails were wanted for the purpose of the railroad, it would be no defence to an action for the price, or for not accepting them, that the rails were illegally purchased on speculation, to be resold by the directors for their own profit. But suppose that the directors of a railway company should purchase a thousand gross of green spectacles, as a speculation, and should put the seal of the Cpmpanj' to a deed covenanting to pay for these goods, here would be a clear excess of authority on the part of the directors ; this excess of authorit}' would necessarily be known to the covenantee ; and, he being in pari delicto, I conceive that the maxim would apply potior est conditio possidentis. This would be an illegal contract to misapply the funds of the Com- pany ; and the illegality might be set up as a defence. So, if, without any consideration whatever, the directors of a railway company were to put the Company's seal to a deed covenanting to paj' a mere stranger lOOOL, this would be ultra vires, to the knowledge of the covenantee, and he could not maintain an action to recover the lOOOZ. from the funds of the Company in fraud of the shareholders. When the excess of authority, with the knowledge of both parties, is shewn by plea, this joint violation of the law, I apprehend, is a bar to the action. It has been contended, I am aware, that the deeds of such companies are to be treated like the deeds of individuals or of common partner- ships. But there seems to be an essential distinction between them. The individual may do what he likes with his own ; and he may bind himself by a deed disposing of his property, however capriciously, and without any consideration, so that no fraud has been practised upon him. In such a case, want of consideration is immaterial; no one is Injured; and there is no illegality to be pleaded. "To look upon AMERICAN NATIONAL BANK V. AMERICAN WOOD PAPER CO. 339 a railway company," says Lord Langdcde, in Colman v. Eastern Counties Railway Company, 10 Seav. 1, 14, " in the light of a com- mon partnership, and as subject to no greater vigilance than common partnerships are, would, I think, be greatly to mistake the functions which they perform, and the powers which they exercise of interference, not only with the public, but with the private rights of all individuals in this realm. "We are to look to these powers as given to them, in consideration of a benefit which, notwithstanding all other sacrifices, it is to be presumed and hoped, on the whole, will be obtained by the public;" "and I am clearly of opinion, that the powers which are given by an Act of Parliament like that now in question, extend no farther than is expressly stated in the Act, or is necessarily and prop- erly required for carrying into effect the undertaking and works which the Act has expressly sanctioned." The same learned Judge, in answer to an argument that the directors may apply the funds of the Company as the}" please, so that their object is to increase the traffic upon the railway, and therebj' to increase the profits of the share- holders, exclaims, " surely that has no where been stated; there is no authority for saying any thing of that kind." '^ " Unless acts so done can be proved to be in conformity with the powers given by the stat- utes under which those Acts are done, they furnish no authority whatever." The equitj' reports abound with cases in which injunctions have been granted against the application of the funds of such companies to pur- poses not authorized by the Acts of Parliament creating them, although professed^ for the benefit of the shareholders : and I apprehend that a contract, against the performance of which an injunction would be granted in equity, must be considered illegal and void at law, on proof that, to the knowledge of both parties, it is bej'ond the power of the directors, and leads to a misapplication of the funds of the Company. AMERICAN NAT. BANK v. AMEEICAN WOOD PAPER CO. 1895. 19 Rhode Island, 139.2 Debt on bond. Certified from the Common Pleas Division on de- murrer to the declaration. Plaintiff sues as purchaser and bearer of certain coupon bonds, issued by the defendant corporation under its corporate seal, payable to the 1 This citation is from the judgment as reported in 16 L. J. N. S. Chancery, 78. The passage in the judgment as reported in 10 Beav. p. 15, is to the same effect, but not in the same language. 2 Statements abridged. Part of opinion omitted. — Ed. 340 AMERICAN NATIONAL BANK V. AMERICAN WOOD PAPER CO. Girard Life Insurance, Annuity and Trust Companj', or bearer, or in case of registrj' to the registered owner. Richard B. Comstock & Rathbone Gardner, for plaintiff. Arnold Oreen & James Tillinghast, for defendant. Stiness, J. Tlie plaintiff sues to recover the principal and interest due on certain bonds and coupons issued by the defendant May 1, A. D. 1890, and payable May 1, 1900, or sooner after five years. The bonds are secured by a mortgage of all the defendant's property, in the State of Pennsylvania, given to a trustee for the bondholders, in which it is provided that in case of default in the payment of interest for more than six months, the principal of said bonds shall be due and payable. The declaration sets out the bonds and mortgage, profert of which is made,. and alleges default in payment of interest for more than six months after demand made therefor. The defendant demurs to the declaration, upon several grounds ; but the two grounds pressed in the argument are th at the bonds are not negStiaole so as to give the p laiiT- tiff a_right o f acTi o p in its own nam Ci and that the terms of the mor t- gage cann ot be imported into the bonds so as to give a r i gli*^ nf a ,pfjftiri_ for the principal thereof before_aat!ij'ity. We think thlit the bonds must be treated as negotiable securities. While there has been some diversity of opinion upon this subject, the tendency of recent decisions and the weight of authority and reason seem now to be in favor of negotiability. At first, before such bonds had become common, courts naturallj' held that thej' lacked the tech- nical and established characteristics of negotiable instruments. Thus, in Crouch v. The Credit Fonder, L. R. 8 Q. B. 374 (1873), it was held that the contract embodied in similar bonds prevented them from being promissory notes, even if they had been without a seal, and that the custom to treat them as negotiable, being of recent origin, could not attach as incident to a contract contrary to the general law. . But in Goodwin v. Robarts, L. R. 10 Exch. 337 (1875), the court, by Cock- burn, C. J., does not concur in thinking the latter ground conclusive. In the recent case Venabks v. Baring, l.. R. 3 Ch. Div. 627 (1892), American railroad bonds, upon the evidence of an American lawj'er as to their negotiability in this countrj', were held to have acquired in England, in the city of London, among English merchants, the char- acter of negotiability. Notwithstanding the limitations of this decision we think it may be taken as practically settling the rule in England. See also In re Imperial Land Co., L. R. 11 Eq. Cas. 478. In this country the decisions have been quite explicit. The principle on which they rest was well stated by Mr. Justice Grier, in Mercer County v. Sacket, 1 Wall. 83 (1863), as follows : "This species of bonds is a modern invention, intended to pass by manual delivery and to have the qualities of negotiable paper ; and their value depends mainly upon this character. Being issued b3' States and corporations they are necessarily under seal. But there is nothing anmoral or contrary to good policy in making them negotiable, if the AMERICAN NATIONAL BANK V. AMEEICAll" WOOD PAPER 00. 341 necessity of commerce require that they should be so. A mere tech nical dogma of the courts of common law cannot prohibit the cp'mmer- cial world from inventing or using any species of security not known in i the last century. Usage of trade and commerce are acknowledged by courts as part of the common law, although they may have been un- known to Bracton or Blackstone. And this malleability to suit thei necessities and usages of the mercantile and commercial world is one of the most valuable characteristics of the common law. When a cor-\ poration covenants to pay to bearer and gives a bond with negotiable ' qualities, and by this means obtains funds for the accomplishment of the useful enterprises of the day, it cannot be allowed to evade the pay- ment by parading some obsolete judicial decision that a bond, for some technical reason, cannot be made payable to bearer. That these secu- rities are treated as negotiable by the commercial usages of the whole , civilized world and have received the sanctions of judicial recognition, | not onl^' in this court {White v. Vermont B. M., 21 How. 575), but of nearly every State in the Union, is well known and admitted." After this strong statement it is needless to say more, except to refer to a few cases to the same effect. Kneeland v. Lawrence, 140 U. S. 209 ; Chicago Railway Go. v. Merchants' Bank, 136 U. S. 268 ; DeHass v. Roberts, 59 Fed. Rep. 853 ; Reid v. Bank of Mobile, 70 Ala. 199 ; National Exchange Bank v. Hartford, Prov. & FishkiVn^ ^. R. Go., 8 R. I. 375 ; 1 Randolph on Commercial Paper, § 74, note 1, and cases cited. It is true that some States have statutes which declare bonds of this kind to be negotiable, (see 2 Amer. & Eng. Ency. of Law, 319), and the point is taken that it is not so in this State, since Pub. Stat. R. I. cap. 142, §§ 6, 7, relate only to promissory notes. We do not think, however, that this fact prevents us from holding these bonds to be negotiable. Such statutes are declaratory and remedial and ars^ evidently not intended to exclude other forms of negotiable paper. Bonds of this sort are clearly within the intent of the statute to give a title by delivery and a right of action to the holder of negotiable paper, and the bonds in effect are promissorj' notes. The special provisions contained therein are not such as to deprive them of their fundamental character of a promise to pay at a certain time. These bonds are not given as collateral to a note secured by mortgage, but the mortgage is security for the bonds themselves. Riker v. Sprague Manuf. Go., 14 R. I. 402. See Gostello v. Growell, 127 Mass. 293, and 134 Mass. 280. [Omitting opinion on remaining point.] Our conclusion is that the demurrer to the negotiability of the bonds ( must be overruled, and the demurrer to the statements of the plaintiffs present right of action must be sustained. 342 yi^tmpN V. WILDER GAS CO. MOEEISOK V. WILDER GAS CO. 1898. 91 Maine, 492.1 WiswELi,, J. This action is to recover the purchase price of cer- tain materials furnished by the plaintiffs for the construction of a gas plant at Rockland. The defendant denied that it had ordered the goods, or received them, or that it had any connection whatever with the construction of the gas plant. For the purpose of showing that the defendant did construct this plant, and that it received and used these articles in the construction, the plaintiffs were allowed to introduce in evidence, against the de- fendant's objection, a written instrumejrt which purported to be exe- cuted by the defendant corporation and which provided for the con- struction of the plant. The attestation clause and form of execution were as follows : — "In witness whereof, said Wilder Gas Company by the hands of its chairman of the executive committee, Luke A. Wilder, thereunto duly authorized, has hereunto set its corporate name and afB.xed its corporate seal, and said Knox Gas and Electric Com- pany by the hand of A. D. Bird, its Treasurer, thereunto duly author- ized, has set its corporate name and afB.xed its corporate seal the year and day above written. The Wilder Gas Co., by Luke A. Wilder, Chairman of Executive Committee (L. S.) Knox Gas & Elec. Co., by A. D. Bird, Treas. (L. S.) " Objection was made to the introduction of this instrument upon two grounds : because it was not a contract between the parties to the suit, and because there was no evidence showing that the contract had been authorized by the defendant corporation. We have no doubt that a contract between the defendant and the owner of the plant, if shown by competent testimony to have been authorized by the defendant, was admissible in evidence for the purpose for which it was introduced. But was there any evidence showing that this instrument was the contract of the defendant ? The signature of Luke A. Wilder, and the fact that at the time he was a member of the board of directors and of the executive committee of the defendant corporation, were proved and admitted ; but there was no evidence by record or other- wise, outside of the instrument itself, and the fact that it bore the corporate seal, that the contract was ever authorized by the corpora- tion, or that Wilder had authority to execute this contract or contracts of this general description, or that the executive committee or any member thereof had any authority to make contracts of this nature. Some cases and text writers have laid down the rule that the pre- sence of the corporate seal upon an instrument that purports to be the contract of a corporation gives rise to a prima facie presumption that it was afBxed by proper authority ; while others very materially limit I Statement and arguments omitted. — Ed. MOEEISON V. WILDEa GAS 00. 343 the rule by saying, that when the seal is affixed by a proper official, in the line of his authority, it is evidence of the assent and act of the corporation. Here the only proof was that Wilder was a director and member of the executive committee. But a director, as such, has no authority to make contracts for his corporation. He may of course have such au- thority, — it may be either express or implied, and it may be shown by record or parol, — but it does not follow that he had, merely from the fact'of his being a director. It is a familiar rule, which requires no citation of authority, that directors of a corporation, as such, have no implied authority to act singly ; they can only act as a board, un- less there be an express or implied delegation of authority to act in- dividually. So far as this case shows, Wilder had no such authority ; he was not the proper official, either to sign the corporate name or to affix the corporate seal ; it was not within the line of his authority. We can see no reason why the presence of a corporate seal, which does not appear to have been affixed by one having authority, or by a proper official in the general line of his authority, should be even prima facie evidence that a contract, signed and sealed by a person, who, so far as the case shows, had no authority to make or execute this or such a contract, was the contract of the corporation. We very much prefer the doctrine laid down by Mr. Morawetz in his work on Private Corporations. We quote from that work a por- tion of section 340 : "It has sometimes been said, that, if the seal of a corporation appears to be affixed to an instrument, the presumption is that it was rightfully affixed, — that the seal is itself prima facie evidence that it was affixed by the proper authority. The meaning of these statements is not perfectly clear. The seal of a corporation cer- tainly has no mysterious virtue not possessed by other seals ; and a contract under seal executed by the agents of a corporation is subject to the same rules of evidence, and of law, as a similar contract exe- cuted by the agents of an individual. In order to prove the execution of a contract purporting to have been executed under the corporate seal, two facts must be shown. !Fir st. it must be shown that th e a gents by whom the contract purports to have been p-yp.mit.Rd wp.tp. in fact agents of th e corporation, having a uthority to exe cute the con - tfatrrin quest ionTor contracts of that general description ; and, s^ c- it must b e shown that the signatures aregenuine, or, in oth er words, tliat these agents jjji Lactually execute that particular contra ct. Themere circumstance t hat a sea l was af&xed to the contract would ^ evidently not tendt o e_stablish ei tEer one of these_ Jacta.!! Here there was sufBcient evidence that Wilder executed the contract in the name of the corporation and affixed thereto the corporate seal. There was no evidence whatever that he had any authority, express or implied, to execute this contract, or contracts of this nature, or any contract whatsoever for the defendant corporation. We think therefore, that the instrument was improperly admitted. Exceptions, sustained. 344 GASHWILBK V. WILLIS. CHAPTEE X. DIRECTOES. SECTION I. Powers of Directors. GA8HWILER v. WILLIS. 3867. 33 California, 11.1 Action for false representation. The defendants -were stockholders in a California corporation, The Ba ffibide Banch Gold a nd SiJjer MiBiag_C^a£any. Plaintiffs averred that they were induced to pur- chase, on October 2, 1865, the company's mine ; and that this purchase was induced by the false representations of defendants as to the terms of a trust deed which had been executed by the corporation to Barney, • June 5, 1865, and under which other parties had a better title than plaintiffs acquired by their subsequent purchase in October. On April 29, 1865, at a stockholders' meeting, at "which all the stock- holders were present, a resolution was unanimously adopted authoriz- ing Turner, Willis, and Hodges, Trustees of the" corporation, for and on behalf of the corporation, to sell and convey the mine to Barney. In pursuance of said resolution, and without any other authority shown, a conveyance was execu|ed to Barney, on June 5, by said Trustees, purporting to be the deed of the corporation. The deed was signed by the Trustees, for and on behalf of the corporation ; the Trustees aflS.xing their own seals, "the said corporation having no seal." _ , On the trial, after proving the adoption of the resolution, plaintiffs offered in evidence the said deed of June 5, which was excluded by the court. To this exclusion, the plaintiffs excepted, and the ease came up on appeal. H. P. Barber, and James H. Hardy, for Appellants. John B. Hall, and Caleb Dorsey, for Eespondents. Sawyee, J. . . . Under the view we take, it will only be necessary to consider the 1 Statement abridged. Argument and parts of opinion omitted. — Ed. GASHWILEK V. WILLIS. 345 first ground of the objection, and the question is, does the instrument in question appear to be the act or deed of the corporation ? "We are not aware of anything in the law, independent of any authority expressly conferred by the corporation, which authorizes Turner, Willis and Hodges, in their official character as Trustees, to execute the instrument in question on behalf of the corporation. No law of the kind has been called to our attention, and we do not under- stand that any is claimed by appellants' counsel to exist. And there is nothing in the nature of those offices, as connected with the ob- ject and business of the company, from which a general power in the Trustees, when not acting as a Board, to sell and convey the mine, mill and other property of the company, could be implied. (McOul- lough Y. Moss, 5 Den. 575.) The parties executing the instrument, then, if they had any authority in the premises, must have derived it from some corporate act ; and the only act proved or relied on is the resolution adopted at the stockholders' meeting before mentioned. This was a meeting of the stockholders only. It was called as such, and the proceedings all appear to have been conducted as a stock- holders' meeting. The resolution authorizing the sale and convey- ance of the mine, etc., in question, was adopted by the stockholders, as such, at said meeting, and not by th e Boa rd of Trustees, or at any meeting of said Board. "The Board of Trustees do not appear to have ever acted at all upon the matter in the character of a Board, but the testimony shows that they acted in pursuance of the said resolution adopted at the meeting of stockholders. Section five of the Act authorizing the formation of corporations for mining purpose's provides : " That the corporate powers of the corporation shall be exercised by a Board of not less than three Trus- tees, who shall be stockholders," etc. And section seven provides that : " A majority of the wh'ole number of Trustees shall form a Board for the transaction of business, and every decision of a ma- jority of the persons duly assembled as a Board shall be valid as a corporate act." (Laws 1853, p. 88, Sec. 5; 7 Hittell's Gen. Laws, Arts. 936, 938.) Conferring authority to sell and convey the corpo- rate property is the exercise of a corporate power, and under these provisions the " corporate powers of the corporation " are to be exercised by the Board of Trustees when the majority are "duly assembled as a Board." When thus assembled and acting the decision of the majority "shall be valid as a corporate act." We find nothing in the Act authorizing the stockholders, either individually or collec- tively in a stockholders' meeting, to perform corporate acts of the character in question. The property in question was the property of the artificial being created by the statute. The whole title was in the corporation. The stockholders were not in their individual capacities owners of the property as tenants in common, joint tenants, copart- ners or otherwise. (Gorham v. Gilson, 28 Cal. 484; Mickles v. 346 GASHWILBE V. WILUS. Rochester City Bank, 11 Paige, 128.) This proposition is so plain that no citation of authorities is needed. Had the stockholders all executed a deed to the propertv^hgy could have conYe^r edjio title, for the reason that it was not in them ( Wheelock v. MouUonei at, 15 Vt. 621) ; and what they could not do themselves they could not by resolution or otherwise authorize another to do for them. The cor- poration could only act — could only speak — through the medium prescribed by law, and that is its Board of Trustee s. As well might the citizens of San Francisco in public meeting assembled, by unani- mous resolution authorize certain Supervisors, designated by name, to sell and convey the City Hall. It is said, however, that the ^usteps were also all present and participatejjiB^tiia-jgpceejjiigs at the stock- holders' meeting and assented tothe resolu tion ; that the resolution therefore was approved by all of the con stituents of the cor poration^ and the powers of the corporati5Sr were~^haustively exercise d. But they were acting in their individua l characters as stockholders, and not as a Board of Truste es. In this character they were not author- ized to perfortfTa corporate act of the kind in question. As well, also, might a valid ordinance be passedb y the ci t izens of San Fran- cisco in public meeting assembled, a t which the Sj ipervisors were al l present and voted in the aflB.rmative. Suc h an ordinance, when sig ned by the Mayor, would have the assent of all the_xjQns±ituente~oftEe nnrpru-atiinri q.H pi pa rly as the resolution in question has in th epresent instance. But such is not th e mode i n which the_ corporation i s author ized by the law o f itsc reation to ma nifest its will an d_exercise it5jc^^ra±e_20wers. The "power to sell and convey couldonIy~be conferred by the Trust'ees when assembled and acting as a Board. This is the mode prescribed. As a Bn a.rrl they crm1fl _perform valid corporate acts, and confer authority within the province of their powers, upon the Trustees individually or upon any other parties to perform acts as the agents of the corporation. We are not without authorities upon this precise point. In Conro v. Port Henry Iron Company, 12 "Barb. 27, the same ques- tion arose. A lease of the company's iron works was made in pursu- ance of a resolution adopted at a meeting of the stockholders at which the Directors were present. It was held that the resolution imparted no authority to make the lease. The Court say : " The stockholders in this case had no power to make a lease or do any other adminis- trative act in the management of the affairs of the corporation. If a lease could be made at all, it could be executed only in pursuance of the act of the Directors, who are the body appointed by the charter for the management of its affairs. It is no answer that the individual stockholders, who were present at the meeting when the lease was ordered, were also Directors. They did not meet as Directors, but as stockholders. The Mayor and Common Council of a municipal cor- poration can only act in the manner prescribed by law. When not acting in their ofiloial character and in the mode prescribed by law, GASHWILEE V. WILLIS. d47 their acts are no more binding tlian those of other private citizens. (See, per Lord Mansfield, Bex v. Head,'^. Burr. 2,515, 2,521.) " (lb. 63.) [After commenting on various cases.] These cases are in point, and none to the contrary have been called to our attention. They are the necessary consequence of the principles established by the great body of the authorities, that the corporate powers of corporations can only be exercised in the mode and through the instrumentalities pre- scribed by tlieir charters. In this c H i RP; f^*" yoanlnti'nn pd"ptprl h^^ t]j ° stockh olders was not a corporate act, and it conferred on th e three Trustees na med^- w hether they constituted the whole m im ber o f Trus tees does not appear — n o authority to perform a corporate a ct, to execut e the deed, or adopt a seal for t he occasion. It not onlv d oes not appear, then, that the instrument in que stinn ia tVip. ar-.t nv deed of thecor poration, but it affirmatively appears that it was e x- ecu ted in pursuajice ot a resolution that conferred no authority whatever to perform a corporate act ; for the plaintiffs themselves introduced in evidence the authority iinder whir h they claim etl the act to have been performed, and upon which they relied. Having done this, we are not at liberty to indulge the presumption that the parties executing the deed on behalf of the corporation were other- wise duly authorized. The authority acted upon is affirmatively shown, and this fails. We think the deed properly excluded. But even if it had been admitted without further proof of the authority of the parties to execute it, it would not have availed the plaintiffs. As there does not appear to have been any authority in the parties assum- ing to act, to sell or convey at all, it is unnecessary to discuss the other questions. •Judgment affirmed. Mr. .Justice Rhodes did not express an opinion. By the Court, Sawtee, J., on petition for rehearing : 'The consequences assumed as the only basis of the argument in the petition for rehearing do not follow from anything determined or in any way suggested in the opinion in this case. We have nowhere held, or even intimated, that the Board of Trustees of a corporation Can convey all the property of the corporation necessary to enable it to carry on the business for which it was organized, or do anything else destructive of the objects of its creation without the consent of its stockholders. We have not even held that it was competent for the Trustees, acting as a Board, to authorize the conveyance of the property now in question without the consent of the stockholders. There was no such question in the case. We simply held that the stockholders themselves could not authorize the Trustees, acting as individual Trustees, or anybody else, to convey it — that nobody could convey it unless authorized by some act of the Board of Trus- tees, acting as a Board. It may be conceded for the purposes of this case that the Board of Trustees itself could not authorize a convey 348 ELLEEMAN V. CHICAGO JUNCTION K. 00. ance of the property in question without the consent of the stock- holders. But it is unnecessary to consider that question, for the case does not present or even suggest it. It will be time enough to decide that question when it arises. Eehearing denied. Gkeen, V. C, IN ELLEEMAN v. CHICAGO JUNCTION E. CO. 1891. 49 New Jersey Equity, 219, pp. 231-233. Gbebn, Vicb-Chancelloe. The bill is filed by a stockholder in behalf of himself and any other applying stockholders against the corporation to prevent its carrying a contract, made by the directors, into execution, on the ground that the same is not legally within the powers conferred by its charter. No question is raised as to the validity of the organization, or the legality of the purposes stated in the certificate of incorporation as not contemplated by the Corpora- tion act, if, indeed, such questions could be raised by a private person in this court. National Docks Co. v. Central R. R. Co., 5 Stew. Eq. 755 ; Misabethtown Gas Light Co. v. Green, 1 Dick. Ch. Rep. 118. He appeals not through or by the attorney-general, but bases his claim for relief solely upon his ownership of certain shares of the stock of the Junction Company. The theory of the suit is, that v the agreement will be an injury, primarily, to the company and, in- cidentally, to him as a stockholder ; that appeal to the present direc- tors to protect the company and stockholders will be futile, as they have decided o therwi set_and^ therefore, ^fae^s ks Xo Ij g ^erm it ted t o act for himself and others in like position. The only damages with which complainant, as a stockholder, can be threatened are to the security of his investment, and to the dividends he expects to receive — whether the latter is imminent depends mainly upon the probable results of the arrangement challenged, as a business operation. As a holder of preferred stock, his fixed yearly dividend is secured by the articles of incorporation, while the divide nd on his common stock must depend on the success o t the bus iness „and the action of the directors, for such divi dend s m ay be lawfully_4iniin- ished if the diversion of the same be for a purpose whj ^ is w ithin the corporate powers, unless the non-declaration of them be in fraud of the rights of the stockholders. Beach Corp. p. 601. Nor is his right to challenge action which he may deem dangero us to h is investment absolute. Individual stockholder's^^SnoF'question, in judicial proceedings, the corporate acts of directors, if the same are within the powers of the corporation, and, in furtherance of its purposes, are not unlawful or against good morals, and are done in good faith and in the exercise of an honest judgm ent. Ques tions of policy of management, of expediency of contra cts or action, of HOYT V. THOMPSON'S EXECUTOR. 349 adequacy of consideration n ot grossly disproportionate, of lawful a ppro priation of corporate funds to advance corporate interestSj _are left solel y to the hofTfisTriTecisron^ the dirpp.tnrs if t.hp.ir p nwprs^a.re •wi lRout limitation and free from restra.int. To hold o therwise -JEoald be to substitute the judgment and discretio n "^^ ntViprg in the pla gaof those determined on by the snhArnt^ nf inp.m-pr(Ta|;jpn Park v. Grant Locomotive Works, 16 iSt&wTEq. 114 ; affirmed, 18 Stew. Eq. 244 ; JElkins V. Camden and Atlantic R. R. Co., 9 Stew. Eq. 241 ; Rutland and B. R. Co. y. Proctor, 29 Vt. 93 ; Morawetz Corp. § 243 ; Beach Corp. p. 388. By the Corporation act (Rev. p. 177 § 1 H 6) power is giyen to cor- porations to make by-laws for the regulation and government of its affairs. By the by-laws of the Junction Company, article 2, section 1, it is provided that the businesg ^f the company shall be ma jiaged^and^oB- dnp.tp.d Jby a. Ving yd of ten direct ors. The bill alleges that the board of directors of the Junction Com- pany did, by a resolution, order and direct the execution of the con- tract in question, and the answ er of the company states that each an d every director of the co m pa.ny h a. s voted in fa.vor o f the a,greemeTit as bein g for the best interes ts^ j)f theeempany. The agreement, then, has the unanimous sanction of the board of directors, to whose judgment and determination the management and control of the affairs of the company has been entrusted without restriction. [The court held, that the covenants entered into by the company in this contract " are referable to the objects stated in their certificate of incorporation or to powers incident to the corporation, and are au- thorized by its charter."] HOYT V. THOMPSON'S EXECUTOE. 1859. 19 New Torh, 207.1 CoMSTOCK, J. . . . The precise point in controversy is, whether the plaintiff or one' Abraham G. Thompson became entitled to a bond and mortgage of $60,000, executed in November, 1839, by the Long Island Eailroad Company, a corporation chartered by this State, to the Morris Canal and Banking Company. The last mentioned company was a New Jersey corporation, and held and owned this security until December 9, 1840, when an assignment of it was made to the State of Michigan. Thompson claimed title and acquired possession of the security under this transfer, having purchased it at auction from the agent of Michigan, in May, 1843. The plaintiff claims under a trans- fer, junior in point of time, made to one Sanxay his immediate aS' 1 Only part of the report is given. — Ed. 350 HOYT V. THOMPSON'S EXECUTOR. Ctignor, by the receivers of the Morris Canal and Banking Company, on the 13th of November, 1845. Those receivers were appointed in January, 1842, by the Court of Chancery of the State of New Jersey, in a suit instituted against the company in August, 1841, by Eichards and Selden, who were its judgment creditors. If the plaintiff can impeach the prior transfer to the State of Michigan and the title which the plaintiff derived from that State, no doubt exists in regard to the validity of his own title. The validity of that assignment to Michigan is denied by the plaintiff on two grounds : First, that it was made by the executive officers of the company without the authority of the board of (^irectors, in other words, that it was not the act of the cor- poration, and for that reason was utterly void. Second, on the ground that it was voidable as to creditors, under an act of the Legislature of New Jersey, passed February 16, 1829, " To prevent frauds by incor- porated companies." These two grounds of objection have no depend- ence on each other, and they will, therefore, be separately considered. First. The Morris Canal and Banking Company was authorized by its charter, granted in 1824, to construct a canal in the State of New Jersey, and also to carry on the business of banking ; to buy and sell bills of exchange ; to deal in public and corporate stocks ; to loan money on bond and mortgage ; to receive money or property in trust and to execute trusts. Its capital stock, for the purpose of building the canal, was fixed at f 1,000,000, and $1,000,000 more could be added for the purposes of banking. The number of directors, originally fifteen, was increased by a supplementary act to twenty-three, and it was declared that " the corporate powers of the company should be exercised by the board." Authority was given to establish such by- laws, ordinances and regulations as should be deemed necessary or convenient for the transaction of its business. A code of by-laws was adopted, one of which provided for stated meetings of the directors, in each week, and declared that five directors, including the president, should form a quorum for the transaction of the ordinary business of the company. In the intervals between the stated meetings of the directors, the business and affairs of the company were to be managed by the standing and special committees, whitii were to report their proceedings for the approbation of the board. The same by-laws set forth certain acts which could not be done without the concurrence of a majority of all the directors, such as the election of officers and the filling of vacancies in the board. We come now to the transaction between the company and the State of Michigan, examining, in this connection, only the question whether the transfer to that State of the bond and mortgage in con- troversy is to be regarded as made by the authority of the corporation. In the course of its dealings the company became largely indebted to Michigan, and in the year 1840, the State was pressing for payment ; the amount due then being about |800,000. The negotiations, which were carried on for a considerable time,' resulted in an agreemenl^ HOYT V. THOMPSON'S EXECUTOR. 851 dated December 9, 1840, professing to be between the company of the one part, and the State of Michigan of the other, whereby certain securities held by the company were to be delivered over to the State, and the debt was to be paid by installments, extending through a period of some ten or twelve years. The State, on its part, agreed to receive the debt in those installments, and to extend the time accord- ingly, provided the payments were made pursuant to the stipulation. The securities mentioned in the agreement consisted of various bonds, mortgages, stocks and -bills receivable, amounting nominally to be. tween $600,000 and f 600,000 ; and among them was the bond and mortgage of the Long Island Railroad Company, which is the subject of the present controversy. The agreement was under the corporate seal of the company, and was signed on its behalf by its president and cashier. It was carried into effect by an actual transfer and de- livery of the securities specified. On the part of the plaintiff it is insisted that the agreement and transfer were wholly inoperative and void, on the ground that they were never formally authorized by the board of directors. It appears, however, from the recorded proceed- ings of the board, that at a meeting held on the 6th of November, 1840, there being present a quorum of five members, in accordance with the by-law above mentioned, the negotiations with Michigan were mentioned by the president as being nearly completed ; and it also appears that at a meeting held on the 31st of December, 1840, the same quorum being present, including the president, a formal resolu- tion was adopted, approving of the said agreement entered into on the 9th of the same month, and directing the executive ofS.cers of the company to comply, in all respects, with the provisions thereof. The company, at the time of this transaction, was embarrassed in its aJffairs, but it kept its ofiice open and continued to transact business until September, 1841, when it went into open insolvency. During the period of its existence remaining after these arrangements were made with Michigan, no objection thereto appears to have been made on the part of the company. On the contrary, there seems to have been entire acquiescence, and the company received the advantages result- ing from an extension of a very large debt, which had been pressed with great earnestness, and which it had no present means of paying. The first inquiry suggested by the facts stated is, whether the by- law of the company authorizing a quorum of five directors, including the president, to transact ordinary business, was a valid negotiation. We are clearly of opinion that it was. The charter of the company, it is true, declared that its powers should be exercised by a board of twenty-three directors, and it may well be conceded that in the absence of any different regulation, a majority of the whole number would be necessary to constitute a legal quorum for the transaction of any business whatever. But it would be a very extraordinary construe tion of the charter in this respect, to hold that the board of twenty- three directors, or a majority thereof, must meet and act whenever 352 HOYT V. THOMPSON S EXECUTOR. any corporate power was to be exercised, and that no delegation of authority could be made to subordinate agents, to committees, or to a quorum consisting of a smaller number. The board of directors of a corporation do not stand in the same relation to the corporate body which a private agent holds toward his principal. In the strict rela- tion of principal and agent, all the authority of the latter is derived by delegation from the former, and if the power of substitution is not conferred in the appointment, it cannot exist at all. But in corporate bodies the powers of the board of directors are, in a very important sense, original and undelegated. The stockholders do not confer, nor can they revoke those powers. They are derivative only in the sense of being received from the State in the act of incorporation. The directors convened as a board are the primary possessors of all the powers which the charter confers, and like private principals they may delegate to agents of their own appointment the performance of any acts which they themselves can perform. . The recognition of this principle is absolutely necessary in the affairs of every corporation whose powers are vested in a board of directors. Without it the most ordinary business could not be carried on, and the corporate powers could not be executed. It is upon this principle, not less than upon the express power contained in the charter to enact by-laws, that the by-law in question, adopted by the Morris Canal and Banking Com- pany, rests. It was, in substance and effect, a regulation which con- stituted a subordinate agency to conduct the ordinary business of the corporation. The persons composing the agency would change accord- ing as the quorum of five or more directors attending the meetings might be constituted of different individuals. But if the board could delegate the power of transacting business to five or more individuals named, no doubt exists that the same authority might be imparted to a shifting quorum, composed of the same number. In the next place, were the arrangements made with the State of Michigan, " ordinary business," within the meaning of the by-law ? The ordinary business of the corporation kad, I think, no limit short of the varied and extensive affairs 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 business of the company, then it seems to me impossible to suggest any definition of those terms, 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 neces- sarily follow that the quorum designated took all the incidental au- thority which the whole board would possess in the execution of the same powers. In the operations of banking, which constituted one portion of the ordinary business, it might become necessary to borrow money and the power to do so existed. (Curtis v. Leavitt, 15 N. Y. 9.) As debts could be created, the incidental power of paying them BUREILL V. NAHANT BANK. 353 cannot be doubted. So the condition of the company's affairs might require a negotiation with creditors and the postponement and secur- ing of their demands. To secure a debt and procure its forbearance in a period of embarrassment would not, by any means, be an extraor- dinary act, in the sense of the by-law, although it might be very unusual in the magnitude and importance of the transaction. In the case before us, if the debt due to the State of Michigan had been much smaller in amount, and the company had pledged only an in- considerable portion of their assets to secure its payment at a future day, in order to avoid the inconvenience of a present liquidation, no one would claim that such a transaction was extraordinary. But can the validity of such an act depend on the inquiry whether the debt and the security pledged were a small or a large debt and security ? If so, then at what sum or value would the transaction cease to belong to the ordinary business of the corporation, and become extraordinary, so as to exclude the authority of the quorum constituted by the by- law ? If this question 'cannot be answered, as plainly it cannot be, the conclusion would seem to follow that the mere magnitude of the arrangements with Michigan furnish no ground for impeaching their validity. In adopting this conclusion, it is assumed that those arrange- ments were entered into, not for the purpose of arresting the business of the corporation, but as a means of avoiding present embarrass- ments, and with the design of facilitating the further and continued prosecution of its ordinary business. That such were the motives which prompted the negotiation seems to have been found as a con- clusion of fact by the court from which the present appeal is taken, and the evidence certainly tends to that result. As already stated, the transfer of securities, including the one in question to Michigan, was made with the previous knowledge of the quorum of directors constituted by the by-law, and the same quorum subsequently, by a formal resolution, expressly ratified and approved the transaction. Upon that authority, therefore, the transfer rested ; and for the reasons which have been given, we think the authority was sufficient. [Remainder of opinion omitted.] Shaw, C. J., in BUEEILL v. NAHANT BANK. 1840. 2 Metcalf (Massachusetts), 163, pp. 166, 167. Shaw, C. J. ... It was contended that a board of bank directors exercising themselves a delegated authority, have no power to dele- gate an authority to any committee to alienate or mortgage real es tate, and that if the authority of the committee was to convey, they had no power to mortgage. To both parts of this objection we think 354 HUTCHINSON V. GREEN. there is an answer. In the first place, we think the exception takes much too limited and strict a view of the powers of bank direc- tors. A board of directors of the banks of Massachusetts is a body recognized by law. By the by-laws of these corporations, and by a usage, so general and uniform as to be regarded as part of the law of the landfthey have the general superintendence and active manage ment of all the concerns of the bank, and constitute, to all purposeSi of dealing with others, the corporati^. We think they do not exer- cise a delegated authority, in the sense in which the rule applies to agents and attorneys, who exercise the powers especially conferred on them and no others. We think, therefore, that a board of direc- tors may delegate an authority to a committee of their own number, to alienate or mortgage real estate ; that an authority to convey necessarily implies an authority to execute suitable and proper instru- ments for that purpose ; and, in case of a corporation, to affix the corporate seal to an instrument requiring it.* Black, J., in HUTCHIlSrSON v. GREEK 1886. 91 Missouri, 367, pp. 375, 376. Black, J. ... It is further insisted that the board of directors had no power to make the assignment without the consent of the stock- holders. A corporation may, like an individual, make an assignment under the statute of this state relating to voluntary assignments. ShoohUy V. Fisher, 75 Mo. 498. By whom, then, is the power to be exercised ? By the directors, the stockholders, or by both ? Where the powers of a corporation are vested in a board of directors, they may, unless restricted, do whatever the corporation Djight. Field ovs Corp., sees. 146 and 162. l^ow, while, by express statute, a vote of' the stockholders of these corporations is essential to enable them to increase or diminish the stock, to change the business, to issue pre- ferred stock, and to convert bonds into stocks, still, in general, article 8, of chapter 21, Eevised Statutes, contemplates that the business will be conducted by a board of directors. Section 930, among other things, provides that " the property or business of the corporation shall be conducted and managed by directors." Certain it is there is nothing in the statute under which this corporation was created, and by which it is governed, or in its articles of association, or bylaws, which limits or restricts the powers of the directors in the disposition of the pro- perty. The corporation then has the power to make an assignment, ' Under a Massachusetts statute of subsequent date, no conveyance or mortgage of the real estate of a corporation, or lease thereof for more than one year, shall be made " unless authorized by a vote of the stockholders at a meeting called for the purpose." Pub. Sts. ch. 106, s. 23. — Ed. CHICAGO CITY RAILWAY CO. V. ALLEETON. 355 and that power being vested in tlie directors without restriction, it must follow that they, and they alone, are authorized to make it. It is the duty of the directors to care for the creditors, and when the I corporation becomes crippled and unable to meet its obligations in the/ usual course of business, it is competent for the directors to make an assignment, and this they may do without the consent of the stock- holders. This conclusion has the support of adjudications of this and' other courts. Cheiv v. Ellingwood, 86 Mo. 260 ; Dana v. The Bank of the United States, 5 W. & S. (Pa.) 223 ; BeGamp v. Ahoard, 52 Ind. 473. The directors may, with propriety, consult with the stockhold- ers, but under the circumstances just stated, and in the exercise of their best judgment, they may make the assignment even against the expressed will of the stockholders. Of the cases relied upon by the appellants, that of Abbott v. American Hard Bubber Co., 33 Barb. 580, was not an assignment for the benefit of creditors. There the trus- tees attempted, through the form of a sale, to secure to themselves the property of the corporation at the expense of the other stockhold- ers. The sale was voidable, as to the stockholders not consenting, though a majority agreed to the transaction. CHICAGO CITY EAILWAY COMPANY v. ALLEETON. 1873. 18 Wallace (U. S.), 233. Appeal from the Circuit Court for the northern district of Illi- nois ; the case being thus : The Chicago City Railway Company was a corporation owning a street railroad in Chicago. The directors of the company, without consulting the stockholders or calling a meeting of them, resolved to increase the capital stock of the company from $1,250,000 to $1,500,- 000. To this one Allerton, who was a stockholder, objected, and filed a bill praying for an injunction to prevent the increase. His position was that it could not be lawfully made without the concurrence of the stockholders, and in support of this view he relied upon the constitu- tion of Illinois, adopted in July, 1870, by the thirteenth section of the eleventh article of which it is declared as follows : — " No railroad corporation shall issue any stock or bonds, except for money, labor, or property actually received and applied to the purposes for which such corporation was created, and all stock-dividends, and other fictitious in- crease of the capital stock, or indebtedness of any such corporation, shall be void. The capital stock of no railroad corporation shall be increased for any purpose, except upon giving sixty days' public notice in such manner as may be provided by law.'' He also relied on an act of the legislature of Illinois, passed March 26th, 1872, to execute and carry out the above provision of the consti' 356 CHICAGO CITY EAILWAT CO. V. AMiEETON. tiition, by which, amongst other things, it was enacted that no corpo< ration should change its name or place of business, increase or de- crease its capital stock, or the number of its directors, or consolidate with other corporations, without a vote of two-thirds of the stock at a stockholders' meeting. The railway company, in its answer, relied upon its charter, granted ^February 14th, 1859, the third and fourth sections of which were as follows : " Section 3. The capital stock of said corporation shall be one hundred thousand dollars, and may be increased from time to time, at the pleasure of said corporation. " Section 4. All the corporate powers of said corporation shall be vested in and exercised by a board of directors, and such officers and agents as said board shall appoint." The position of the company was that the third section conferred an unrestricted right to increase the capital stock at will, and that the fourth vested this power in the board of directors, and that the con- stitutional provision and act above referred' to, if applied to this cor- poration, would impair the validity of the contract. It was further set up, however, that the said provision did not apply to railways worked by horse-power. The court decreed in favor of the complain- ant and the company took the present appeal. Mr. Charles Hitchcock, for the appellant ; Mr. D. A. Storrs, contra. Mr. Justice Beadlet delivered the opinion of the court. Without attempting to decide the constitutional question, or to give a construction to the act of the legislature, we are satisfied that the decree must be affirmed on the broad ground that a change so organic and fundamental as that of increasing the capital stock of a corpora- tion beyond the limit fixed by the charter cannot be made by the di- rectors alone, unless expressly authorized thereto. The general power to perform all corporate acts refers to the ordinary business transac- tions of the corporation, and does not extend to a reconstruction of the body itself, or to an enlargement of its capital stock. A corpora- tion, like a partnership, is an association of natural persons who con- tribute a joint capital for a common purpose, and although the shares may be assigned to new individuals in perpetual succession, yet the number of shares and amount of capital cannot be increased, except in the manner expressly authorized by the charter or articles of asso- ciation. Authority to increase the capital stock of a corporation may un- . doubtedly be conferred by a law passed subsequent to the charter m but such a law should regularly be accepted by the stockholders. Such assent might be inferred by subsequent acquiescence; but in some form or other it must be given to render the increase valid and binding on them. Changes in the purpose and object of an associa- tion, or in the extent of its constituency or membership, involving the amount of its capital stock, are necessarily fundamental in their char- CHICAGO CITY RAILWAY CO. V. ALLEETON. 357 acter, and cannot, on general principles, be made without the express or implied consent of the members. The reason is obyious. Pirst, as it respects the purpose and object. This may be said to be the final cause of the association, for the sake of which it was brought into existence. To change this without the consent of the associates, would be to commit them to an enterprise which they never embraced, and would be manifestly unjust. Secondly, as it respects the constituency, or capital and member- ship. This is the next most important and fundamental point in the constitution of a body corporate. To change it without the consent of the stockholders, would be to make them members of an association in which they never consented to become such. It would change the relative influence, control, and profit of each member. If the directors alone could do it, they could always perpetuate their own power. Their agency does not extend to such an act unless so expressed in the charter, or subsequent enabling act ; and such subsequent act, as before said, would not bind the stockholders without their acceptance of it, or assent to it in some form. Even when the additional stock is distributed to each stockholder pro rata, it would often work injustice, because many of the stockholders might be unable to take their re- spective shares, and might thus lose their relative interest and influ- ence in the corporate concern. These conclusions flow naturally from the character of such asso- ciations. Of course, the associates themselves may adopt or assent to a different rule. If the charter provides that the capital stock may be increased, or that a new business may be adopted by the corpora- tion, this is undoubtedly an authority for the corporation (that is, the stockholders) to make such a change by a stockholders' vote, in the regular way. Perhaps a subsequent ratification or assent to a change already made, would be equally effective. It is unnecessary to decide that point at this time. But if it is desired to confer such a power on the directors, so as to make their acts binding and final, it should be expressly conferred. Where the stock expressly allowed by a charter has not been all subscribed, the power of the directors to receive subscriptions for the balance may stand on a different footing. Such an act might, perhaps, be considered as merely getting in the capital already provided for the operations and necessities of the company, and, therefore, as belonging to the orderly and proper administration of the company's affairs. Even in such case, however, prudent and fair directors would prefer to have the sanction of the stockholders to their acts. But that is not the present case, and need not be further considered. Decree affirmed. 358 speking's appeal. SECTION II. Duty of Care due from the Directors to the Corporation} SPEEING'S APPEAL. 1872; 71 Pa. State, 11.2 Shaeswood, J. — This bill was filed by the appellant as the as- signee of the "ISTational Safety Insurance and Trust Company,"' against the defendants, who were directors of the corporation, alle- ging fraudulent, illegal and improper management of its affairs, ex- tending over a period of more than ten years, from 1860 to 1861. The case upon the bill, answers and proofs was referred to a Master, who reported that the bill should be dismissed and a pro forma decree was entered accordingly. Upon a careful examination of the record and paper-books, which make up nine hundred and sixty-six printed octavo pages, we have come to the following conclusions of fact, which are supported also by the opinion of the Master. First, That no fraudulent conduct is imputable to any one of the defendants, at any period of time during their administration of the trust. No pecuniary advantage, to the amount of a dollar, was ever realized or sought by any one of them. There was no embezzlement or misappropriation of the funds by any ofB-cer or agent of the corporation. There is no pretence that the defendants are liable to account upon either of these grounds. " One I fact," says the Master, " is quite clear — that none of the defendants I have made any profit out of their transactions which was not common ' to all the stockholders.'' Second, That in regard to investments, and the mode of transacting the business — the" legality of which under the charter is questioned — the defendants uniformly acted under legal advice. " It appears in the evidence," says the report, " that the defendants always acted upon legal advice, as to the mode of doing business and making investments. No important step was ever taken without first obtaining the advice of the solicitor." Third, ^ Looking at the history of the institution in the light of subsequent J events, its direction was unwise and unfortunate. The money of the depositors was not invested in first-rate and perfectly safe securities, as they engaged to do, and as the funds of such a charity unques- tionably ought to be. Loans were largely made upon very doubt- 1 See later chapters for cases as to the right of stockholders or creditors to maintain Suits, in their own names, against directors for alleged mismanagement. Important questions have arisen as to the construction and operation of statutes which impose liabilities upon directors. But the statutory liability of directors is not one of tha topics specifically dealt with in this work. — Ed. 2 Statement omitted. — Ed. speeing's appeal. 359 ful collaterals. Their investments in real estate were injudicious, j They lost from a failure to insure. They sought to realize large pro- ' fits at usurious rates of interest. The crash came in 1860, just before the breaking out of the civil war. All doubtful securities fell in the ) market. Their debtors went to the wall. In the vain attempt to sus- tain their credit they sacrificed securities and collaterals. Had they stopped and made an assignment at once, a large amount of the loss /" which subsequently fell upon them would undoubtedly have been prevented. The story might be much amplified by entering into a detail of particulars : but the conclusion would be the same. Such is a brief resum^ of the facts. It is not the history of this institu- tion alone, but of many others in this country. The broad question then is, whether upon such a state of facts, the directors of a corporation can be made to account for losses arising from mismanagement merely. It is by no means a well-settled point what is the precise relation which directors sustain to stockholders. They are undoubtedly said in many authorities to be trustees, but that as I apprehend is only in a general sense, as we term an agent or any bailee intrusted with the care and management of the property of another. It is certain that they are not technical trustees. They can only be regarded as man- datories — persons who have gratuitously undertaken to perform cer- . tain duties, and who are therefore bound to apply ordinary skill and 1 diligence, but no more. Indeed, as the directors are themselves stock- / holders, interested as well as all others that the affairs and business of the corporation should be successful, when we ascertain and deter- mine that they have not sought to make any profit not common to all \ the stockholders, we raise a strong presumption that they have brought 1 to the administration their best judgment and skill. Ought they to . be held responsible for mistakes of judgment or want of skill and ) knowledge ? They have been requested by their co-stockholders to ■, take their positions, and they have given their services without compen- I sation. We are dealing now with their responsibility to stockholders, ' not to outside parties — creditors and depositors. It is unnecessary to consider what the rule may be as to them. Upon a close examina- tion of all the reported cases, although there are many dicta not easily reconcilable, yet I have found no judgment or decree which has held directors to account, except when they have themselves been person- ally guilty of some fraud on the corporation, or have known and con- nived at some fraud in others, or where such fraud might have been prevented had they given ordinary attention to their duties. I do not mean to say by any means that their responsibility is limited to these cases, and that there might not exist such a case of negligence or of acts clearly ultra vires, as would make perfectly honest direct- ors personally liable. But it is evident that gentlemen elected by \ the stockholders from their own body ought not to be judged by the | same strict standard as the agent or trustee' of a private estate. Were 360 speeing's appeal. such a rule applied, no gentlemen of character and responsibility ■would be found willing to accept such places. The authorities I think fully endorse these views. The leading case is The Charitable Corporation y. Sutton, 2 Atk. 400, which was treated by Lord Hardwicke as a case of fraud entirely. Five of the managers or committee-men entered into a confederacy to loan out money to their own storekeeper, upon whom was devolved the duty of putting an estimate upon the value of the pledges ; the others connived at the fraud. " It is such a notorious fraud or at least gross inattention," said the Lord Chancellor, "to suffer him, who was to set a value on all the pledges, to borrow money upon them himself, that I shall direct those who appear to be guilty of it to make good the loss. Committee-men are most properly agents to those who employ them in the trust and who empower them to direct and superintend the affairs of the corporation. If some persons are guilty of gross non-attendance and leave the management entirely to others, they may be guilty by this means of the breaches of trust that are committed by others." So accordingly in The York and North Midland Railway Company v. Hudson, 16 Beavan 495, the chairman of a railway company appropriated unallotted shares to the use of various persons, whose names he did not mention, in order to secure or reward services which he declined to state, but which it was insinuated was in the nature of " secret service money ; " it was held that if the defendant had applied the property of the company in a manner which would not bear the light, he must suffer the conse- quences, and that being charged with the receipt of the money, he could not discharge himself by the suggestion of such an application. In Williams v. Page, 24 Beavan 661, Sir John Eomilly said, in treat- ing a director as a trustee : " The trust no doubt is a peculiar one." In Great Luxembourg Railway Co. v. Magnay, 25 Beavan 692, he held that if a director enters into a contract for the company he can- not personally derive any benefit from it. So also in Ex paHe Ben- nett, 18 Beavan 339, directors of a public company are trustees for the shareholders, and their private interests must yield to their pub- lic duty wherever they are conflicting. In Turquard v. Marshall, 3 Equity (Law Rep.) 127, which is the last English case on the subject, Lord Eomilly, M. E., held directors liable, first, for not calling a meeting of the shareholders under a clause of the charter requiring them to do so, on the exhaustion of their surplus fund, and second, for loaning money to one of themselves without security. He used however this language : that if directors have been guilty of gross and palpable breach of trust, which cannot be set right by a public meeting of the company, they may be made responsible for their mis- conduct. On appeal, however, the decree of Lord Eomilly, holding the directors personally liable, was reversed by Lord Chancellor Batherley, 4 Chancery Appeals (Law Eep.) 386. He said : " There was no fraud alleged, nor was it alleged that the directors applied the spering's appeal. 361 funds of the company to their own use, or in any way except in what they thought was for the benefit of the company, however incorrect their course might have been." Then as to the loan to Higgins (the co-director) : " The statement of this in the bill was only as part of the general misconduct of the directors, and the loan was only men- tioned as one of the losses incurred. There was no specific allegation of any impropriety in lending the money to. him, nor was any specific relief prayed in this respect. It was within the powers of the deed to lend to a brother director, and however foolish the loan might have been, so long as it was within the powers of the directors, the court could not interfere and make them liable. They were intrusted with full powers of lending the money, and it was part of the business of the concern to trust people with money, and their trusting to an undue extent was not a matter with which they could be fixed, unless there was something more alleged, as, for instance, that it was done fraudulently and improperly and not merely by a default of judg- ment. Whatever may have been the amount lent to anybody, how- ever ridiculous and absurd their conduct might seem, it was the misfortune of the company that they chose such unwise directors ; but as long as they kept within the powers of their deed, the court could not interfere with the discretion exercised by them." To pass now from the English to the A.merican cases : Koehler v. The Black Siver Falls Iron Co., 2 Black S. C. 715, was a case of fraud. Mr. Justice Davis said : " Instead of honestly endeavoring to effect a loan of money advantageously for the benefit of the corpora- tion, these directors, in violation of their duty and in betrayal of their trust, secured their own debts to the injury of the stockholders and creditors. Directors cannot thus deal with the important inter- ests intrusted to their management. They hold a place of trust, and by accepting the trust are obliged to execute it with fidelity, not for their own benefit, but for the common benefit of the stockholders of the corporation." In ScoU v. Depeystet, 1 Edw. Ch. Eep. 613, the object of the bill was to make the directors liable for money embezzled by their secretary on the ground of their negligence. So, in Robinson V. Smith, 3 Paige 222, the bill alleged that the directors had engaged in a gambling speculation in stocks, wholly unauthorized by the charter, which was carried on to subserve their own individual interests and purposes. On demurrer to the bill, it was of course held that the directors of a corporation, who wilfully abuse their trust or misapply the funds of the company by which a loss is sustained, are personally liable as trustees to make good that loss, and they are also liable if they suffer the corporate funds to be lost or wasted by gross negli- gence and inattention to the duties of their trust. In the same cate- gory is Taylor v. Miami Exporting Company, 5 Hammond (Ohio) 162; Verplanck v. Mercantile Insurance Co., 1 Edw. Ch. Eep. 84 ; Bank of St. Mary v. St. John, 25 Alab. N. S. 566 ; Butts v. Wood, 38 Barb. 181 • s. c. 37 New York 317. In The Franklin Fire Insurance Co. y. 362 SPEEINGS APPEAL, Jenkins, 3 Wend. 130, which was an action on the case in which the declaration alleged against directors "want of care and attention," and also " corrupt and wilful mismanagement," a demurrer was sus- tained Sutherland, J., remarking : " These are very different allega^ tions and require distinct and different answers." Lexington & Ohio Bailroad Co. v. Bridge, 1 B. Monroe 556, was a bill by creditors against directors for making a dividend when no profits existed. " We are satisfied," say the court, " that if they were guilty of negligence to any extent it is not of that gross and palpable character that would render their conduct so reprehensible as to subject them to the impu- tation of a personal or even a legal fraud." In Godbold v. Branch Bank at Mobile, 11 Alab. 191, it was decided that the directors of a bank are not responsible for an injury to the bank caused by their act, originating in an error of judgment, unless the act be so grossly wrong as to warrant the imputation of fraud or the want of the ne- cessary knowledge for the performance of the duty assumed by them on accepting the agency. In Hodges v. New England Screw Co., 1 Rhode Island 312, in dismissing the bill, Greene, C. J., observed : " It does not appear that the directors sought or secured to themselves any benefit or advantage which was not common to all the other stockholders of the Screw Company." See also Neall v. Hill, 16 Cali- fornia 145. It seems unnecessary to pursue this investigation any further. These citations, which might be multiplied, establish, as it seems to \ me, that while directors are personally responsible to the stockholders for any losses resulting from fraud, embezzlement or wilful miscon- duct or breach of trust for their own benefit and not for the benefit of the stockholders, for gross inattention and negligence by which such fraud or misconduct has been perpetrated by agents, officers or co- directors, yet they are not liable for mistakes of judgment, even though they may be so gross as to appear to us absurd and ridiculous, provided they are honest and provided they are fairly within the scope of the powers and discretion confided to the managing body. In regard to the question last adverted to, whether the defendants 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 different acts of incorporation or supple- ments. The ingenuity of the young gentlemen of counsel for the defendants has been exercised in presenting to the court a genealogi- cal map or pedigree, tracing the Acts of Assembly, from one to an- other. To have mistaken the extent of their powers under such cir- cumstances would not have been matter of surprise even in the most timid and cautious. We may adopt upon this point the language of C. J. Greene in Hodges v. New England Screw Co., 1 Rhode Island 312. " In considering the question of the personal responsibility of the directors we shall assume that they violated the charter of the HUN V. CAEY. 863 Screw Company. The question then will be, was such violation 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 ordi- nary prudence practises 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 direct- ors might well make, notwithstanding the exercise of proper care, and if they acted in good faith and for the benefit of the Screw Com- pany, they ought not to be liable." We may say in this case, con- ceding that the directors did violate the charter, it was a question upon which with all due care they might have made an honest mis- take ; 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 : Lewin on Trusts 595 ; Vez v. Hmery, 5 Ves. 141 ; Calhoun's Estate, 6 Watts 189. Decree affirmed. HUN" V. CAEY. 1880. 82 New Torle, 65.1 Eael, J. This action was brought by the receiver of the Cen- i tral Savings Bank of the city of New York, against the defendants, / who were trustees of the bank, to recover damages which, it is al- leged, they caused the bank by their misconduct as such trustees. The iirst question to be considered is the measure of fidelity, i care and diligence which such trustees owe to such a bank and | its depositors. The relation existing between the corporation and its trustees is mainly that of principal and agent, and the relation \ between the trustees and the depositors is similar to that of trus- J tee and cestui que trust. The trustees are bound to observe the limits placed upon their powers in the charter, and if they tran- scend such limits and cause damage, they incur liability. If they act fraudulently or do a willful wrong, it is not doubted that they may be held for all the damage they cause to the bank or its de- positors. But if they act in good faith within the limits of powers \ conferred, using proper prudence and diligence, they are not re- sponsible for mere mistakes or errors of judgment. That the^ trustees of such corporations are bound to use some diligence in the discharge of their duties cannot be disputed. All the authorities \ hold so. What degree of care and diligence are they bound to exer- ) cise ? Not the highest degree, not such as a very vigilant or ex- fa'emely careful person would exercise. If such were required, it 1 Statement and arguments omitted. — Ed. 364 HUN V. CART. would be difficult to find trustees who would incur the responsibil- ity of such trust positions. It would not be proper to answer the question by saying the lowest degree. Few persons would be will- ing to deposit money in savings banks, or to take stock in cor- porations, with the understanding that the trustees or directors were bound only to exercise slight care, such as inattentive persons would give to their own business, in the management of the laxge and im- portant interests committed to their hands. When one deposits money in a savings bank, or takes stock in a corporation, thus di- vesting himself of the immediate control of his property, he expects, and has the right to expect, that the trustees or directors, who are chosen to take his place in the management and control of his pro- perty, will exercise ordinary care and prudence in the trusts com- mitted to them — the same degree of care and prudence that men prompted by self-interest generally exercise in their own affairs. When one voluntarily takes the position of trustee or director of a corporation, good faith, exact justice, and public policy unite in re- quiring of him such a degree of care and prudence, and it is a gross breach of duty — crassa negligentia — not to bestow them. It is impossible to give the measure of culpable negligence for all cases, as the degree of care required depends upon the subjects to which it is to be applied. (First Nat. Bank v. Ocean Nat. Bank, 60 N. Y. 278.) What would be slight neglect in the care of a quantity of iron might be gross neglect in the care of a jewel. What would be slight neglect in the care exercised in the affairs of a turnpike cor- poration, or even of a manufacturing corporation, might be gross neglect in the care exercised in the management of a savings bank intrusted with the savings of a multitude of poor people, depend- ing for its life upon credit and liable to be wrecked by the breath of suspicion. There is a classification of negligence to be found in the books, not always of practical value and yet sometimes service- able, into slight negligence, gross negligence, and that degree of neg- ligence intermediate the two, attributed to the absence of ordinary care ; and the claim on behalf of these trustees is that they can only be held responsible in this action in consequence of gross negligence, according to this classification. If gross negligence be taken accord- ing to its ordinary meaning — as something nearly approaching fraud or bad faith — I cannot yield to this claim; and if there are any authorities upholding the claim, I emphatically dissent from them. It seems to me that it would be a monstrous proposition to hold that trustees, intrusted with the management of the property, inter- ests and business of other people, who divest themselves of the man- agement and confide in them, are bound to give only slight care to the duties of their trust, and are liable only in case of gross inatten- tion and negligence; and I have found no authority fully upholding such a proposition. It is true that authorities are found which hold that trustees are liable only for crassa negligentia, which literally HUN V. CART. 365 means gross negligence ; but that phrase has been defined to mean the absence of ordinary care and diligence adequate to the particular case. [The learned Judge here quoted from various authorities.] In Sperinc/'s Appeal, Judge Shaeswood said that directors "are not liable for mistakes of judgment, even though they may be so gross as to appear to us absurd and ridiculous, provided they were honest, and provided they are fairly within the scope of the powers and discretion confided to the managing body." As I understand this language, I cannot assent to it as properly defining to any ex- tent the nature of a director's responsibility. Like a mandatary, to whom he has been likened, he is bound not only to exercise proper care and diligence, but ordinary skill and judgment. As he is bound to exercise ordinary skill and judgment, he cannot set up that he did not possess them. When damage is caused by his want of judgment, he cannot excuse himself by alleging his gross ignorance. One who voluntarily takes the position of director, and invites confidence in that relation, undertakes, like a mandatary, with those whom he re- presents or for whom he acts, that he possesses at least ordinary knowledge and skill, and that he will bring them to bear in the dis- charge of his duties. (Story on Bailments, § 182.) Such is the rule applicable to public officers, to professional men and to mechanics, and such is the rule which must be applicable to every person who undertakes to act for another in a situation or employment requiring skill and knowledge ; and it matters not that the service is to be rendered gratuitously. These defendants voluntarily took the posi- tion of trustees of the bank. They invited depositors to confide to them their savings, and to intrust the safe-keeping and management of them to their skill and prudence. They undertook not only that thej' would discharge their duties with proper care, but that they would exercise the ordinary skill and judgment requisite for the dis- charge of their delicate trust. Enough has now been said to show what measure of diligence, skill and prudence the law exacts from managers and directors of corporations ; and we are now prepared to examine the facts of this case, for the purpose of seeing if these trustees fell short of this measure in the matters alleged in the complaint. [The bank was incorporated in 186T, and did business until 1875, when a receiver was appointed. During this time the deposits aver- aged about 170,000. From 1867 to 1873 the total expenses, including interest paid to depositors, exceeded the income. In 1873 the trustees of the bank, which had hitherto occupied hired premises, purchased, in behalf of the institution, four lots of land, with a view to erecting a bank building upon one of the lots. The greater part of the pur> chase price was secured by mortgages on the lots. At the time of purchase the bank became obligated to erect upon the corner lot a five story building. Such a building was thereafter erected at an 366 HUN V. CAET. expense of about $27,000. The other lots were disposed of without loss. The corner lot had cost the bank f 29,250 (presumably its fair value), exclusive of the building. It was mortgaged for $30,500. When the receiver was appointed, that lot and building, and other assets which produced less than $1000, constituted the whole pro- perty of the bank, and subsequently the lot and building were swept away by a mortgage foreclosure. The present action was brought to recover the damages caused to the bank by the alleged improper in- vestment of its funds, as above stated.'] At the time of the purchase of the lot, the bank was substantially insolvent. If it had gone into liquidation, its assets would have fallen several thous'and dollars short of discharging its liabilities, and this state of things was known to the trustees. It had been in existence about six years, doing a losing business. The amount of its deposits, which its managers had not been able to increase, shows that the enterprise was an abortion from the beginning, either be- cause it lacked public confidence, or was not needed in the place where it was located. It had changed its location once without any benefit. It had on hand but about $13,000 in cash, of which $10,000 were taken to make the first payments. The balance of its assets was mostly in mortgages not readily convertible. One was a mort- gage for $40,000, which had been purchased at a large discount, and we may infer that it was not Very salable, as the trustees resolved to sell it as early as May, 1873, and in August, 1873, authorized it to be sold at a discount of not more than $2600, and yet it was not sold until 1874. In this condition of things the trustees made the pur- chase complained of, under an obligation to place on the lot an expen- sive banking-house. Whether, under the circumstances, the purchase was such as the trustees, in the exercise of ordinary prudence, skill and care, could make ; or whether the act of purchase was reckless, rash, extravagant, showing a want of ordinary prudence, skill and care, were questions for the jury. It is not disputed that, under the charter of this bank, as amended in 1868 (chap. 294), it had the power to purchase a lot for a banking-house " requisite for the trans- action of its business." That was a power, like every other pos- sessed by the bank, to be exercised with prudence and care. Situated as this moribund institution was, was it a prudent and reasonable thing to do, to invest nearly half of all the trust funds in this ex- pensive lot, with an obligation to take most of the balance to erect thereon an extravagant building ? The trustees were urged on by no real necessity. They had hired rooms where they could have re- mained ; or if those rooms were not adequate for their small business, we may assume that others could have been hired. They put for- ward the claim upon the trial that the rooms they then occupied were not safe. That may have been a good reason for making them 1 The passages enclosed in brackets [ ] are an abridgment of the recitals of fact in the •pinion of the court. — Ed. HUN V. CAEY. S67 more secure, or for getting other rooms, but not for the extravagance in which they indulged. It is inferable, however, that the principal motive which influenced the trustees to make the change of location was to improve the financial condition of the bank by increasing its deposits. Their project was to buy this corner lot and erect thereon an imposing edifice, to inspire confidence, attract attention, and thus draw deposits. It was intended as a sort of advertisement of the bank, a very expensive one indeed. Savings banks are not organized as business enterprises. They have no stockholders, and are not to engage in speculations or money-making in a business sense. They are simply to take the deposits, usually small, which are offered, ag- gregate them, and keep and invest them safely, paying such interest to the depositors as is thus made, after deducting expenses, and pay- ing the principal upon demand. It is not legitimate for the trustees of such a bank to seek deposits at the expense of present depositors. It is their business to take deposits when offered. It was not proper for these trustees — or at least the jury may have found that it was not — to take the money then on deposit and invest it in a banking- house, merely for the purpose of drawing other deposits. In making this investment, the interests of the depositors, whose money was taken, can scarcely be said to have been consulted. It matters not that the trustees purchased this lot for no more than a fair value, and that the loss was occasioned by the subsequent gen- eral decline in the value of real estate. They had no right to expose their bank to the hazard of such a decline. If the purchase was an improper one when made, it matters not that the loss came from the unavoidable fall in the value of the real estate purchased. The jury may have found that it was grossly careless for the trustees to lock up the funds in their charge in such an investment, where they could not be reached in any emergency which was likely to arise in the affairs of the crippled bank. We conclude, therefore, that the evidence justified a finding by the jury that this was not a case of mere error or mistake of judgment on the part of the trustees, but that it was a case of improvidence, of reckless, unreasonable extravagance, in which the trustees failed in that measure of reasonable prudence, care and skill which the law requires. [Omitting remainder of opinion.] Judgment [on verdict for plaintiff] affirmed. 368 SWENTZEL V. PENN BANK. SWENTZEL V. PENN BANK. 1892. 147 Pa. State, 140.1 Bill in Equity, praying that directors of the Penn Bank be de- creed to pay all moneys lost by their carelessness, negligence and fraudulent management. Facts found by a master, who recommended that the bill be dismissed as to most of the defendants. The assignee of the Bank filed exceptions to the report, and alleged error in various rulings and decrees made in the court below. H. A. Miller, D. F. Patterson, and A. M. Brown, for the assignee. S. Sohoyer, Jr., D. T. Watson, and others, for various defendants. Paxson, J. . . . Briefly stated, the bill was filed for the purpose of holding the ofScers and directors of the bank responsible for the losses resulting from its failure. It is claimed that the officers and directors were negligent in their management of the bank's affairs, and that by reason of such negligence the losses occurred. It is conceded on all sides that the losses and the disastrous failure of the bank were directly traceable to Mr. Riddle, its late president, now deceased. He practically emptied the vaults of the bank in ^ carrying on a gigantic speculation in oil. This was done with the knowledge of the cashier, and the cooperation of one or more clerks or subordinates. It would have been extremely difficult, if not prac- tically impossible, for any person to have committed such a swindle without the cooperation of some one inside. The question is whether the directors ought to have known of these transactions, and whether their failure to know what the real plunderer was doing, was such negligence on their part as to render them liable to the creditors of the bank. The Penn Bank closed its doors in May, 1884. It is not too much to say that its failure was a great shock to the business interests of Pittsburgh. It was the cause of much excitement ; led to a large amount of litigation, much of it directed against the board of direc- tors. As usual, in such cases, the current of public opinion was turned against them, and up to the present time they have been defending themselves against hostile litigation. The time has now arrived when the rights of the parties can be considered calmly, and disposed of in disregard of prejudice or popular clamor. The first question that naturally suggests itself for our considera- tion is, the extent of the duty which the directors of a bank owe to the stockholders, whom they represent directly, and the creditors, whom they represent indirectly. Upon this point there is a general misapprehension in the popular mind. This finds expression, after bank failures, in severe condem- nation of directors, and a general assertion of the doctrine that their 1 Statement abridged. Arguments and part of opinion omitted. — Ed. SWENTZEL V. PENN BANK. 369 duty requires them to be familiar with all the details of the manage- ment. In the popular mind they are held to the rule that they ought to take the same care of the affairs of the bank that they do of their own private business. Even the learned judge below evidently adopted this view, when he said in his opinion: "If we were to decide this case on first impressions, as to the conclusions of fact to be drawn, and under the decisions cited and rules laid down in the minority opinion in Briggs v. Spalding, we would say there was gross negligence, or want of the ordinary care that a man of fair intelli- gence would take of his own affairs." It cannot be the rule that the director of a bank is to be held \a\ the same ordinary care that he takes of his own affairs. He receives / no compensation for his services. He is a gratuitous mandatory. His principal business at the bank is to assist in discounting paper, and for that purpose he attends at the bank at stated periods — gen- erally once or twice a week — for an hour or two. The condition of the bank is then laid before him, in order that he may know how much money there is to loan. Ouce or twice a year there is an examination of the condition of the bank, in which he participates. The cash on hand is counted, the bills receivable and sureties ex- amined, to see whether they correspond with the statement as furnished by the officers. Beyond this he has little to do with either the cash or the books of the bank. They are in the care of salaried officials who are paid for such services, and selected by reason of their supposed integrity and fitness. To expect a director, under such circumstances, to give the affairs of the bank the same care that he takes of his own business, is unreasonable, and few responsible men would be willing to serve upoii such terms. In the case of a city bank, doing a large business, he would be obliged to abandon his own affairs entirely. A business man generally understands the details of \ his own business, but a bank director cannot grasp the details of a / large bank without devoting all his time to it, to the utter neglect of / his own affairs. A vast amount of authority has been cited upon this question, which we do not think it necessary to review. It is sufficient to refer to a few cases only. In Spering's Ap., 71 Pa. 11, the subject is very fully discussed by the late Justice Sharswood, and the rule of ordi- nary care is laid down. Not, however, the ordinary care which a man takes of his own business, but the ordinary care of a bank director in the business of a bank. ITegligence is the want of care according to the circumstances, and the circumstances are everything in consider- ing this question. The ordinary care of a business man in his own affairs means one thing ; the ordinary care of a gratuitous mandaf;ory is quite another matter. The one implies an oversight and know- ledge of every detail of his business ; the other suggests such care only as a man can give in a short space of time to the business of other persons, from whom he receives no compensation. 370 SWENTZEL V. PENN BANK. The same learned judge, in Maisch v. Saving Fund, 5 Phila. 30, laid down tlie rule as follows : " As to the directors, however, receiv- ing no benefit or advantage, they can be considered only as giratuitous mandatories, liable only for fraud or such gross negligence as amounts to fraud." Again, in Spering's Ap., supra, he said : " Indeed, as the directors are themselves stockholders, interested, as well as all others, that the affairs and business of the corporation should be successful, when we ascertain and determine that they have not sought to make any profit not common to all the stockholders, we raise a strong pre- sumption that they have brought to the administration their best judgment and skill." We may also refer to Briggs, Receiver, v. Spaulding 141 U. S. 132, which goes even further than our own cases upon this point. It does not relieve a director from the consequence of gross negligence in the performance of his duty, but it holds that he is not responsible where he has used the ordinary care which bank directors usually exercise. It is true this was the case of a national bank, but we apprehend that what is negligence on the part of a director of a national bank, would, as a general rule, be negligence by a director of a state bank, and sub- ject to the same liability. In regard to what is ordinary care, regard must be had to the usages of the particular business. Thus, if the director of a bank performed his duties, as such, in the same manner as they were performed by all other directors of all other banks in the same city, it could not fairly be said that he was guilty of gross negligence. And care must be taken that we do not hold mere gratuitous mandatories to such a severe rule as to drive all honest men out of such positions. This thought is so well expressed by Sir George Jessel, M. E., in his opinion in In re Penn Goal Mining Co., 10 Ch. Div. 450, that I give his remarks in full : " One must be very careful in administering the law of joint-stock companies, not to press so hard on honest directors as to make them liable for these constructive defaults, the only effect of which would be to deter all men of any property, and, perhaps, all men who have any character to lose, from becoming directors of com- panies at all. On the one hand, I think the court should do its utmost to bring fraudulent directors to account ; and, on the other hand, should also do its best to allow honest men to act reasonably as direc- tors. Willful default no doubt includes the case of a neglecting to sue, though he might, by suing earlier, have recovered a trust fund ; in that case he is made liable for want of due diligence in his trust. But I think directors are not liable on the same principle." Holding, then, the rule to be that directors, who are gratuitous mandatories, are only liable for fraud, or for such gross negligence as amcftints to fraud, it remains but to apply this principle to the facts of this case. It is not alleged — it has never been alleged — that the hands of these directors are stained by fraud. The bank was wrecked by its SWENTZEL V. PENN BANK. 371 president, with the cashier and some of the clerks aiding and abetting. 1 It was adroitly done, so far as the means were concerned, and it was ) concealed wholly from the directors. False entries were made in the books, and false accounts, or accounts with fictitious persons, were opened so as to hide the theft. The reports of the bank's condition, made by the president to the directors, from time to time, showed it to be in good condition, while in point of fact it was honeycombed with fraud, and its assets squandered in wild speculations. It may be asked, why did not the directors discover this by an examination of the books ? The answer is, that, if they had examined every book ] in the bank, with a single exception, they would not have found the ' fraud. That exception is the individual ledger. All the frauds were dumped into this book, and appeared nowhere else. The individual ledger contains the accounts of the individual depositors, and this book, by the rules of a large majority of the Pittsburgh banks, the directors are not allowed to see. This is a rule of policy on the part of most city banks, and the reason for it is, at least, plausible. A director, largely engaged in business, may have a number of rivals in the same business who are depositors in the bank. If he is permitted to examine their accounts it gives him an advantage and an insight into a rival's affairs that few business men would tolerate. Hence, it is a question with many banks whether to adopt this rule or lose valuable customers, and they generally prefer the former. We are • not speaking of the wisdom of the rule, only of its existence, as bear- ing upon the question of the directors' negligence. Are they to be held to be guilty of gross negligence in not examining a book, which, by the rules of their own bank, and of four fifths of the other banks in Pittsburgh, the directors were not permitted to see ? Nor do we think the directors were bound to regard the statements J submitted to them as false, and the president, cashier and clerks as / thieves. They had nothing to arouse suspicion. All of these gentle- men stood high ; they were the trusted agents of the corporation ; paid for their services, and regarded in the community in which they lived as honest men. Aside from this, the directors were among the heaviest stockholders of the bank. They collectively owned a large proportion of it. And so thoroughly were they deceived by the president as to its condition that, when the first stoppage occurred, they not only believed the sus- pension was temporary, but they showed their faith by their works, and upon their individual credit raised the sum of $289,000 to enable it to resume. They did not desert the ship like a parcel of drowning rats, but imperiled their private fortunes in an effort to keep it afloat. Under such circumstances it would be an act of gross injustice to hold them liable for the frauds of others, in which they had not par- ticipated — of which they had no knowledge — and which have only been brought to light with the aid of experts. We must measure this transaction by the light which these directors had at the time the 372 GIBBONS V. ANDEESON. transaction occurred. It would be unfair to judge them by the cal- cium light which has been turned on for six years, and which has enabled us to trace at last the sinuous path of Riddle and his con- federates in crime, and the means by which this bank has been robbed and plundered. We are of opinion that the master and the court be- low were right in their conclusion, and the decree is affirmed upon the appeal of the assignee, and the appeal dismissed at his costs. [Omitting opinion on other assignments of error.] GIBBONS V. ANDEESON. 1897. 80 Federal Reporter, 345. In U. S. Circuit Court, Western District of Michigan. Setbeens, District Judge. The bill in this case was filed by the complainant, as receiver of the City National Bank of Greenville, to establish the liability of the defendants, Poster and Anderson, who were directors of the bank, for negligence in the performance of their duties as such, which it is alleged has resulted in a heavy loss to the bank and its creditors. The bank was organized April 28, 1884, with • a capital stock of $60,000. It suspended on the 22d day of June, 1893. The complainant was appointed receiver thereof by the comp- troller of the currency five days later, and on July 1, 1893, entered upon the discharge of his duties. The total liability of the bank to its creditors at the time of its failure was $237,733. The nominal value of its assets was about $326,000, but the total net amount which the receiver has been able to realize from the assets is only about $40,000. This result is certainly a very startling one, and the enor- mous loss in the liquidation of the bank's assets calls for an inquiry for its causes. And they are not far to seek. The defendants were members of the board of directors from its organization to the date of its suspension. Le Roy Moore was another director, and, either in the capacity of cashier or president, was its managing officer during the whole of the bank's operations. If during part of the time another person was cashier, he was only nominally such. Moore dominated the bank, and exercised the functions of cashier. Upon investiga- tion it turns out that substantially from the beginning Moore em- ployed the bank for the promotion of his own business enterprises, and, to a steadily increasing amount, has in one way and another di- verted its funds to his own use, to the extent that at the date of the suspension of the bank he was indebted to the bank upon paper of which he was the maker in the sum of $36,263.63, and as indorser in his own name in the sum of $44,819.59. He was also liable as indorser under the name of Le Roy Moore & Co. in the sum of $17,419-97. No other person than Le Roy Moore was liable for these GIBBONS V. ANDERSON. 373 Indorsements of Le Eoy Moore & Co.; the other member having long since been discharged by the renewal of paper and the extension of credit without his knowledge, — that firm having been dissolved in 1887, and the liabilities thereof assumed by Moore. There was also in the bank at the time of its suspension, representing part of its assets, paper upon which the Stanwood Manufacturing Company was maker to the amount of $8,750, and upon which it was indorser, $67,- 748.54, amounting in all to $76,498.64. This Stanwood Manufactur- ing Company was a business concern of which Moore was the owner, with a trifling exception. He owned 2,400 of the 2,600 shares of $10 each, and, so far as appears, only 20 other shares were taken. The books of the company show that $15,000 only of its capital stock were paid in, and this by Le Eoy Moore's individual promissory notes, upon which he never made any payment. The bank had a chattel mortgage on all its property, and the sum of $3,600 was the sum realized out of the sale of that property under this mortgage. Over $63,000 of paper held by the bank, upon which the Stanwood Manu- facturing Company was indorser, consisted of accommodation notes made by the employes about the factory of the Stanwood Manufactur- ing Company, and was worthless. This paper was all unloaded upon the bank by Moore in the prosecution of his own enterprises, and operated practically as a credit to himself. For a number of years prior to the suspension of the bank he was a borrower from it, either upon his own name, or under a guise so thin as to be transparent, to an amount grossly in excess of the legal limit. The comptroller in his letter of October 14, 1892, states that at the last examination he was directly indebted to the bank in the sum of $29,666. In all these^ ways, direct and indirect, Moore converted the assets of the bank to his own use, and in the end it appears that for all these large sums which Moore had obtained, and which were represented by paper i which he had employed for that purpose, amounting to $172,768.88, only a very little can be realized. Moore made a trust deed of all his property to secure the debts he owed to the bank, out of wliich not more than $12,000 to $15,000 can be realized. This is the result, not of a single fraud, nor of a group of contemporaneous frauds, practiced by Moore, but, as already stated, it is the consequence of malversa- tion of the funds of the bank from about the beginning of its history. It is needless to go into detail. The books of the bank show that he ws\fi going deeper and deeper into the funds of the bank, and, under one cover or another, converted of its assets more than three times the amount of its capital stock. The defendants, who were directors all this time, say that they were ignorant of anything wrong in the affairs of the bank until their eyes were opened to the facts by its failure. Greenville is a small place, of only about 3,000 inhabitants, and the defendants resided there. The volume of the business of the bank was comparatively small, — certainly not so large but that the most cursory examination of the general features of its business by 374 GIBBONS V. ANDERSON. any one having ordinary business intelligence would have disclosed the truth. It is contended by the directors that they did not in fact know how Moore was carrying the substance out of it, and it is the more charitable view to take of their conduct to the extent that supine negligence is more easily excused than active fraud. There is in the record the testimony of witnesses stating that at the time of the fail- ure of the bank these defendants declared that they trusted all to the president, and that they knew but little of the bank's affairs, relying as they did upon their confidence in the management. But what else ' can be said than that, if they had notice of the facts, they were cul- pable, or that, if they did not know them, they were grossly negligent and inattentive to their duties ? The testimony convinces me that the latter is the fact, .and that their negligence and lack of interest was so profound that not even the disclosures and the warning con- tained in the letter of the comptroller of October 14, 1892, and which, pursuant to his request, was brought to their attention, aroused them from the stupor which beset them ; for the situation was in no wise redeemed, and grew steadily worse without the moving of a hand by the directors to save it. From the time of their election the board of directors seems to have slumbered over the affairs of the bank while its managing officer was plundering it of all that it owned, and much that belonged to others. Once in a while there seems to have been some faint consciousness, but nothing which indicates any ac- tivity. But they say, and have called witnesses to prove, that acting in accord with the usage and custom of national banks, and having called into the management a person in whom they had entire confi- dence, which was justified by his reputation, and committed the affairs of the bank to him, they were not bound to have doubt and distrust of his correct dealing until something occurred which should arouse suspicion. And this is their defense. The learned counsel for the defendants puts the question thus : " Whether a director in a national bank is individually liable for loss to the bank accruing through another director, viz. its president, when such mismanagement was not known to or participated in by the directors sought to be charged." Or, in another form : "Whether an individual director in a national bank is liable in his individual capacity for all losses occasioned by the mismanagement of the bank's affairs by a trusted officer through the neglect of the board of directors to meet and examine into the affairs of the bank." These questions present in the most favorable light for the defend- ants what is undoubtedly the substance of the inquiry upon the facts which existed in this case, and which is, in short, this : Whether the duty of the board of directors is discharged by the selection of officers of good reputation for ability and integrity, and then leaving the affairs of the bank without any other supervision or examination than mere inquiry of the officer, and relying upon his statements until some GIBBONS V. ANDERSON. 375 cause for suspicion attracts their attention. Section 9 of the national banking act, being section 5147 of the Eevised Statutes, provides that : " Each director, when appointed or elected, shall take an oath that he will, so far as the duty devolves on him, diligently and honestly administer the affairs of such association." And by section 5145 it is declared that the affairs of such associa^ tion shall be managed by not less than five directors. The oath which the director is required to take, that he will diligently and honestly administer the affairs of such association, indicates the scope of his obligation. The management of the bank is cast upon the board of directors. The duty of managing and administering the affairs of the bank by the board of directors has been differently construed in de- cisions bearing upon this subject, but it is not necessary for me to analyze the cases, or to reconcile their apparent differences. Some of theiii have gone to a length which in my opinion is extremely danger- ous to the public safety, and, if generally applied, would make these banking associations, which were designed to supply the people of the country with financial institutions hedged about with security on which their confidence might securely rest, the objects of doubt and distrust. The rule of decision by which my judgment in the present case must be giiided is laid down in the case of- Briggs v. Spaulding, 141 U. S. 132, 11 Sup. Ct. 924. Much of the discussion in that case wa.s devoted to the consideration of the special circumstances upon which rested the charges made against the several directors. Those circumstances have little or no resemblance to those of the present case, and not much aid is afforded by that part of the discussion ; for, as the court in that case observed, each case must stand upon its own facts. The directors in that case were held to be excusable. One very important and noticeable difference between that case and this is in the fact that the question there was narrowed down to one of fact, as to whether the defendants were fairly liable for not preventing loss by putting the bank into liquidation within 90 days after they became directors, the previous condition of the bank being admitted to have been good, whereas in the present case the defendants' neglect runs throixgh quite a number of years. But the court laid down certain gen- eral rules by which the obligation of directors of national banks is to be tested ; that is to say, they declare what is the minimum of that obligation. Chief Justice Fuller, delivering the opinion of the court, said : — " We hold that directors must exercise ordinary care and prudence in the administration of the affairs of a bank, and that this includes something more than officiating as figureheads. They are entitled, under the law, to commit the banking business, as defined, to their duly-authorized officers, biit this does not absolve them from the duty of reasonable supervision ; nor ought they to be permitted to be shielded from liability because of want of knowledge of wrongdoing, if that ignorance is the result of gross inattention." 376 GIBBONS V. ANDERSON. In my opinion, it does not meet the requirements of this statement of the law that directors may confide the management of the opera- tions of the bank to a trusted ofiicer, and then repose upon their con- fidence in his right conduct, without making examinations themselves, or relying upon his answers to general questions put to him with regard to the status of the affairs of the bank. To begin with, it is . to be assumed in every case that the directors have not selected any other than a man of good reputation for capacity and integrity. Any other idea assumes that they have been guilty at the outset of a glar- ing fault. Further, it is a well-known fact that a large proportion of the disasters which befall banking institutions come from the malfea- sance of just such men, and it would be manifest to everybody that only a satisfactory and quieting reply would be made by the official who has any reason for concealment. Again, what are the duties of management that are committed to the cashier, or the officer standing in his place ? They are those which relate to the details of the busi- ness, to the conduct of particular transactions. Even in respect of those, his duties are conjoint with those of the board of directors. In large affairs it is his duty to confer with the board. In questions of doubt and difficulty, and where there is time for consultation, it is his duty to seek their advice and direction. It is his duty to look after the details of the office business, and generally to conduct its ordinary operations. It is the right and duty of the board to maintain a super- vision of the affairs of the bank ; to have a general knowledge of the manner in which its business is conducted, and of the character of that business ; and to have at least such a degree of intimacy with its affairs as to know to whom, and upon what security, its large lines of credit are given ; and generally to know of, and give direction with regard to, the important and general affairs of the bank, of which the cashier executes the details. They are not expected to watch the routine of every day's business, or observe the particular state of the accounts, unless there is special reason; nor are they to be held responsible for any sudden and unforeseen dereliction of executive officers, or other accidents which there was no reason to apprehend. The duties of the board and of the cashier are correlative. One side are those of an executive nature, which relate mainly to the details. On the other are those of an administrative character, which relate to direction and supervision; and supervision is as necessarily in- cumbent upon the board as direction, unless the affairs of banks are to be left entirely to the trustworthiness of cashiers. Doubtless there are many matters which stand on mi'ddle ground, and where it may be difficult to fix the responsibility, but I think there is no such difficulty here. The idea which seems to prevail in some quarters, that a director is chosen because he is a man of good standing and character, and on that account will give reputation to the bank, and that his only office is to delegate to some other person the manage* ment of its affairs, and rest on that until his suspicion is aroused, GIBBONS V. ANDERSON. 377 which generally does not happen until the mischief is done, cannot be accepted as sound. It is sometimes suggested, in effect, that, if larger responsibilities are devolved upon directors, few men would be willing to risk their character and means by taking such an office ; but congress had some substantial purpose when, in addition to the provision for executive officers, it further provided for a board of directors to manage the bank and administer its affairs. The stock- holders might elect a cashier, and a president as well. The banks themselves are prone to state, and hold out to the public, who compose their boards of directors. The idea is not to be tolerated that they serve as merely gilded ornaments of the institution, to enhance its attractiveness, or that their reputations should be used as a lure to customers. What the public suppose, and have the right to suppose, is that those men have been selected by reason of their high character for integrity, their sound judgment, and their capacity for conducting the affairs of the bank safely and securely. The public act on this presumption, and trust their property with the bank in the confidence that the directors will discharge a substantial duty. How long would 3,ny national bank have the confidence of depositors or other creditors if it were given out that these directors whose names so often stand at the head of its business cards and advertisements, and who are al- ways used as makeweights in its solicitations for business, would only select a cashier, and surrender the management to him ? It is safe to say such an institution would be shunned and could not endure. It is inconsistent with the purpose and policy of the banking act that its vital interests should be committed to one man, without oversight and control. Eecurring to the present case, it is clear that unless the board of directors is to be absolved upon the theory that they were justified in committing the affairs of the bank to Moore, and .relying upon his good conduct, and his answers to the perfunctory questions which were occasionally put to him, until they were brought to the facts by the collapse of the bank upon the first prick of a financial stringency such as came upon the country in the summer of 1893, they must be held liable. It is with sincere commiseration and regret that the court feels compelled to reach this conclusion, in view of the conse- quence which must follow to these directors. But there is another side to this matter. The court cannot ignore the rights and interests of the depositors and others who have trustfully confided their money to the bank, and who now find that it was run through a shell into the hands of Moore, while the defendants turned their heads away, and failed to give them the protection which a proper discharge of their duties would have afforded. The records of the board of directors make a sorry showing, when put in contrast with the financial history of the bank. The entries are few, at long intervals, and are almost wholly limited to the election of directors and the declaration of divi- dends. They are feebly supplemented by the oral testimony -^f tlic 378 " DOVEY V. OOEY. defendants, ■whicli tends only to show that individual inquiries were occasionally made by them, of a comparatively superficial character. There was no examination of the books ; at least, none of any value. If there had been such examination by a fairly intelligent man, such as a director promises he is, the condition of things would have been seen. It is not irreconcilable with what they de- clared, when the bank failed, with respect to their knowledge of its affairs, and with what I must believe was substantially the truth of the matter. It may be conceded that the members of the board were not responsible for the malfeasance or nonfeasance of their associates, where the fault of the others was not known to them, and they were helpless to prevent the consequences ; but in the present case the charge of negligence rests upon the whole board, and there is nothing to show that the defendants took any steps to retrieve the conse- quences of the joint negligence. If the defendants had been able to show that they themselves had done what they could to induce the board to attend to its duty, a different case would be presented. I do not understand why the comptroller did not more energetically inter- fere, but I have no duty to criticise his action. [The learned Judge then held, that the date from which the directors should be charged with losses was July 1, 1892 ; when the fact that a year had elapsed without the declaration of a dividend should have induced the directors to institute an examination.] Decree to be entered in conformity with the above opinion. DOVEY V. COEY. House of Lords, Aug. 1, 1901. 17 Times Law Reports, 732.1 This was an appeal from the decision of the Court of Appeal (the Master of the EoUs, now Lord Lindley, Sir F. H. Jeune, and Lord Justice Eomek), which reversed a judgment of Mr. Justice Weight. The hearing before the Court of Appeal (svb nomine " In re National Bank of Wales ") is reported in 15 The Times L. E. 517 ; L. E. (1899) 2 Chan. 629 ; and 68 L. J. Chan. 634. The appellant is the liquidator of the National Bank of Wales, and the Metropolitan Bank (of England and Wales) have purchased and taken over its assets and liabilities. The respondent, tfohn Cory, was for some years a director of the National Bank. In the liquidation of the latter a summons was taken out to render the respondent liable — not to creditors, all of whose claims had been satisfied — but to the contributories, in respect to alleged misfeasance (1) in paying divi- dends out of capital ; (2) in making .improper advances to directors ; 1 Portions of the opiniona are omitted. The case will be officially reported in Law Re- ports (1901), Appeal Cases. — Ed. DOVET V. CORY. 379 and (3) in making improper advances to customers who were, or were reputed to be, insolvent, and the summons asked that the respondent should be ordered to repay the full amount of all losses caused by such acts of alleged misfeasance with interest and costs. Mr. Cory became a director on November 23, 1883, and resigned on December 18, 1890. The summons asked that the respondent should be de- prived of the benefit of the Trustee Act, 1888, and of the Statutes of Limitation, on the ground that the losses arose from the respondent's wrongful acts and fraudulent concealment of the true state of affairs. The appellant's counsel, however, disclaimed the imputation of any moral obliquity on the part of the respondent, but argued the ques- tion on the basis of negligence and failure to discharge the duties of a fiduciary position. The transactions complained of were voluminous and ranged over a series of years and related to the affairs not only of the head oflB.ce, but of the branches, which in 1890 were 33. It was, however, found possible by the parties to condense the story within the limits of four volumes and about 1500 pages. In February, 1893, an agreement was entered into between the National Bank of Wales and the Metropolitan, Birmingham, and South Wales Bank, now the Metropolitan Bank (of England and Wales) (Limited) whereby the latter bought the assets and goodwill and undertook the liabili- ties and contracts of the former, the value of the assets and goodwill being taken at not less than £110,000. Voluntary resolutions were passed for winding up the National Bank, and Thomas Cory, its former chairman, and the appellant were appointed liquidators. Mr. Thomas Cory subsequently resigned and the appellant became sole liquidator. The alleged amount of improper payments of dividends was £52,986 ; of loss on advances and credits to directors to December 31, 1890, £37,731, and of loss on improper advances to customers, £43,087. The whole of the assets were realized or valued, and the appellant Dovey alleged that after discharging the liabilities of the National Bank and crediting it with the value of its assets and £110,000 as its goodwill, there remained a deficiency of assets amounting to £84,392. Calls were made of £2 10s. per share each in July, 1896, and September, 1899. Mr. Justice Wright ordered the respondent to pay £54,787, being £37,000, the aggregate amount of dividends paid to the shareholders in 1887, 1888, 1889, and 1890 (except a part of the last dividend), and as to the balance, interest at 5 per cent, on each of the dividends. The learned Judge held that all these divi- dends were in fact paid out of capital ; but he declined to make the respondent liable for improper advances to directors or customers. The Court of Appeal, in an elaborate judgment delivered by the Mas- ter of the Bolls, exonerated the respondent from liability. This de- cision was aflftrmed by the noble and learned Lords. Sir B. T. Beid, K. C, Ingpen, K. C, and S. T. Evans, for appellant. Swinfen Eady, K. C, Bufus Isaacs, K. C, G. F. Hart and E. A Nepean, for respondent. S80 DOVEY V. COST. Sheldon, for Metropolitan Bank of England and Wales, whicli was originally a respondent, but subsequently made an appellant. The LoKD Chancellob, [Lord Halsbuky]. — In tbis case the liquidator of tbe National Bank of Wales (Limited) appeals against a judgment of tbe Court of Appeal, wbereby Mr. Jobn Cory, tbe respond- ent, was discharged from tbe liability wbicb Mr. Justice Wright's judgment had imposed upon him to pay £37,000 for tbe beneiit of the shareholders of the company, in respect of dividends already distributed, and a further sum for interest. Mr. John Cory was a director of tbe company, and it is for bis supposed misconduct in tbe management of tbe affairs of tbe company that tbis liability was imposed upon him. It is alleged and proved that certain losses have been sustained by the company, and tbe ground upon which Mr. Jobn Cory is sought to be made liable is the very short and intelligi- ble ground that be was a party to false and fraudulent statements as to tbe position of tbe company and bad bad a share in causing these losses. The Court of Appeal have acquitted bim of any knowledge of what was falsely stated, and Sir Eobert Eeid, in opening tbis ap- peal, stated to your Lordships that he did not intend, in arguing for Mr. Jobn Cory's liability, to impute to bim any moral obliquity. Now there is no doubt that there were balance-sheets laid before meetings of tbe shareholders which, to use the language of tbe arti- cles of tbe association, were not proper and wbicb did not truly report as to the state and condition of tbe company, and did not comply with the requirements of the articles in question in respect of the particular sum which the directors recommended as dividend, that it should be paid out of the profits, but a greater sum was paid out as dividend than would have been paid if certain things had been taken into consideration, and therefore larger than should have been paid. A great part of the judgment, both of Mr. Justice Wright and of tbe Court of Appeal, is occupied by discussing matters which are not now before your Lordships as matters in debate. It is now admitted that Mr. John Cory ceased to be a director in December, 1890. My Lords, I am clearly of the opinion that the judgment of the Court of Appeal is right and ought to be affirmed ; but my opinion is entirely based upon the question of fact that be was guilty of no breach of duty whatever, and for reasons which I will refer to hereafter I am very anxious not to deal with some reasons given for their judgment by tbe Court of Appeal, wbicb, in view of the facts that I take, do not arise here ; and in what I say I desire to be understood as only dealing with the facts of tbis particular case. Now, in tbe first instance, I will assume that the company has sustained loss by tbe issue of fraudulent balance-sheets, by the improper advance of money to tbe customers of tbe bank, and that it has also sustained loss by tbe lending of money to directors without security. With respect to tbe default involving liability, if Mr. Jobn Cory was conscious of the falsehood it is not necessary to go any further. Like DOVEY V. COEY. 381 any one else who is a party to a false statement acted upon to the prejudice of the person to whom it is made, he would be liable to the extent to which his falsehood has inflicted loss on his victims, but after the admission that has been made it is unnecessary to pursue this head of inquiry ; he certainly could not be acquitted of moral obliquity if party to a fraudulent statement ; but it is said he has so grossly neglected his duty as a director that, though he may not have known the true state of the facts, he ought to have known them, and his breach of duty in that respect renders him liable. In order to see how far this obligation is made out it is necessary to consider what the business of the company was, and what was the position of Mr. John Cory in relation to it. My Lords, I think it is idle to talk in general terms of the duty of a director to look after the con- cerns of the company of which he is one of the managers without seeing what in the ordinary course of business he ought to do or to have done. Now there are some things which, of course, must be, or at all events ought to be, apparent to any one responsible for the con- duct of a commercial business, and we must apply that observation to the business of which we are speaking — namely, a banking busi- ness ; but I do not understand that any one has suggested that there was neglect or default by reason of the absence of some system under which, if honestly carried out, the interests of the bank would have been in that respect secured. It is admitted that (extract from judg- ment of the Court of Appeal) the company's principal bank and its head ofB.ce were at Cardiff, where the directors met and the general manager was in daily attendance. The company had also many branch banks each with its own manager. The course of business was this. Each branch manager sent weekly to the head oflB.ce what is called a weekly state — i. e., an account showing how the assets and liabilities of the branch stood, what advances or overdrafts had been made or allowed and to whom, what securities the bank held, and other matters. Every quarter each branch manager made a more formal return to the head oflBce showing the position of the branch and the business done during the past quarter. It was the duty of the general manager to examine these documents and to report to the board anything disclosed by them which required their attention. The weekly states or quarterly returns were in the board rooms for reference in case of need, but unless attention was called to them the directors did not think it necessary to examine them. The chairman of the directors was Mr. Thomas Cory, a brother of Mr. John Cory. The chairman and general manager (Mr. Collins) visited each branch bank every year ; and, in addition, two skilled inspectors frequently went round and inspected the accounts and reported to the general manager. The accounts of the branch bank, appear, however, not to have been separately audited by professional accountants. The audi- tors employed to examine the company's accounts and to certify the annual balance-sheets and accounts laid before the shareholders only 382 DOVEY V. OOEY. saw the head ofiElce books and the returns from the branch offices certi- fied by their respective managers to the head office. These certified returns formed part of the weekly states, but omitted much that they contained. The minutes of the directors' meetings show that, speak- ing generally, they attended with reasonable regularity and transacted a large amount of business. No director, unless it was the chairman, attended to any details not brought before the board either by the chair- man or by the general manager. Mr. John Cory stated in his affidavit the general course of business at board meetings, and his cross-exami- nation does not substantially differ from the account he there gives. But it is suggested that Mr. Cory is responsible because this and other portions of the system were not faithfully adhered to. And, indeed, what is really made the test of his responsibility is that he did not find out what was fraudulently withheld from his knowledge. So the warning letters of the auditor, which were never suffered to reach him, are suggested as warnings to him which he ought not to have neglected. Again, there was the insufficient striking out of bad and doubtful debts, by which it is alleged that the amounts paid in divi- dends to himself and other directors, as well as^ shareholders, are by a process of reasoning and calculation assumed to be payments out of capital. These things are all assumed to have been done as though done with knowledge and intention, while at the same time the ad- mission is made that there was no evil mind or conscious fraud. Now I think such things, if done with evil mind and intention, would be fraud, and it comes back again to the proposition that the respon- sibility must be based upon the assumption that Mr. Cory is respon- sible because he did not find out the fraudulent knaves by whom he was surrounded. One was his own brother, another was the general manager, and, once I arrive at the conclusion that there were those about him whose interest and object it was to deceive him, I certainly do not think that the things which were designedly concealed from him are things which ought to be relied upon as matters for which he was responsible. In the view I take the whole of the eviden'ce — which is relevant and important to the question, did Mr. Cory know- ingly permit the things to be done which were done — becomes to my mind entirely immaterial if one is to start with the assumption that he knew nothing about them. Dealing with the several heads of charge as they have been formulated in the judgment of Mr. Justice Wright — viz., negligence, breaches of trust in respect of advances made contrary to said articles of association, and payment of divi- dends out of capital. I think each and all of them may be disposed of by the proposition that Mr. Cory was not himself conscious of any one of these things being done, and that unless he can be made re- sponsible for not knowing these things, as Mr. Justice Wright put it, unless he is shown to have exhibited a complete neglect of the duties he had undertaken, the charges are not made out. The charge of neglect appears to rest on the assertion that Mr. Cory, like the other DOTEY V. COKY. 383 directors, did not attend to any details of business not brought be- fore them by the general manager or the chairman, and the argument raises a serious question as to the responsibility of all persons hold- ing positions like that of directors — how far they are called upon to distrust and be on their guard against the possibility of fraud being committed by their subordinates of every degree. It is obvious that if there is such a duty it must render anything like an intelligent devolution of labor impossible. Was Mr. Cory to turn himself into an auditor, a managing director, a chairman, and find out whether audi- tors, managing directors, and chairman were all alike deceiving him ? That the letters of the auditors were kept from him is clear. That he was assured that provision had been made for debts and that he believed such assurances is involved in the admission that he was guilty of no moral fraud ; so that it comes to this — that he ought to have discovered a network of conspiracy and fraud by which he was surrounded and found out that his own brother and the managing director (who have since been made criminally responsible for frauds connected with their respective offices) were inducing him to make representations as to the prospects of the concern and the dividends properly payable which have turned out to be improper and false. I cannot think that it can be expected of a director that he should be watching either the inferior officers of the bank or verifying the calculations of the auditors themselves. The business of life could not go on if people could not trust those who are put into a posi- tion of trust for the express purpose of attending to details of man- agement. If Mr. Cory was deceived by his own officers — and the theory of his being free from all fraud assumes under the circum- stances that he was — there appears to me to' be no case against him at all. The provisions made for bad debts, it is well said, was inadequate, but those who assured him that it was adequate were the very persons who were to attend to that part of the business — and so of the rest. If the state and condition of the bank were what were represented, then no one will say that the sum paid in dividends was excessive. If I assume, as I do, that Mr. Cory acted upon repre- sentations made to him which he believed and which came from the officers of the bank to whom he was, in my judgment, justified in giv- ing credit, the discussion of whether the dividends actually paid were or were not properly divisible, has no bearing on Mr. Cory's liability, and I am very reluctant to give any opinion upon it, inasmuch as the question may arise when it may be necessary to decide it. I depre- cate my premature judgment. My Lords, I am, as I have said, very reluctant to enter into a question which for the reasons I have given does not arise here, and into which the Court of Appeal has entered at some length. The only reason why I refer to it at all is lest by silence I should be supposed to adopt a course of reasoning as to which I am not satisfied that it is correct. I doubt very much whether such questions can- ever be treated in the abstract at alL 384 DOVBY V. CORY. The mode and manner in which a business is carried on, and what is usual or the reverse, may have a considerable influence in deter- mining the question what may be treated as profits and what as capi- tal. Even the distinction between fixed and floating capital which in an abstract treatise like Adam Smith's " Wealth of Nations " is appropriate enough, may with reference to a concrete case be quite inappropriate. It is easy to lay down as an abstract proposition that you must not pay dividends out of capital, but the application of that very plain proposition may raise questions of the utmost difSculty in their solution. I desire, as I have said, not to express any opinion, but as an illustration of what difficulties may arise the example given by the learned counsel of one ship being lost out of a considerable number, and the question whether all dividends must be stopped until the value of that lost ship is made good out of the further earn- ings of the company or partnerships, is one which one would have to deal with. On the one hand, people put their money into a trading concern to give them an income, and the sudden stoppage of all divi- dends would send down the value of their shares to zero and possibly involve its ruin. On the other hand, companies cannot at their will and without the precaution enforced by the statute reduce their capi- tal ; but what are profits and what is capital may be a difficult and sometimes an almost impossible problem to solve. When the time comes that these questions come before us in a concrete case we must deal with them, but until they do I, for one, decline to express any opinion not called for by the particular facts before us, and I am the more adverse to doing so because I foresee that many matters will have to be considered by men of business which are not altogether familiar to a Court of law. I move that this judgment be affirmed and this appeal dismissed with costs. [LoED Macnaghten delivered a short concurring opinion.] LoKD Davey. . . . The respondent, in his affidavit, states generally that he was from first to last under the honest and genuine belief that the affairs of the company were in a sound and solvent condition, and that its business was being carried on at a profit, and that its net pro- fits for the time being were amply sufficient to justify the dividends which were from time to time during his directorship paid to the share- holders. And he adds that the generalmanager and branch managers were, so far as he knew, men of unquestioned confidence and integrity, and that he and his co-directors were compelled by the magnitude of the business and the exigencies of the case generally to rely upon (and he did rely upon) these officials in all ordinary matters relating to the accounts of customers and other questions of detail. And he deals specifically with the various matters alleged in the liquidator's evidence on the same lines. The respondent was cross-examined on his affidavit at great, but not unnecessary, length. I am not, I think, doing injustice to the appellant's case when I say that reliance was chiefly placed on the " weekly states " and " quarterly returns " made DOVEY V. CORY. 385 by the brancli managers, or that, if he cannot succeed in fixing the respondent with liability on these documents, his case fails. These returns were laid on the table in the board room at each meeting of the directors. A comparative analysis of them, made by the skilled accountant who advises the appellant, does, I think, show that certain accounts which were treated as good by the general manager in the preparation of the balance-sheets submitted by him to the directors were, in fact, irretrievably bad, and it is difficult to acquit the general manager of improper conduct in including them as assets.' The re- spondent says in his affidavit that the " weekly states " consisted each week of a very large and voluminous pile of sheets, which it would have taken the directors a couple of days to go through, and that it was the duty of the general manager to go through the weekly states, with the letters of the branch managers accompanying them, and to place upon the agenda any points arising upon them which he consid- ered ought to be brought to the attention of the directors ; and upon the discussion of such points the documents were, when necessary, referred to ; but, except in such cases, the weekly states were not con- sulted by the directors, tut they relied on the general manager going carefully through them and drawing their attention to any matter requiring their consideration. On cross-examination he adhered to this statement. He added that the chairman also went through them often individually, and he did so for the board. He admitted that before recommending a dividend he did not look at all the accounts or look at the books themselves, but he said that the directors looked at the documents which were put before them by the manager — the amount which he considered was doubtful and bad — and they made a reserve for it. He also said that it was never brought before him that amounts due from bankrupt debtors were included in the balance- sheets of each year, and he never heard of any single case of that kind. It further appeared from the evidence of other witnesses that the branches of the bank were regularly visited and their books examined by the chairman and two inspectors. In this state of the evidence, I ask whether the course of business at the board meetings as described by the respondent was a reasonable course to be pursued by the re- spondent and other directors, or whether the knowledge that might have been derived from a careful and comparative examination of the weekly states and quarterly returns from the different branches of the bank ought to be imputed to the respondent, or alternatively, whether he was guilty of such neglect of his duty as a director as would render him liable to damages ? I do not think that it is made out that either of the two latter questions should be answered in the affirmative. I think the respondent was bound to give his attention to and exercise his judgment as a man of business on the matters which were brought before the board at the meetings which he attended, and it is not proved that he did not do so. But I think he was entitled to rely upon the judgment, information, and advice of the chairman and gen- 386 ABERDEEN EAILWAY CO. v. BLAIKIE. eral manager, as to whose integrity, skill, and competence lie had no reason for suspicion. I agree with what was said by Sir George Jes- sel in ''HallmarKs Case" (9 Ch. D., 329), and by Mr. Justice Ghitty in " In re Denham & Co." (25 Ch. D., 762), that directors are not bound to examine entries in the company's book. It was the duty of the general manager and, possibly, the chairman to go carefully through the returns from the branches, and to bring before the board any matter requiring their consideration, but the respondent was not, in my opinion, guilty in negligence in not examining them for him- self, notwithstanding that they were laid on the table of the board 'for reference. Th,e case is no doubt one of some difficulty, but the appellant has not made out to my satisfaction that the respondent wilfully (as that term is explained in the cases I have referred to) misappropriated the company's funds in payment of dividends. [LoKD Bkampton concurred.] Judgment affirmed. Appeal dismissed. , SECTION" III. Special Interest of Director. — How affecting Action taken by Board. Dealings between Director and Corporation.^ ABEEDEEN EAILWAY CO. v. BLAIKIE. 1854. 1 Macqueen, 461.2 In the House of Lords, on appeal from the Scotch Court of Session. The action was by Messrs. Blaikie, iron-founders in Aberdeen, against the Eailway Company for performance of a contract whereby the Company had agreed to purchase and accept from Messrs. Blaikie certain iron chains, which they were to manufacture for the Company at the rate of 81. 10s. per ton. The summons concluded for imple- ment of the contract or for damages. The principal defence was, that Mr. Thomas Blaikie, the managing partner of the Pursuers, was at the time of the contract a Director, and indeed Chairman, of the Eailway Company, and so incapacitated for dealing in the character with his own iirm. The Court of Sessions held that the Companies' Clauses Consoli- dated Act (8 Vict. c. 17, s. 88 & 89,) did not nullify the contract, although under it the contractor ceased to be a Director. They there- fore decide in favor of the Pursuers. Hence this appeal. 1 See also, post, chapter on Power of an insolvent Corporation to prefer particular Creditors — Ed. 2 Arguments and part of opinions omitted. — Ed. ABERDEEN RAILWAY CO. V. BLAIKIE. 387 The Solicitor General (Sir B. BethelT) and Mr. Gordon, for appellants. Mr. Rolt, and. Mr. Macfarlane, for respondents. The LoKD Chancellor (Loed Ceanwokth). . . . This, therefore, brings us to the general question, whether a Director of a Eailway Company is or is not precluded from dealing on behalf of the Com- pany with himself, or with a firm in which he is a partner. The Directors are a body to whom is delegated the duty of manag- ing the general affairs of the Company. A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corpo- ration whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. (See Mr. Hud- son's Case, 16 Beav. 485.) And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect. So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into. It obviously is, or may be, impossible to demonstrate how far in any particular case the terms of such a contract have been the best for the interest of the cestui que trust, which it was possible to obtain. It may sometimes happen that the terms on which a trustee has dealt or attempted to deal with the estate or interests of those for whom he is a trustee, have been as good as could have been obtained from any other person, — they may even at the time have been better. But still so inflexible is the rule that no enquiry on that subject is permitted. The English authorities on this head are numerous and uniform. The principle was acted on by Lord King in Keech v. Sandford, Select Cases, temp. King, p. 61, and by Lord Hardwick in Whelpdale V. Coohson, 1 Ves. Sen. 8, and the whole subject was considered by Lord Eldon on a great variety of occasions. It is sufficient to refer to what fell from that very learned and able judge in Ex parte James. It is true that the questions have generally arisen on agreements for purchases or leases of land, and not, as here, on a contract of a mercantile character. But this can make no difference in principle. The inability to contract depends not on the subject matter of the agreement, but on the fiduciary character of the contracting party, and I can not entertain a doubt of its being applicable to a party who is acting as managei: of a mercantile or trading business for the bene- fit of others, no less than to that of an agent or trustee employed in selling or letting land. Was then Mr. Blaikie so acting in the case now before us ? — if he 388 ABEKDEBN RAILWAY CO. V. BLAIKIE. was, did lie while so acting, contract on behalf of those for whom he was acting with himself ? Both these questions must obviously be answered in the affirmative. Mr. Blaikie was not only a Director, but (if that was necessary) the Chairman of the Directors. In that character it was his bounden duty to make the best bargains he could for the benefit of the Company. While he filled that character, namely, on the 6th of February, 1846, he entered into a contract on behalf of the Company with his own firm, for the purchase of a large quantity of iron chairs at a certain stipulated price. His duty to the Company imposed on him the obli- gation of obtaining these chairs at the lowest possible price. His personal interest would lead him in an entirely opposite direc- tion, would induce him to fix the price as high as possible. This is the very evil against which the rule in question is directed, and I here see nothing whatever to prevent its application. I observe that Lord FuUerton seemed to doubt whether the rule would apply where the party whose act or contract was called in ques- tion is only one of a body of Directors, not a sole trustee or manager. But, with all deference, this appears to me to make no difference. It was Mr. Blaikie's duty to give to his co-Directors, and through them to the Company, the full benefit of all the knowledge and skill which he could bring to bear on the subject. He was bound- to assist them in getting the articles contracted for at the cheapest possible rate. As far as related to the advice he should give them, he put his interest in conflict with his duty, and whether he was the sole Director or only one of many, can make no difference in principle. The same observation applies to the fact that he was not the sole person contracting with the Company ; he was one of the firm of Blaikie, Brothers, with whom the contract was made, and so inter- ested in driving as hard a bargain with the Company as he could induce them to make. It cannot be contended that the rule to which I have referred is one confined to the English law, and that it does not^ apply to Scot- land. It so happens that one of the leading authorities on the subject is a decision of this House on an appeal from Scotland. I refer to the case of The York Buildings Company v. Mackenzie, decided by your Lordships in 1795. The principle, it may be added, is found in, if not adopted from, the civil law. In the Digest is the following passage : " Tutor rem pupilli emere non potest: idemque porrigendum est ad similia; id est ad curatores, procuratores, et quinegotia aliena gerunt." (Dig., Lib. xviii., t. 1, c. 34, s. 7.) In truth, the doctrine rests on such obvious principles of good sense that it is difficult to suppose there can be any system of law in which it would not be found. ABERDEEN EA.ILWAY CO. V. BLAIKIE. 389 It was further contended that whatever may be the general prin- ciple applicable to questions of this nature the Legislature has in cases of corporate bodies like this Company modified the rule. The statute, i. e. the Companies' Clauses Act, it was argued, has impliedly, if not expressly recognized the validity of the contract, by enacting that its effect shall be to remove the Director from his office ; indicating thereby that a binding obligation would have been created, which would render the longer tenure of the office of Director inexpe- dient ; and your Lordships were referred to the case of Foster v. The ' Oxford, Worcester, and Wolverhampton Railway Company. That was an action for breach of a contract under seal, whereby the defendants covenanted with the plaintiffs (as in the case now before your Lord- ships) to purchase from them a quantity of iron. The defendants pleaded that, at the time of the contract one of the plaintiffs was a Director of their Company, and to this plea there was a general demurrer. That such a contract would in this country be good at common law is certain. The rule which we have been discussing is a mere equi- table rule, and therefore all the Court of Common Pleas had to consider was how far the contract was affected by the statute. The decision was that the statute left the contract untouched, and that its opera^ tion was only to remove the Director from his office. The 86th and 86th sections of the English statute 8th and 9th Vict., c. 16, on which the Court proceeded, are in the same words as the 88th and 89th sec- tions of the Scotch statute, and the Counsel of your Lordships' bar relied on this decision as being strictly applicable to the ease now under appeal. But there is a clear distinction between them. In Scotland there is no technical division of law and equity. The whole question, equitable as well as legal, was before the Court of Session. All that the Court of Common Pleas decided was that a contract clearly good at law was not made void by an enactment that its effect should be to deprive one of the contracting parties of an office. This decision will not help the Eespondents unless they can go further and show that the statute has had the effect of making valid a contract which is bad on general principles, that is to say, principles enforce- able here only in equity, but not recognized in our Courts of common law. I can discover no ground whatever for attributing to the statute any such effect. Its provisions, however, will still be applicable to the case of Directors who become interested in contracts, as representatives or otherwise, and not by virtue of contracts made by themselves. I have therefore satisfied myself that the Court of Session came to a wrong conclusion. I therefore move your Lordships that this Interlocutor be reversed. [LoKD Bkougham delivered a concurring opinion.] Interlocutor reversed. 390 BENT V. PRIEST. BENT V. PEIEST. 1881. 10 Missouri Appeals, 543.1 Action by the receiver of the St. Louis Mutual Insurance Company to recover securities alleged to have been paid to defendant to induce him, as a director of said company, to consent to a proposed transfer of the assets of the company to the Mound City Life Insurance Company. It appeared that the Mound City Life Insurance Company agreed to pay a large sum to Peck, a stockholder in the St. Louis Co., for his services in procuring a reinsurance of the St. Louis Co. risks in the Mound City Co. Before the contract of reinsurance was effected, Peck promised to pay the firm of Priest & Wyman a certain sum in case the proposed reinsurance should be effected. Thereafter, Priest, in his capacity of director of the St. Louis Company, advocated and voted for the proposed measure, without disclosing the agreement between his firm and Peck. The firm of Priest and Wyman subse- quently received valuable securities from Peck in satisfaction of his promise. Upon the evidence, the court held, that this contract of reinsur- ance " must be taken to have been a valid one, beneficial alike to the selling and purchasing company, and to those beneficially interested therein." Judgment below for plaintiff. Defendant appealed. A. J. P Garesche, and John M. Holmes, for appellant. Thomas T. Gantt, and John M. Glover, for respondent. Thompson, J. . . . The principles of law applicable to this transac- tion are very familiar and very well settled. Directors of a corpora- tion are regarded by courts of equity as trustees for the corporation and for its members. Great Luxembourg R. Co. v. Magnay, 25 Beav. 586 ; Gaskell v. Chambers, 26 Beav. 360 ; Hodges v. Screw Co., 1 E. I. 312. A court of equity will never permit a trustee, without the know- ledge and consent of his cestui que trust, to speculate out of his trust, or to retain any gain which may have accrued to him personally there- from, but will subject his conduct to a rigid scrutiny, and will compel him to account to his cestui que trust for all profits which he may make outof the trust relation. Ex parte James, 8 Ves. Jr. 337 ; Faw- cett V. Whitehouse, 1 Euss. & M. 132 ; Hichens v. Congreve, 1 Euss. & M. 160, note ; Kimber v. Barber, L. E. 8 Ch. 56 ; Bentley v. Craven, 18 Beav. 75 ; Gillett v. Peppercorne, 3 Beav. 78 ; Michand v. Girod, 4 How. 503 ; Hamilton v. Wright, 9 CI. & Fin. Ill ; Blisset v. Daniel, 10 Hare, 493 ; Tennant v. Trenehard, L. E. 4 Ch. 637 ; Bowes v. City, 11 Moo. P. C. 463 ; Tyrrell v. Bank, 10 H. L. Cas. 26 (affirming s. c. 27 Beav. 273). This rule is applied with full force to directors of 1 Statement abridged from opinion. Arguments omitted; also the greater part of the opinion, — Ed. CUMBEELAND COAL CO. V. SHEBMAN. 391 corporations. Great Luxembourg B. Co. v. Magnay, 25 Beav. 586 ; Imperial, eic, Assn. v. Coleinav,, L. E. 6 H. L. 189 (reversing s. c. L. E. 6 Ch. 558) ; Yorlt v. Hudson, 16 Beav. 485 ; Parker v. McKenna, L. E. 10 Ch. 96 ; Parker v. Nickerson, 112 Mass. 196 ; Poor v. Bail- road Co., 59 Me. 277 ; Bedmond v. Dickerson, 9 N. J. Eq. 509 ; Pick- ering's Case, L. E. 6 CL. 525 ; Madrid Bank v. Belli/, L. E. 7Eq. 442; Ex parte Bennet, 18 Beav. 339 ; Cumberland Coal Co. v. Sherman, 30 Barb. 653 ; Butts v. Wood, 37 N. Y. 317 ; Blake v. Bailroad Co., 56 'N. Y. 485. It may, we think, be stated, as a universal application of this rule, that whenever a director of a corporation proposes to its shareholders, or to his co-directors, a contract, or, acting as such director, makes, assents to, or ratifies a contract for the corporation, from which he himself is to derive a secret profit, that profit belongs to the company, and he will be compelled, in a court of equity, to account for it and to surrender it up to the company. It is not essen- tial to the liability of the director that the company has suffered a loss from what he has done ; it is sufB.cient that he has gained a profit through it. Whether the contract which he has made, or in the making or ratification of which he has concurred, was in point of fact beneficial or injurious to the company, is wholly an immaterial inquiry. The broad principle is, that whatever he acquires by virtue of his fiduciary relation, except in open dealings with the company, such as a director in common with strangers may sometimes have, belongs not to him, but to the company. Nothing else than this satisfies the demands of the law. [Eemainder of opinion omitted.] Judgment affirmed. Davies, J., IN CUMBEELAND COAL CO. v. SHlEEMAN. 1859. 30 Barbour (JV. T. Supreme Court), 653, pp. 572, 573. Daties, J. . . . There can be no question, I think, at the present time, that a director of a corporation is the agent or trustee of the stockholders, and as such has duties to discharge of a fiduciary nature, towards his principal, and is subject to the obligations and disabilities incidental to that relation. . . . Neither are the duties or obligations of a director or trustee altered from the circumstance that he is one of a number of directors or trustees, and that this circumstance diminishes his responsibility, or relieves him from any incapacity to deal with the property of his cestui que trust. The same principles apply to him as one of a num- ber, as if he was acting as a sole trustee. It is not doubted that it has been shown, that the relation of the director to the stockholders is the same as that of the agent to his principal, the trustee to his 392 JESUP V. ILLINOIS OENTKAL E. CO. cestui que trust ; and out of the identity ol these relations necessa- rily spring the same duties, the same danger, and the same policy of the law. In the language of the plaintiffs' counsel, it is justly said : "Whe- ther it be a director dealing -with the board of which he is a member, or a trustee dealing with his co-trustees and himself, the real party in interest, the principal is absent — the watchful and effective self inter- est of the director or trustee seeking a bargain, is not counteracted by the equally watchful and effective self interest of the other party, who is there only by his representatives, and the wise policy of the law treats all such cases as that of a trustee dealing with himself." The number of directors or trustees does not lessen the danger or insure security, that the interests of the cestui que trust will be pro- tected. The moment the directors permit one or more of their num- ber to deal with the property of the stockholders, they surrender their own independence and self control. If five directors permit the sixth to purchase the property intrusted to their care, the same thing must be done with the others if they desire it. Increase of the num- ber of the agents in no degree diminishes the danger of unfaithful- ness. Whichoote Y. Lawrence (3 Vesey, 740) was a case of several trustees. In this case Lord Loughborough says : " There was more opportunity for that species of management, which does not betray itself much in the conduct and language of the party, when several trustees are acting together. I am sorry to say there is greater negli- gence where there is a number of trustees." Haklan, J., IN JESUP V. ILLINOIS CENTEAL E. CO. 1890. 43 Federal Reporter, 483, pp. 499, 500. Hablan, J. ... a contract, in the name of a corporation, by its board of directors, is not void, if otherwise unassailable, simply be- cause some of the directors, constituting a minority, used their position with the effect, or even for the purpose, of advancing their personal interests to the injury of the company they assumed to represent. The lease here in question, as we have seen, was approved by the nine directors of the Dubuque Company, five of whom had no personal ends to subserve by imposing upon the company a lease that was unreason- able or harsh in its terms. On the contrary, as already stated, at least four of that five were holders of the stock of the Dubuque Company, and therefore interested to guard it against unnecessary or improper burdens. We need not inquire as to the extent of their information touching the facts bearing upon the question of the proposed lease. It is sufB.cient to say that they approved it, and that their approval was not, so far as the record shows, obtained through misrepresenta- JESUP V. ILLINOIS CENTRAL E. CO. , 3&3 * tioii or concealment by their co-directors, who, in view of their per- sonal interest in the Cedar Falls Company, ought not to have par- ticipated in deciding the question of lease or in the making of the lease. An instructive case upon this point is U. S. Boiling/ Stock Co. V. Atlantic & G. W. B. Co., 34 Ohio, 450, 465. That was a suit upon a contract by a railroad company for rolling stock. The contract was approved by eight directors of the former company (the whole number of directors being thirteen, but only eight acted), two of the number acting being also directors of and interested in the rolling-stock com- pany. The defense was that the rent was not fair, nor the contract binding, because of the interest which some of the directors had in . 1864, 16 Iowa, 284, pp. 293-296. In Surden v. Burden, A. d. 1896, 8 New York Appallate Division, 160, pp. 171-174, it is 4:00 JUNKINS V. UNION SCHOOL DISTRICT. JUNKINS V. UNION SCHOOL DISTEICT. 1855. 39 Maine, 220.1 Assumpsit on account annexed. At a meeting of the school dis- trict it was voted to erect a school-house and to raise money for that purpose. At the same meeting the plaintiff and two other persons were chosen a committee to superintend the erection of the school- house and the laying out and expending the money raised by the. dis- trict. The committee employed the plaintiff to do certain work in connection with the building of the school-house. The case was submitted to the full court upon report from Nisi Prius. N. D. Appleton, for defendant. Eastman and Leland, for plaintiff. Sheplet, C. J. ... It is insisted that the committee could not law- fully employ one of its own members to do such work ; that the trust was a personal one to be performed by all. A majority of a committee so composed is authorized by statute to act. Oh. 1, § 3, art. 3. A majority having such authority to do what all its members might, constitutes a party capable of employing ; and one of the members of the committee, not acting as such, but as an individual, constitutes another party capable of contracting or of being employed. In such case the contract is not made or the person employed by a committee attempting to make a contract or incur a liability with itself. A committee might thus act corruptly and fraudulently, by two dif- ferent members making contracts with each of the others, so that each should have a contract in the performance of the work entrusted to all. In such case their contracts would be set aside. There is in this case no proof authorizing an inference that there has been fraudu- lent or corrupt dealing. * held, that a contract between two corporations having one or more common directors (if not disapproved by a majority of the stockholders) will not be avoided at the suit of a minority stockholder, unless the contract were fraudulent and injurious to the corporate property. The court say that the contract may be voidable at the election of the corpora- tion. But the minority stockholders "are not entitled to make such election in behalf of the corporation." See, however, note to Farmers' Loan and Trust Co. v. New York and Northern R. Co., in a subsequent chapter. — Ed. 1 Only so much of the report is given as bears on a, single point. Argument omit- ted.— Ed. JANNET V. MINNEAPOLIS INDUSTRIAL EXPOSITION. 401 JANNEY V. MINNEAPOLIS INDUSTEIAL EXPOSITION et al 1900. 79 UvMiesota, 488.1 Appeal from District Court for Hennepin County, where the case was tried before Simpson, J. ; who found in favor of plaintiffs, and denied a motion for a new trial. Plaintiffs were directors and creditors of the defendant corporation. One question in their litigation with other stockholders who were made defendants grew out of the purchase of corporate property by plaintiffs at an assignee's sale. The facts found by the trial court are in part as follows : — The corporation, having become insolvent, made an assignment for the benefit of creditors. The assignee was ordered by the court to advertise for bids for the corporate property, or any part thereof. But no sale was thus effected, except that of two lots of land. Sub- sequently, by order of the court, the assignee was authorized to adver- tise and sell the remaining property so assigned at public vendue to the highest bidder. At such sale there was no bidder except the plaintiff Jauney, acting for himself and other creditors (now co-plain- tiffs). Janney, in order to protect his own interests and that of the other plaintiffs, did, in good faith, bid for the property the sum of $25,100. The assignee reported the sale to the court, and, after a hearing therein, it was duly confirmed, and the assignee ordered to convey to Janney, which was done ; he paying the assignee in cash f 26,100. The sale was fairly and lawfully conducted, and the amount realized was the highest sum which the assignee was able to obtain for the property. The property so sold to the plaintiffs was, according to the expert testimony, then worth the sum of $100,000. The trial court did not find that if a resale of the property was ordered it would bring an increased price, or that there was any reasonable probability that such would be the case, other than may be inferred, if at all, from the value of the property as found by the court. The defendant stockholders, in their answer, objected to the sale ; and asked that the plaintiffs be charged with, and be required to account for, the difference between the purchase price paid by the plaintiffs for the property and its value. Their answer also prayed for general relief. Hale & Montgomery, for appellants. Hahn, Belden & Hawley, for respondents. Stakt, C. J. . . . The appellants further claim that, even if it be conceded that plaintiffs may enforce the stockholders' liability for the payment of their debts against the corporation, still the trial court 1 statement abridged from opinion. Arguments omitted. Only so much of the opinion is given as relates to a single question. — Ed. 402 JANNET V. MINNEAPOLIS INDUSTRIAL EXPOSITION. erred in its conclusions of law, for the reason that the court, upon the facts found, ought to have ordered a resale of the property at an upward bid above the amount paid by the plaintiffs, or applied pro tanto upon their debts against the corporation the difference between the amount they paid for the property and its value as found by the court. This conclusion rests upon the assumption that in purchas- ing the property at the assignee's sale, pursuant to the order of the court, the plaintiffs violated their duties as directors. If the pre- mises are correct, the conclusion would seem to follow that the stock- holders are entitled to some relief if not guilty of laches. But are the premises correct ? This question must be answered from a con- sideration of the special facts of this case with reference to the gen- eral principles of law applicable to the rights, duties, and disabilities of directors of a corporation. The relation between a corporation and its directors is that of principal and managing agents. They are not trustees in the sense of holding the legal title to any of its property for its benefit, or that of its stockholders or its creditors. Still, the relation is essentially a fiduciary one, and upon sound principles of public policy directors are inhibited, as a general rule, from purchasing for their own benefit the property of the corporation, very much as a trustee is disqualified from purchasing for his own advantage the property of his cestui que trust. This proposition, upon principle and authority, is unquestion- ably the law. Beach v. Miller, 130 111. 162, 17 Am. St. Eep. 291, 298, notes ; 3 Thompson, Corp. § 4071 ; 2 Cook, Stockh. § 653. It is, however, equally clear upon principle that where the legal title and control of all of the property of a corporation is vested in an assignee or receiver, in trust for the benefit of its creditors, and the court orders the property sold for the purposes of the trust, a director- creditor, having interests t o protec t, may in good faith purchase the property at such sale, and acquire thereby the absolute title thereto. JDspeciaiiy is this so where there are other active directors, and the sale is made subject to confirmation by the court, and is approved by it. But in all such cases the director must act in the utmost good faith, for the transaction will be jealously scrutinized. 1 Morawetz, Priv. Corp. § 527 ; 3 Thompson, Corp. §§ 4068, 4074 ; Barbery. Bowen, 47 Minn. 118, 49 N. W. 684 ; Twin-Lick Oil Co. v. Marbury, 91 U. S. 587; Appeal of Lush, 108 Pa. St. 162. The facts of this case bring it within the exception to the general rule that directors cannot purchase the property of the corporation for their own benefit. The title, possession, and control of the property were in the hands of an officer of the court (the assignee), and had been for nearly a year prior to the sale. The sale was made by direction of the court, and subject to its confirmation. The plain- tiffs had no control over the property or the assignee, who was the representative of the corporation, its creditors, and its stockholders. They had no power to prevent or control the sale, which was a judi- CAMPBELL'S CASE. 403 cial one, brought about by the court through its officer. They had material interests to protect by bidding at the sale. They purchased in good faith, at the best price obtainable. The appellants had notice of the sale, and did not object thereto until long afterwards. See Pinkus V. Minneapolis Linen Mills, 65 Minn. 40, 67 N. W. 643. The sale was fairly conducted, and was confirmed by the court. There were twenty-one directors at the time besides the plaintiffs. These facts justify the conclusion of the trial court to the effect that the plaintiffs, in purchasing the property to protect their own interests, did not violate their duties to the corporation. The facts found by the court justify its conclusions of law. Order affirmed. CAMPBELL'S CASE. In re COMPAGNIE GENEEALB DE BELLEGAEDE. 1876. Law Reports, i Chancery Division, 470.1 Bt the articles of association of the Compagnie Gen^rale De Belle- garde, Limited, the directors were authorized to borrow ; the repay- ment to be secured by mortgage, or by debentures, or in such other manner as the directors might think expedient. In 1872 the direct- ors resolved to borrow £90,000 by mortgage obligations, and issued a prospectus offering mortgage certificates at par. Finding that they were unable to place the debentures at par, the directors proceeded to issue bonds to the public at £92, 10s. per cent. Of the bonds so issued, a director named Campbell took one set of the nominal value of £1320, for which he paid £1221, being at the rate of 92 1-2 per cent., and also another set of the nominal value of £680, for which he paid £629, being at the same rate. In the company's books Camp- bell was credited with payment of the two sums of £1320 and £680 in full ; and was debited with the two sums of £99 and £61, under the entry, " Commission on mortgage obligations." The company having been, on Jan. 15, 1876, ordered to be wound up, the official liquidator now took out a summons that Campbell might be ordered to pay the two sums of £99 and £51. It appeared that all the bonds were issued at £92, IDs. per cent., except two lots of the aggregate amount of £340, which were issued without any discount. Sir H. Jackson, Q. C, and Terrell, for the official liquidator. Kay, Q. C, and W. Benshaw, for Campbell. Bacon, V. C. This case, in one point of view, is of importance, because it has been argued as if it fell within the principle which the Courts of Equity have always adhered to, not to permit an agent, or 1 statement abridged. Arguments and part of opinion omitted. —Ed. 404 Campbell's case. director, or any person in a fiduciary character, and having power and influence in the concern, to make a profit by his dealings with the concern. But the fact that any profit was made I find to be wholly wanting in this case. There was no profit. The directors publish a prospectus, in which they say, " We are going to issue bonds at par." It is all very well to say so, but when they come to issue these bonds, people will not take them at par. What are they to do ? They find they cannot place them at par, and they sell them on the best terms they can, and, except in the two particular cases mentioned, they issue all these debentures on the same terms as those on which the debentures taken by Mr. Campbell were issued. What is there unlawful in that ? What is there to prevent the directors buying on the same terms a s other peo ple? The case, when examined, does not fall within the principle upon which the application is made. The section of the Companies Act which has been referred to is really wide of the pre- sent case. That section compels restitution from directors when they shall have misapplied or retained in their own hands, or become liable or accountable for, any moneys of the company. But, in this instance, when did the difference between par and 92 1-2 per cent, ever become the money of the company ? It was money which they never received, and which was never theirs. The section proceeds, " or has been guilty of any misfeasance or breach of trust in relation to the company." What misfeas ance or breach of trust was Mr. Campbell guilty of in advancing to the company, on exactly th e same %r ms as everybody else, money which they were in want o f ? It was not money for which he had become liable or accountable. The com- pany's books have been kept, as it appears to me, in the proper and regular way. It is necessary for book-keeping purposes, that there should be entered on the credit side of the ledger the aggregate amount of all the debentures representing the debt due from the company. Then the company debit the amount unpaid, and whether that amount be called commission or discount, the true nature of the transaction cannot be obscured. The directors did that which it was lawful for them to do — they issued debentures at a certain discount. / Mr. Campbell took them as other people took them, and paid his money for them. He derived no sort of profit from them ; the advantage, if any, was all on the side of the company. ) [Eemainder of opinion omitted.] / Summons dismissed. SEYMOUR V. SPRING &o. ASSOCIATION. 405 SEYMOUE V. SPRING &c. ASSOCIATION. 1895. 144 New Torh, 333.1 Finch, J. . . . But the further claim is made that, because Hotch- kiss and Seymour were o£B.cers of the corporation, holding a fiduciary relation as trustees or directors, they could not lawfully buy the v alid and outsta nding obligations of the company at less than pa.r and en - force them tor the full amount against the dehtorp . If that be sound doctrine, as is stoutly maintained, if directors cannot in any case invest in the bonds of their own companies except at the peril of a constructive fraud, if they cannot safely buy such bonds below par, because they deem them unduly depressed, if titles to corporate obli- gations passing through their hands become tainted by their touch, it is quite time that the courts should give, what they have not given, a very definite and distinct warning. Some citations of seeming authority are pressed upon us and others exist. The broad rule is stated in Perry on Trusts (§ 428), that "a trustee, executor or as- signee cannot buy up a debt or incumbrance to which the trust estate is liable for less than is actually due thereon, and make a profit to himself," and that is the doctrine invoked in this case as applicable to a director regarded as a trustee of the corporation. But the state- ment, however correct in its application to specific instances, must be taken with the limitations which belong to it. Its foundation is that a fiduciary agent, owing a duty to his principal, cannot make a con- tract for his own benefit which is or may be inconsistent with that duty, and the cases generally are of two kinds. (The trustee buys in the property of his principal at a sacrifice for his own benefit, when, if he bought it at all, it was his duty to do it for his principal, or he makes a contract in behalf of his principal with himself directly or indirectly as the other party to the agreement^ The first class of cases is illustrated by Slade v. Van Vechten (llraige, 26), where the assignee bought in assigned property at a sheriff's sale and claimed the personal benefit of his bargain ; and the second class by Munson V. S. G. & C. R. B. Co. (103 N. Y. 58), in which the directors con- tracting had a private and personal interest, possibly adverse to their fiduciary duty. Almost, if not quite all, of the cases cited by the learned counsel for the appellant belong to one or the other of these two classes. But they do not decide this case, for Hotchkiss and Seymour neither bought in any property of the company nor dealt with the corporation in any respect. They made their contract, not with it, but with thir d persons capable of protecting tKeir own righ ts. and_ bought nothing which the corporation owned or to which it had a right. We must go to still other cases, founded it may be to some extent upon similar ideas of fiduciary duty, to discover even an ap- 1 statement and arguments omitted. Only part of the opinion is given. — Ed. 406 SEYMOUE V. SPRING &0. ASSOCIATION. proximate authority. There are cases of co-partnership in which the general rules pertaining to that specific relation might prov^ to be broad enough to cover the purchase of the debt owing by the firm (Am. Bk. Note Co. v. Edson, 56 Barb. 89), and other cases in which the duties flowing from a liquidation conducted by the trustee, and as to which he owes a specific trust duty, forbid a purchase by the trus- tee for his own benefit at a discount. But in every class of cases the rule is founded upon the unwillingness of the law to uphold contracts which bring into collision the trust duty and the personal interest, and it is because of that collision, and the temptations which surround it, that it declares the contract voidable at the election of the bene- ficiary without investigating the good or bad faith of the trustee. (The entire basis of the rule consists in this collision between trust duty and personal interest, and the equitable prohibition has no appli- cation where there is no such possible inconsistency There is no such conflict in the ordinary case of the purchase by a director in a going corporation of its outstanding obligations. There is no present duty resting upon him to extinguish them. The time for that has not come, the duty has not arisen, may never arise, the corporation is not prepared to pay, does not contemplate paying, but intends and expects to await the full maturity of the debt. Unless some special fund has been provided, or some special liquidation has been ordered, the director owes no duty to his company to discharge or buy in the out- standing bonds, and may purchase for himself because no inconsistent trust duty has arisen. Why should he not ? ("While the bonds are running to their maturity, and the corporation is not able to extinguish them, is not bound to do so, does not even wish or seek to do so, what does it matter who holds the securities or on what terms they pass from hand to hand f\ It seems to me that we are asked to crowd the rule almost to the verge of an absurdity, and to inflict a vital injury upon business interests by tainting with invalidity the holding by a director of the unmatured obligations of the corporation bought by him in the open market and not put in liquidation or sought to be extinguished. There must at least be some fact or circumstance which charges the trustee with a present duty to act for his company in respect to the bonds, which duty is or may be inconsistent with a personal purchase. No such duty rested upon Hotchkiss and Sey- mour, and they had a right to buy and hold for their own benefit. Indeed, there is a further and equally conclusive answer. If the doctrine invoked applied to this case it would make the purchase not void but voidable at the election of the corporation, and that election must be made promptly and upon suiScient knowledge of the facts. The beneficiary cannot wait and speculate upon the chances of delay, but must act. Here the purchase was made before 1873, and in 1S§0 the corporation is found recognizing and ratifying tie title of the vendees or their successors, making payments to them, and providing for future payments, and it is only after a delay of fifteen year s that an attempt to repudiate the purchase is ma3e! X7 COMMONWEALTH V. BEINGHtTRST. 407 CHAPTEE XI. VOTING EIGHTS OP STOCKHOLDEES. "It seems that, at common law, eacli shareholder is entitled to cast but one Tote, irrespective of the number of shares which he holds ; but there are good reasons for holding that this rule has no applica- tion to ordinary joint-stock business corporations at the present day. The custom of giving the shareholders in such companies a vote for every share has become so well established, that it is fair to imply an intention to follow this custom in the absence of any indication to the contrary. It is generally provided by statute [a general law ap- plicable to all private business corporations], or by express provision in the articles of association of a corporation, that the shareholders shall be entitled to a vote on account of each share." Morawetz on Private Corporations, 2d ed. s. 476a. COMMONWEALTH v. BEINGHUEST. 1883. 103 Pa. State, 134.1 Eeeor to Court of Common Pleas, No. 2, of Philadelphia County. Quo warranto by the Commonwealth of Pennsylvania, ex relatione John P. Verree et als., against Bringhurst et als. to determine the right of the defendants to hold the office of directors of the Philadelphia Iron & Steel Company, a corporation chartered by special Act of April 12, 1867 (P. L. 1211). The suggestion of the relators set forth, in substance, that at the annual meeting certain votes by proxy were received by the inspectors of election under protest; that the inspectors refused to count any of the votes thus given by proxy ; that the defendants, who had re- ceived a majority of the votes given by stockholders in person, were de- clared elected directors ; whereas if the votes given by proxy had been counted together with the votes given in person the relators were elected. Defendants demurred. The court below sustained the demurrer and entered judgment foi defendants. 1 statement abridged. Part of argument omitted. — Ed. 408 COMMONWEALTH V. BEINGHURST. B. C. Dale and Samuel Dickson for plaintiffs in error. The rule of the common law, established when municipal, religious, and charitable corporations were alone known, has no application to trading or monied corporations where the relation of the members is not personal. In the former, the units are persons, in the latter the units are shares. State V. Tudor, 5 Daj', 329. The case of Taylor v. Oriswold (2 Green, N. J. 223) manifests a narrow adherence to common-law doctrines, and the other cases cited on the other side are not authorities. Philips V. Wickham (1 Paige, 590, 598) was the case of a quasi municipal iwrporation. Brovm v. Commonwealth ^3 Grant, 209) was decided on fan express limitation in the charter, and Craig v. Church (7 Norris, 42) vas the case of a religious society. An examination of the general legislation of this State shows that the legislature regarded the right j)f shareholders to vote by proxy as an inherent right without special enactment [citing various Acts]. In all business transactions what one does by another he does himself, and what he can do himself he can do by another. Story on Agency, § 3. If a vote cannot be given by proxy, the Guarantee Trust Company, which is the largest holder of this stock, is disfranchised, for a corporation can only act through an agent. George M. Van Dusen and W. Meyward Drayton, for defendants in error. [Argument omitted.] Meecue, C. J. The relators are stockholders of the Philadelphia Iron and Steel Company. It was incorporated by special Act of 12th of April, 1867. The contention is, whether the stockholders may vote by proxy, in the annual election of officers of the corporation ? Section 2 of the Act declares " the affairs of said company shall be managed by a board of five directors, one of whom shall be the presi- dent, who shall be chosen by the stockholders. All elections shall be by ballot, and ever^' share of stock upon which the required instalments have been paid, shall entitle the holder thereof to one vote.'' Section 3, inter alia, authorizes the corporation to " make all needful rules, regu- lations, and by-laws for the well ordering and proper conduct of the business and affairs of the corporation. Provided the same in no wise conflict with the constitution and laws of this State or of the United States." The charter in no wise refers to voting by proxj% No by-law has been adopted authorizing the stockholders to so vote. In the absence of any express authority in the charter, and without any by-law authorizing it, the question is whether the stockholders may vote by proxy. In other words, is it a power necessarily incident to the corporate rights of the stockholders ? A corporation is the mere creature of the law. It cannot exercise any power or authority other than those expresslj' given by its charter, tor those necessarily incident to the power and authority thus granted, COMMONWEALTH V. BRINGHUEST. 4cr9 and therefore, in estimation of law, part of the same. Wolfx. Q-oddard, 9 Watts, 550 ; Diligent Fire Co. v. Commonwealth, 25 P. F. Smith, 291. The right of voting at an election of an incorporated company by proxy is not a general right. The party who claims it must show a special authority for that purpose. Angell & Ames on Corporations, § 128 ; Philips v. Wickham, 1 Paige's Cases in Chancery, 590. In this case. Chancellor Walworth says, the only case in which it is allowable at the common law is by the peers of England, and that is said to be in virtue of a special permission of the King. He adds : " It is possible that it might be delegated in some cases by by-laws of a corporation, where express authority was given to make such by-laws, regulating the manner of voting." In the People v. Twaddell, 18 Hun, 427, it was held, a stockholder cannot so vote unless -expressl}' authorized by the charter or by-laws. Taylor ^f. Griswold, 2 Green (N. J.) 222, holds that a right of voting by proxy is not essential to the attainment and design of a charter, and even a general clause therein authorizing the companj^ to make by-laws for its government was insufficient of itself to give that right. In State v. Tudor, 5 Day (Conn.) 329, there was no clause in the charter authorizing the stockholders to vote by proxy ; yet the company made a by-law authorizing them to so vote. The validity of this by-law was sustained by a majority of the court. So in People V. Crossley, 69 111. 195, effect was given to a by-law of the corporation, authorizing voting by proxy, the by-law not being in con- flict with the Constitution and laws of the State. That a right to vote bj^ proxy is not a common-law right, and there- fore not necessarily incident to the shareholders in a corporation, appears to have been recognized in Brown v. Commonwealth, 3 Grant, 209, and in Craig v. First Presbyterian Church, 7 Norris, 42. The selection of officers to manage the affairs of this corporation requires the exercise of judgment and discretion. They must be elected by ballot. The fact that it is a business corporation in no wise dis- penses with the obligation of all the members to assemble together, unless otherwise provided, for the exercise of a right to participate in the election of their officers. Although it be designated as a private corporation, yet it acquired its rights from legislative power, and it must transact its business in subordination to that power. As then the re- lators cannot point to any language in the charter expressly giving a right to vote by proxy, and it is not authorized by any by-law, they have no foundation on which to rest their claim. Judgment was correctly entered for the defendants on the demurrer. Judgment affirmed. 410 MACK V. DE BAEDELEBEN COAL AND IKON CO. Stone, C. J., in MACK v. DeBAEDELEBEN COAL AND IRON CO. 1890. 90 Alabama, 396, pp. 401-404. Many other questions material to tlie future government of the Eureka Company have been well and ably argued, and we feel it our duty to notice some of the more important of them. In the act to amend the charter of said company, approved December 6, 1873 — Sess. Acts, 139 — is this language : " No stock [holder], either in his own right, or as proxy or agent for others, shall be entitled to cast more than one-fourth of all the votes at any election of directors." This clause is set forth in the amended bill, and is in that way brought before us. We hold this language means one-fourth of all the votes the shares of stock authorize to be cast. One-fourth of the votes in the Eureka Company, with its present number of shares, is 2,077. It is averred, and not denied, that the DeBardeleben Company, as a corporation, is the owner of more than 4,600 of the Eureka shares. The amended bill charges that "the defendant, H. F. DeBardeleben, as president of the DeBardeleben Coal and Iron Company, and acting as president of Eureka Companj', and David Roberts, as secretary of both of said companies, and with the knowledge and consent and connivance of the defendant A. T. Smythe, a short time prior to the 19th of January, 1890, had a large lot of the stock of the Eureka Company, . . . which was owned and held by the DeBardeleben Coal and Iron Company, . . . transferred into their individual names, that is to say : they had transferred to each of the following persons, who were at that time directors of the DeBardeleben Company, or large stockholders in said compan}', the following number of shares : H. F. DeBardeleben, 500 sliares ; David Roberts, 500 shares ; A. T. Smythe, 360 shares ; M. B. Lopaz, 423 shares ; Robert Adger, 300 shares ; A. M. Adger, 300 shares ; F. J. Pelzer, 300 shares ; leaving in the name of the DeBar- deleben Coal and Iron Company 1,990 of the 4,623 shares : . . . that the said stock so transferred . . . was, and is now, the stock and property of the DeBardeleben Coal and Iron Companj' ; . . . that the transfers to said persons were so made ... for the purpose of avoid- ing and getting around the section of the charter and by-laws of said Eureka above set out. Said transfers of said stock were so made in fraud of the minority stockholders of said Eureka Company, and to enable all of said stock to be voted in the interest, and for the benefit of the DeBardeleben Coal and Iron Companj'.'' The substantial aver- ments of fact in the foregoing extract are not denied in the answers. It is contended for appellees that the said transferrees of the DeBar- deleben Company's stock in the Eureka Company are of right entitled to vote the several shares standing in their names, notwithstanding the statutory inhibition copied above. They rely on the following author!- MACK V. DE BAEDELEBEN COAL AND IKON CO. 411 ties as supporting their contention : In re Stranton I. tb S. Co., 16 Eq. Ca. L. R. 659 ; Pender v. Lushington, 6 Ch. Div. L. R. 70 ; Mof- fattv. Farquhar, 7 Ch. Div. L. R. 591 ; Camden <& Atl. B. B. Co. v. Elkins, 37 N. J. Eq. 273. The English authorities quoted do lend some countenance to their argument, but we can not follow them. The New Jersey case is not fully in point. We think the statutory restraint on the voting power of the stockholders was enacted for ver^- wise and conservative purposes, and that it should be upheld in its integrity. It is perhaps to be lamented that our organic law does not contain a pro- vision applicable to all business corporations aggregate, that no one person, whether natural or artificial, can ever exercise a controlling voice in their organization or government. Giving due consideration to the sworn denials and averments of the answers in this case, we find no ground for imputing vicious purposes in the government of the Eureka Companj' ; but the power one corpo- ration acquires by the ownership of a majority of the stock of another corporation, with which it has business connections, opens an inviting door for verj' pernicious possibilities, which the virtues of the manipu- lators and speculators have not alwaj's enabled them to withstand. The provision we are considering was conceived in the interest, and for the protection of minority stockholders, and deserves to be upheld with a strong hand. The highest function of the law is the protection of the weak against the mighty. On principle, it would seem that the restrictive clause in the amended charter of the Eureka Company is too pronounced and emphatic to be disobeyed, or evaded. What can not be done directly, can not be ac- complished by indirection. No one, except in matters of official trust, can confer on another authority to do what he can not do himself. What one does by another, he does by himself. But we are not with- out authorities in support of our views. Campbell v. Poultney, 6 Gill & Johnson, 94, presented the identical question we have in hand. The question arose on a bill filed to prevent gratuitous transferrees of stock, made that the stock might be voted in the interest of the transferror, who still remained the owner, from voting such stock as an indepen- dent stockholder. The court ruled that the transferror could not increase his voting power by any such device, and chancery would enjoin the casting of a greater number of votes than the transferror himself could have cast. In Webb v. Bidgely, 38 Md. 364, the same doctrine was asserted. — 2 High on Injunctions, § 1231. In State ex rel. Danforth v. Hunton, 28 Ver. 594, a proceeding by quo warranto to test the question of the election of certain persons as directors of a bank, similar principles were declared. It was ruled that, when the transferror could not vote the stock, his gratuitous transfer to another, that the latter might vote it in his interest, and according to his wishes, conferi-ed on that other no greater power than he himself could exer- cise. The court, among other things, said, "The law is not to ba outwitted by cunning devices." r.T 11 ■RTT.'NTOir.TT " 412 VANDEKBILT V. BENNETT. Our conclusions are, that neither the DeBardeleben Conipan3- nor any other stockholder of the Eureka Company, can, either directly or indi- rectly, vote more than one-fourth of all the votes at any election of directors ; that in a proper case chancery will enjoin that company from casting more than one-fourth of the votes ; that if, by reason of votes cast in excess of this restriction, any person or persons are de- clared elected directors, on a proceeding in quo warranto the illegal votes will be disallowed ; and if such disallowance reduces the number of votes cast for such director or directors below a majority of the votes lawfully cast, then a judgment shall be awarded against them, removing them from said ofBce or trust. VANDEEBILT v. BENNETT. 1889. 6 Pa. County Court Reports, 193.^ ' Bill in equity. Exceptions to master's report, C. P. No. 1, Allegheny County. The bill was filed by Cornelius Vanderbilt against Bennett et als., to restrain defendant from exercising the voting power incident to 2,000 shaves of stock in the Pittsburgh & Lake Erie R. E. Co. , owne3*bj' plaintiff ; and to restrain them from interfering with plainttfl^ jp the exercise of his rights of ownership thereof. Defendant filed an answer. The cause was referred to C. S. Fetterman, Esq., as master, whose findings of fact were, in part, as follows-: October 20, 1877, an agreement in writing was entered into by vari- ous stockholders of the railroad company, including William H. Van- derbilt, who then owned 2,000 shares. By this agreement all the shares of the subscribers were to be registered in the names of trustees, and these trustees and their successors were to have perpetual power to vote upon the same ; and were to vote with a view to caiTj' out cer- tain objects and policies defined in the agreement. Certificates were to be issued, and were issued, to Vanderbilt and other subscribers giving them all the rights of stockholders except the right to vote upon the stock, and reciting tliat the perpetual power of voting is vested in the trustees. At the death of William H. Vanderbilt, in 1886, the 2,000 shares became vested in Cornelius Vanderbilt, whose right to vote upon the same was denied at the annual election in 1887. No consideration passed between the subscribers to the trust agree- ment or between them and the trustees ; and the defendants, who were the trustees at the time suit was brought, claimed no interest in the Btock covered by the agreement, except the right to vote it. The Act of Assembly of Pennsylvania, of February 19, 1848, to 1 Statement abridged. — Ed. VANDEEBILT V. BENNETT. 413 which the Pittsburgh & Lake Erie E. R. Co. was subject, provides, that at all general meetings or elections by the stockholders, each share of stock shall entitle the holder thereof to one vote ; and that no proxy shall be received, unless the same shall have been executed within the three months preceding such election or general meeting. The master's conclusions of law were : 1st. That the trust agreement is invalid as creating an unlawful com- bination and against public policJ^ 2d. That if the said agreement is such as can be legally sustained, it is simplj', a power of attorney or proxj', and revocable at the option of any party to it. The master's opinion on the second point is, in part, as follows : Ordinarily the authority of an ageut is subordinate to that of his principal. Whether the agency be created by parol, or by writing under seal, unless it be coupled with an interest in the agent in the property, which would be detrimental to him should a revocation be attempted before the objects of the said letter of attorney or trust — whatever it may be — be accomplished, the agency is revocable at any time by the principal or by the death of the principal. We have in this case an agency created, and, as stated by the paper itself, a per- petual agency, in a certain body of men designated as trustees, for the purpose of voting and controlling the stock of the parties subscribing to the paper hereinbefore referred to, without any other or further duty to be performed in regard to the stock, excepting as specified in said paper. The trustees themselves have no interest whatever, financial or otherwise, in it, and no right to control the transfer or disposition thereof in any wise whatsoever. The trust raised by the said paper, if any, is simply and purely a dry trust, if we may so call it, leaving or giving no functions whatever for the trustees to perform, except the simple voting of the stock subscribed in said paper and in accordance with the vote they maj' cast to control the organization and policy of the said company. It is common sense and common law that the power or authority of the agent cannot be greater than that delegated to him by his principal. [After quoting from Griffith v. Jewett, Superior Court of Cincinnati, 15 Weekly Law Bulletin, 119, and Safer v. Jewett, 14 Weekly Law Bulletin, 68, the master proceeds :] Every proxy, although by its terms irrevocable, is revocable unless coupled with an interest. Story on Agency, s. 476. The principal vai\.y revoke the authority of his agent at his mere pleasure if the agent has no interest in its execution, and there is no valid consideration for it. It is treated as a mere nude pact and is deemed in law to be revocable upon the general principle that he alone who has an interest in the execution of an act is also entitled to con- trol it. Blackstone v. Huttermore, 53 Pa. 266 ; Hartley <& Minor's Ap., 63 Pa. 212 ; also see Walker v. Dennison, 86 Illinois, 142 ; McGregor V. Gardner, 14 Iowa, 340 ; ITunt v. Bousmanier, 8 Wheaton, 201. 414 VANDEKBILT V. BEXiNETT. To constitute a power coupled with an interest, the interest must be In the subject-matter on which the power is to operate, and not in the mere results of its execution. Hartley cfc Minor's Ap., supra. There is no consideration whatever between the trustees and the subscribers ; none is claimed or mentioned in the agreement itself, and as between the subscribers themselves, there is also none. The mere fact that several or a majority have signed does not furnish a support- ing consideration. 16 Ohio, 27 ; 41 Ohio, 527 ; 131 Mass. 528. No one subscriber acquired under the agreement any interest in any other one stock or an undivided interest in the whole of the stock represented by the subscribers. No real and special consideration is claimed, and without this the agreement cannot be supported. An agreement of shareholders not to sell, pledge or give proxy for their shares, except by concurrent consent, is void without such considera- tion. Msher V. £us/i, 35 Hun (N. Y.), 641. The entire beneficial interest in the stock is severally vested in the subscriber, the voting power in the trustees, and does not differ mate- rially from what it would be if the stockholders retaining their shares had simply united in a proxy authorizing the trustees to cast the vote of all of them. Griffith v. tTewett, supra. The master is, therefore, of opinion, that said paper called a deed of trust, if valid, is in effect nothing more than a power of attorney, or proxy, given for the purpose of carrying out the designs of the parties therein mentioned, and as such, revocable at the pleasure of anj' party to it. And under all the facts of the case the complainant is entitled to relief, and [the master] would recommend a decree therefor as prayed for in the said bill of complaint. To this report the defendants excepted. George Shiras, Jr., Jarvis M. Adams, and Stevenson Butler, for the exceptions. John Dalzell, and JTnox <& Meed, contra. Stowe, p. J. The questions involved in this controversy are of the gravest character, and should have had a more deliberate and careful consideration, both by the master and the court, than either have had time to bestow upon it. The former has had four or five days to prepare his report, and the latter one day to consider the exceptions. It is hoped that this will be sufficient apology for any short-comings in the one and the want of an extended opinion by the other sustaining the views entertained bj- the court in this matter. We think that the trust agreement in question is absolutely void as contrar}' to public policy, and because it substantially amounts to a repeal of our Act of Assembly in regard to the right to vote incident to the ownership of railroad stock. But whether this be so or not, which, as the case stands, is not judicially- before us for our determination, we are of the opinion that it is at least revocable by the plaintiff, and has been duly revoked so far as his stock is concerned, and, therefore, the exceptions to the master's report are now overruled, and decree in accordance herewith pro ut. SHEPAUG VOTING TEUST CASES. 415 But we are also of opinion that under the circumstances of this case the plaintiff should pay the costs of this proceeding. Note. An appeal to the Supreme Court from the decree entered in accordance with this opinion was non pressed at October Term, 1888, it being understood that the parties had agreed upon a settlement. EoBiNSON, J., IN SHEPAUG VOTING TEUST CASES. 1890. 60 Corm. (Supplement), 553, pp. 578-581. It seems to the court that the surrender by a stockholder of his i power and right to vote on his stock for the term of five years is con- ' brary to the policy of the law of this state. Were this a power of attorney in formal terms, no claim would be made but that it was not only contrary to the policy of the law of this state, but in direct con- flict with our statute, which says that " no person shall vote at any meeting of the stockholders of any bank or railroad company, by virtue of any power of attorney not executed within one year next preceding such meeting ; and no such power shall be used at more than one annual meeting of such corporation." Gen. Statutes, § 1927. This statute tends to disclose what the policy of the law of this state is, touching the matter of the surrender bj' a stockholder of his voting power to some one else. It would seem that it is opposed to such sur- render for an indefinite period or for a period of five years. Evidently it was thought a longer surrender of the voting power would result disastrously in many ways. It cannot be denied that as much disaster might follow to the busi- \ aess and the finances of a corporation and the interest of stockholders, \ where the voting power is yielded up in a five j'ears voting trust, as by ) a five years power of attorney. The difference between an irrevocable ' power and a power irrevocable for five years, is a difference in degree and not in principle. A five year voting power, irrevocable for that time, would furnish time enough and opportunity enough to realize all the evils which our one year statute is manifestly intended to guard against. It is the policy of our law that an untrammeled power to vote shall be incident to the ownership of the stock, and a contract by which the real owner's power is hampered by a provision therein that he shall vote just as somebody else dictates, is objectionable. I think it against the policy of our law for a stockholder to contract that his stock shall be voted just as some one who has no beneficial interest or title in or to the stock directs ; saving to himself simply the title, the right to ■' 416 SHEPAUG VOTING TKUST CASES, dividends, and perhaps the right to -cast the vote directed, willing oi unwilling, whether it be for his interest, for the interest of other stocls- holders, or for the interest of the corporation, or otherwise. This^ I conceive to be against the policy of the law, whether the power so to vote be for five years or for all time. It is the policy of our law that ownership of stock shall control the property and the management of the corporation, and this cannot be accomplished, and this good policy is defeated, if stockholders are permitted to surrender all their discretion and will, in the important matter of voting, and suffer them- selves to be mere passive instruments in the hands of some agent who has no interest in the stock, equitable or legal, and no interest in the general prosperity of the corporation. --'^ And this is not entirely for the protection of the stockholder himself, but to compel a compliance with the duty which each stockholder owes his fellow-stockholder, to so use such power and means as the law and his ownership of stock give him, that the general interest of stockhold- ers shall be protected, and the general welfare of the corporation sus- tained, and its business conducted by its agents, managers and ofl3cers, so far as may be, upon prudent and honest business principles, and with just as little temptation to and opportunity for fraud, and the seeking of individual gains at the sacrifice of the general welfare, as is possible. This I take it is the duty that one stockholder in a corporation owes to \ his fellow-stockholder ; and he cannot be allowed to disburden himself J of it in this way. He may shirk it perhaps b}' refusing to attend stock- 1 holders' meetings, or by declining to vote when called upon, but the \ law will not allow him to strip himself of the power to perform his-/ duty. To tliis extent, at least, a stockholder stands in a fiduciary \ relation to his fellow-stockholders. For these reasons I hold that this J trust agreement is void as against the policy of the law of tliis state. And why is not the voting power surrendered in this trust agree- ment the equivalent of a power of attorney, and why has not the right of this Trust Company and this committee to control and cast the vote upon this stock, if at any time they had any legal right to exercise it, ceased to exist ? It is now more than one year since the voting power was executed, and that power- has been used already at one annual meeting. Why is not this voting power in this trust agreement, and\ the attempt of this trustee and this committee to exercise it now, a disobedience of our one year statute above quoted? It is claimed that it is not a power of attorney because the Trust Company holds the legal title to the stock. It is said that the right to vote on the stock is not dissociated from the legal title to the stock in this instance. But does this reply quite answer the objections created by the facts in tlie case, and is it quite true that the voting power here is not dissociated from the legal title? An examination of the trust agreement discloses that the Trust Company is a mere agent, with no beneficial interest in the stock. It holds the title, but the real owner is somebody else. The Trust Company is simply the hand to cast such SHEPAUG VOTING TRUST CASES. 417 ballot as this committee directs. The committee is also but ati agent, but without the legal title to the stock or any title to it. It is the head, and the Trust Company is the hand ; simply that. The com- mittee direct, control, and select what vote shall be cast, and are the agents and attorneys to perform this very essential part of the act of voting. The trust company is one of the parties to the trust agreement, and it holds the legal title to the stock, and as such holder of the legal title it has in this trust agreement surrendered all a voter's power except the mere manual act of casting the selected ballot. It has in this trust agreement in effect surrendered to this committee the power to select the ballot. It has conceded to this committee the power to demand that it shall vote as they direct. What remains then in this trustee of the voting power, beyond being the mere hand, the use of which this committee is given the right to demand for this purpose at any stock- holders' meeting? Is not the full voting power to all intents and pur- poses in this committee, and is it not so by delegation? It seems to me that the voting power in this trust agreement falls within the spirit and intent of the prohibition of our statute heretofore referred to, and is terminated by lapse of time and the use of it already at one annual meeting. It is insisted tnat there is nothing illegal, per se, in the pooling of stock to carry out a scheme of extension authorized by law and favored by the corporation. This may be true under proper limita- ■ tions, and when this is all there is to the scheme ; but when underlying that pooling contract there is between the members of the syndicate, who are directors or a majority of the directors of the corporation, a secret agreement which enters into this pooling contract, and forms the object of its creation, and by which they are to take to themselves the profits arising from such extension, or from the contracts which they as directors make, elements of unfairness and opportunity for fraudulent and dishonest practices are introduced, which the court can- not too severely condemn. Such a pooling contract or voting trust is in violation of the most elementary principles of law governing the dealings of trustees with trust property and their cestuis que trust. 418 MOBILE AND OHIO K. K. CO. V. NICHOLAS. MOBILE AND OHIO E. R. CO. v. NICHOLAS. 1893. 98 Alabama, 92.1 Appeal from Mobile Chancery Court. Bill in equity by stockholder in Mobile & Ohio R. R. .Co. against the railroad company, the Farmers' Loan & Trust Co., et al. In 1876, the railroad company was in the hands of a receiver ; decrees of foreclosure had been rendered in suits on mortgages ; and its total indebtedness largely exceeded the value of the entire railroad property. An arrangement was made between th'e creditors and the company wherebj' the creditors accepted debentures in lieu of their original evi- dences of debt ; and the great majority of the stockholders, in effect, conferred upon a trustee irrevocable power to vote upon the shares so long as any of the debentures should be outstanding. The sharehold- ers assigned their stock to the committee of reorganization ; the com- mittee gave the Farmers' Loan & Trust Company an irrevocable power of attorney to vote upon the stock so long as an}' of the debentures sliould be outstanding. The shareholders who had thus assigned their stock to the committee received in exchange new certificates entitling them to all the rights and privileges which pertain to the ownership of the said shares, saving and excepting that such ownership is subject to the power heretofore granted b)- the owners of said shares to the Farmers' Loan & Trust Company, in trust for the securitj' of the debentures, to vote upon said shares. Under the foregoing adjustment, all the creditors, except those secured by newly issued first mortgage bonds, accepted the debentures provided for, in lieu of their former evidence of debt ; the foreclosure decrees were assigned to the Farmers' Trust Company ; the receiver, under the orders of the court, turned the property over to the railroad company ; and the corporation resumed its control and management of its property and business. In 1892, the plaintiffs denied the authority of the Trust Companj', under the power of attorney held by it to vote their stock, and claimed for themselves the right to vote their own stock. The right of plaintiffs to vote at the stockholders' meeting was denied. Thereupon plaintiffs filed the present bill ; praying, among other things, that the Farmers' Loan & Trust Companj' be enjoined from voting on the stock under the power of attorney ; and that the railroad company be enjoined from refusing to accept the votes of plaintiffs and of other stockholders. A preliminary injunction was granted. The defendants moved to dismiss the bill for want of equitj-, and to dissolve the injunction. The Chancellor overruled the motions. From his decrees an appeal wa? taken. 1 Statement abridged. Arguments omitted. Only so much of the opinion is given »s relates to a single point. — Ed. MOBILE AND OHIO E. K. CO. V. NICHOLAS. 410 M J. Phelps, and Fred. W. Whitridge, for railroad companj-, appellants. JS. L. Russell, and R. P. Deshon, for appellants. Sannis Taylor, for Farmers' Loan & Trust Co., appellants. H. C. Tompkins, Gaylord B. Clark, William J. Curtis, and Alfred Jaretzki, for appellees. Coleman, J. [After stating the case.J The facts stated in the bill show, that bj' the reorganization and compromise of 1876, perfected in 1879, the voting power was severed from the stockholder, and until the paj-ment of the debentures, irrevocablj- vested in the Farmers' Trust Company and the debenture holders. It is contended for complainants that the agreement was, and " is void per se," because 1st : " It con- travenes the language of the charter of the railroad company ; and 2d, because it is against public policy.'' The charter expressly provides, " Each share shall entitle the holder thereof to one vote, which vote may be given by said stockholder in person, or by lawful proxy." So far, then, as the right to vote by proxj' is questioned, the charter expressly grants the power, and the legislature has thus declared that it is not unlawful, per se, to separate the voting power from the stock- holder, so far as the appointment of a proxy may be considered a sev- erance of the voting power. Where a proxy is duly constituted, and the power of the appointment is without limitation, a vote cast b^' the proxy binds the stockholder, whether exercised in behalf of his interest or not, to the same extent as if the vote had been cast by the stockholder in person. We do not hold that a power of attornej-, absolute in its terms, will authorize the agent or proxy, to effect contracts, or legalize acts, outside of the scope of his authority, or contrary to law or public policy, neither could the stockholder in pe.rson by his vote effectuate such a result. The invalidity of acts of this character by a prox}-, rightly un- derstood, is not made to rest upon the ground, that there has been a separation of the voting power from the stockholders, but because of the unlawful purpose for which the proxy was appointed, or the unlaw- ful end, attempted to be effected by the exercise of the voting power. The distinction should be kept in view. Take the case of the Rich- mond S Danville Extension Company v. The Woodstock Iron Co., 129 U. S. 643, cited by complainant. The Woodstock Iron Co. agreed to pa}' thirty thousand dollars, if the Georgia Pacific Eailroad was run through the town of Anni-ston, where the Woodstock Iron Co. owned a large plant, mines, and other property-. The contract was held void as being against public policj'. No question of the separation of the voting power from the shareholder, arose in the case. It was the character of the contract, the unlawful purpose in view, to build up the Woodstock Iron Co. at the expense of the stockholders of the rail- road company that was condemned. The same principle applies to manj' other cases cited in which, it was held, " that contracts made to influence railroad companies in selecting their routes and erecting their 4*20 MOBILE AND OHIO K. E. CO. V. NICHOLAS. depots and stations by donations in land and money to some of its directors and stockholders were invalid," citing Bestor v. Wathen, 60 111. 131 ; Linden v. Carpenter, 62 111. 307. Take the case of Hafer v. JV'. T., Lake Erie & Western R. B. Co., 14 "Weekly Law Bulletin, p. 68. The case is thus stated : " A control- ling interest in the stock of the Cincinnati, Hamilton, and Dayton Rail- road Company was bought up in 1882, and placed in the name of H. I. Jewett, who was Vice-President of the New York, Lake Erie, and ■Western Railway Co., under the agreement thao he should give irrevo- cable proxy to such persons as the Erie should appoint to vote on the stock ; that his stock certificates should be left in the hands of trustees, and that they should issue to the respective owners of the stock trust, or pool certificates for amounts equal to their respective equitable in- terest. On all stock thus pooled, the Erie agreed to guarantee a certain dividend." The court declared the contract void " both on the ground that the power is denied to one corporation thus to acquire control of another, and that the stockholder can not barter away the right to vote upon his stock." True the opinion declares as an independent proposition, " that the stockholder can not barter away the right to vote upon his stock," and yet it is shown, by the facts of the case and the opinion, that the purpose to be effected by the barter of the right to vote, to wit, the plac- ing " of an Ohio corporation into the hands of a New York corporation," the enabling "one corporation to acquire control over another" was illegal. Speaking of the facts of the case the opinion proceeds as fol- lows : " It is obvious that the rule as to executed contracts can not be applied to the plaintiff for any such, reason as that last mentioned, for he was not a party to the contract. There are other cases wherein special circumstances made it imperative, as a matter of good faith, that the contract should not be interfered with, and others, when the protection of interest acquired hj innocent parties caused the court to refrain." There is no rule of law which requires contracts to be upheld which are void as against public policj'^, in order to preserve "good faith " or " innocent parties." The rule of estoppel is often applied to prevent undue advantage by one person over another, but the rule does] not extend to contracts which are void because contravening public pol-f icy. Considering the opinion as an entirety, we do not regard it as authority to the proposition, that an agreement which provides for a separation of the right to vote from the holder of the stock is '■'■per se," at all times and under all circumstances contrary to public policj' and void. We have examined case after case and find generallj' that the agreements declared void by the courts, where the power to vote was separated from the stockholder and vested in third persons, were under circumstances which showed that the purpose to be accomplished was unlawful, such as the courts would not sanction if the principal had voted and not a proxy ; and in cases of a mere dry trust, it is held that the stockholder might revoke a power of attorney in form irrevocable. The doctrine as to dry trust does not arise in this case. MOBILE AND OHIO E. E. CO. V. NICHOLAS. 421 Certainly the case of Griffith v. Jewett, 15 Weekly Law Bulletin, 419, or of Moses v. Scott, 84 Ala. 608, do not sustain complainants' contention in this respect. If there were no precedents, upon princi- ple, we would hold that in determining the validity of an agreement, which provides for the vesting of the voting power in a person other than the stockholder, regard should be had to the condition of the par- ties, the purpose to be accomplished, the consideration of the undertak- ing, interests which have been surrendered, rights acquired, and the consequences to result. The law does not make contracts for parties, neither will it annul them except to preserve its own majesty, and to conserve the greater interest of the public. Let us examine the condi- tions of the parties, the purpose in view and effect of the agreement of 1876, consummated in 1879, the consideration and interest surrendered and rights acquired by the readjustment, and issue of the debentures, the position of the complainants thereto, and the results of holding that reorganization, j»e?" se, void. The complainants belong to the class known as "Assenting Stock- holders." They surrendered their stock to the committee of reor- ganization in order that the power of attorney, executed to the trust company by the committee of reorganization, might be executed, and that the debentures should be issued to the creditors of the railroad cor- poration. The certificates of stock held by them show, upon their face, that they are subject to the power of attorney and to the rights of the debenture-holders. At the time the plan of adjustment was agreed upon the railroad company was in the hands of a receiver. Decrees of foreclosure rendered against the company. The indebtedness far ex- ceeded the valu§ of the railroad companj-'s propertj-. The execution of the decrees of foreclosure, by a sale of the property, and the pros- ecutions of the admitted claims against the railroad companj-, would necessarily have transferred the property to other parties and wiped out every vestige of present available interest or right of the stockholder, or hope of future profit. The creditors held the vantage ground, and in law their rights and interest were paramount to the stockholders. The latter might accept propositions but were in no position to dictate terms. These were the circumstances under which the settlement and agreement was made. Stated in short, the compromise and settlement led to the issue of the debentures to the creditors in lieu of their original evidences of debt, and a mortgage u'pon certain property to secure them, a plan for a sinking fund for their benefit, and the right and privilege under an irrevocable power of attorney to vote the stock until the de- bentures were paid. The power of attorney was not in perpetuitj', or absolute, but only until the debentures were paid, and a fair construc- tion under the circumstances required that the voting power should be used fairlj' and honestly to this end, or as stated in the agreement itself, "for the uses and purposes declared in said memorandum, and until the same are fully accomplished." In consideration therefor the decrees of foreclosure, at first suspended, were transferred to the trust 422 MOBILE AND OHIO E. E. CO. V. NICHOLAS. company, creditors surrendered their claims and accepted in lieu thereof the debentures, the receiver under the orders of the court restored the property to the Mobile & Ohio Eailroad Co., which resumed manage- ment and control of its property and affairs, and the stock preserved to the stockholder. To this agreei»ent over forty-five thousand out of a total of about fifty-three thousand of shares of stock assented, and among those which assented were complainants. The creditors had the right to accept de- bentures for their debts. The agreement continued in existence the corporation and preserved to the stockholders their stock. It did not violate the charter of the railroad corporation. The purpose was legal, the means used did not contravene any statute of the State or principle of public policy, and was within the scope of the power of the contract- ing parties. Good faith on the part of the assenting stockholders, whose interests were thus preserved, and to those who accepted the de- bentures in lieu of other evidences of debt and securities, and to those who have since purchased them upon the faith of the plan of com- promise demand that the terms of the contract be fulfilled. Tested by any principle of law, legal or equitable, the agreement was not only valid but fair at least to the corporation company and stocltholders. [It was contended that the acceptance by the creditors, under an arrangement made in 1887-1888, of general mortgage bonds, extin- guished the debentures issued under the previous settlement ; and that thereby the stockholders became reinvested with the voting power which they had relinquished for the benefit of the debenture holders. The Court held, that the acceptance of the general mortgage bonds, under the conditions and terms then specified, did not effeijt an extinguish- ment of the debentures. It was also contended, that the agreement by which the stockholder parted with his voting power created the relation of surety and creditor between the stockholder and the debenture holder; and " that the vot- ing trust has been terminated bj' the extension and enlargement of the debt, and bj^ the substantial modification of the terms upon which the voting franchise was to be exercised." The Court held, that the rela- tion of surety and creditor did not exist.] A decree will be here rendered dissolving the injunction granted upon the original bill, and dismissing the original bill for want of equity'. 1 In DurTcee v. People, ex rel. Aslcren, a. d. 1895, 155 Illinois, 355, a by-law of a railroad corporation purported to confer on bondliolders the right to cast one vote on every one hundred dollars of bonds ; and the stock certificates contained an express statement that the stock was subject to the bondholders' right to vote at all meetings of stockholders. Section 25 of the general railroad incorporation statute is as follows: " In all elections for directors and managers of such railway corporations, every stock- holder shall have the right to vote, in person or by proxy, for the number of shares of stock owned by him, for as many persons as there are directors or managers to be elected, or to cumulate said shares, and give one candidate as many votes as the number of di- rectors, multiplied by the number of his shares of stock, shall equal, or to distribute them, on the same principle, among as many candidates as he shall think fit; and such director: or maaagers shall not be elected in any other manner." HABVEY V. LINVILLE IMPROVEMENT CO. 423 HABVEY V. LINVILLE IMPEOVEMENT CO. 1896. 118 North Carolina, 693.1 Action for an injunctiou and other relief, heard before Timber- lake, J. Plaintiff has an option for the purchase of a sufficient number of shares of the capital stock of the company to give him a majority thereof ; and intends to purchase the same provided he can get control of the company. He asks (inter alia) for an injunction restraining Divine, Lenoir and MacEae (who are joined as defendants) from voting certain shares of stock, alleged to have now been purchased, by plain- tiff, from Hahn, Worth andKelsey. It appeared that before plaintiif purchased said stock, a pooling agreement had been entered into by a majority of the stockholders, including Hahn, Worth and Kelsey. The plaintiff sought to have this pooling agreement declared invalid. The pooling agreement was as follows : " Whereas, the Linville Improvement Company is indebted to vari- ous persons in large sums of money, and is now in the hands of a receiver, appointed by a decree of the superior court of the County of Mitchell in the State of North Carolina ; and whereas the undersigned, who are stockholders, and some of whom are also creditors of the said Company, are desirous to extricate the Company from its present financial embarrassment, pay off its debts, and enable it to resume its operations, now therefore we, the undersigned, stockholders of the Linville Improvement Company, have agreed, and do hereby agree with each other as follows : " That, for the purpose herein set forth, we will pool of the stock of the said Company owned by us respectively, and will transfer the same to John S. Divine, T. B. Lenoir and Hugh MacEae, to be held by them and their successors upon the trusts and for the purposes herein declared. The said trustees shall give proper receipts for the stock so transferred to them. The said trustees shall have power to vote the said stock so transferred to them in all meetings of the stockholders of said Company, to borrow money to pay off and dis- charge the present indebtedness of the Company and to pledge the stock so held by them, or any part of it, as collateral security for the money so borrowed. " If any vacancy among the said trustees shall occur at any time. Said section 25 was enacted in pursuance of section 3, article 11, of the constitution, which contains the same provision and prohibition concerning the election of directors by stockholders as section 25 of the statute. It was held, that the attempt to confer voting power upon bondholders (putting them on an equality in that respect with stockholders) was in conflict with the constitution and Btatute ; and that hence votes cast by bondholders could not be counted. — Ed. 1 Statement abridged. — Ed. 424 HAETET V. LINVILLE IMPKOVEMENT 00. the same stall be filled by the votes of the holders of the majority 'of the stock represented in the agreement. And the holders of the majority of such stock shall have the right, whenever they see proper to do so, to instruct the said trustees how to vote upon matters aris- ing, or to arise, in any meeting of the stockholders of said Company. Any one or two of the said trustees may vote the entire stock so transferred to them in any meeting of the stockholders of said Com- pany, being so duly authorized in writing by the other or others. "Any one or more of the said trustees, or of their successors herein, may at any time be removed, and their places filled by a vote of the majority of the stock herein represented. All stockholders shall at once pay up all unpaid subscriptions owing to the Company on the stock held by them. A meeting of the stockholders executing this agreement may be called by the trustees at any time upon days' notice, and shall be called by them upon like notice at any time, upon request of any three or more of the stockholders executing this agree- ment ; and in all such meetings, a majority of the said stock being present in person or by proxy, shall be a quorum ; and any action taken by them shall be binding on all. " This agreement shall be void if not executed by holders of the majority of all the stock of s^id Company, but when so executed it shall be enforced and binding upon all who sign it for the period of five years from the date hereof, unless it be sooner determined and put an end to by a vote of the holders of two-thirds of the stock represented herein. Upon the determination of this agreement the trustees shall transfer to each of us the stock owned by us respec- tively. Dated the 23d day of April, 1894." Timberlake, J., refused to grant an injunction. Plaintiff appealed. Davidson & Jones, for appellant. Junius Davis, for appellee. Clakk, J. At common law stockholders could not vote by proxy. Taylor v. Griswold, 14 N. J. Law, 222, and other cases cited in Cook on Stocks, Sec. 610. This is now otherwise, but it is still held that each stockholder, whether by himself or by proxy, must be free to cast v his vote for what he deems for the best interest of the corporation, the \ other stockholders being entitled to the benefit of such free exercise of his judgment by each ; and hence any combination or device by , which any number of stockholders shall combine to place the voting I of their shares in the irrevocable power of another is held contrary to public policy. Cone v. Bu^sell, 48 N. J. Eq., 209. Variou.s devices have been resorted to for the purpose of so tying up the stock that no one of the parties to the "pool" or combination can break the agree- 1' ment. " Irrevocable " proxies to vote the stock have been given to &\\ designated party who acted as trustee or agent, but the courts held ' such proxies not irrevocable and that they might be revoked at any time. Cook, supra, Sees. 610, 622 ; Woodruff v. Dubuque, 30 Fed. HAKVEY V. LINVILLE IMPEOVEMENT CO. 425 Rep., 91 ; Vanderbilt v. Bennett, 2 Eailway & Corp. L. J., 409. An- other plan was to place the stock of the various parties in the hands of trustees, with power to transfer the stock to themselves and to hold and vote the same, trustees' certificates being issued to the vari- ous parties, specifying the amount of stock so deposited by them and their interest in the pool, but the courts held that any holder of a trustee's certificate might at any time demand back his part of the stock. Woodruff v. Dubuque, supra, and other cases cited in Cook, supra, Sec. 622. Another device was that the parties contracted to- gether not to sell their stock for a specified time or only to a pur- chaser acceptable to them all. It was held that notwithstanding such contract any one of the parties might sell his stock to any one he pleased and at any time. Fisher v. Bush, 35 Hun, 642 ; Williams v. Montgomery, 68 Hun, 416. Another plan was to restrict by a by-law the right to transfer stock, but this was held illegal. Morgan v. Struthers, 131 U. S., 246, and other cases cited in Cook, supra, Sec. 332. A provision that a purchaser of a certificate of stock who sold in violation of the agreement should be entitled to the dividends, but should receive no right to vote, was likewise held invalid. Harper v. Raymond, 3 Bosw., (IST. Y.,) 29. ISTumerous decisions afB.rm the cor- i rectness of the above rulings, which are based upon the illegality, because against public policy, of permitting large blocks of stock to / be irrevocably tied up for the purpose of being voted in solido for the / interest of a clique or section of the stockholders, and not according/ to the judgment of each individual stockholder for the benefit of the entire corporation. There are some few decisions trenching more or less upon the principles above stated, but we deem them contrary to sound principle of public policy, and hence not authority. In short, all agreements and devices by which stockholders surrender their voting powers are invalid. 6 Thompson Corporations, Sec. 6604. The power to vote is inherently annexed to and inseparable from the 1 real ownership of each share, and can only be delegated by proxy with power of revocation. The " pooling " arrangement, admitted to have been entered into by the majority of stockholders in the present case, is contrary to public policy and voidable ( Woodruff v. Dubuque, supra), and the plaintiff assignee of certain of the trustees' certificates \ is entitled to have his name entered as the owner and holder of the ' shares of stock represented by said trustees' certificates, and to have said shares issued to him, should the facts be found in accordance with his allegation, and to have the defendant restrained, till the hearing, from voting or controlling in any way the stock purchased by the plaintiff or in anywise interfering with the plaintiff's right to vote, control or dispose of said stock. Error. Avert, J., did not sit on the hearing of this case. 426 SMITH V. SAN FEANCISCO Ss N. P. B. 00. SMITH V. SAN FEANCISCO & N. P. E. CO. 1897. 115 California, 584.1 Action, under s. 315, Civil Code, for the purpose of having it d& clared that Sidney V. Smith was elected a director at the annual meet- ing of the stockholders of the defendant company, instead of P. N. Lilienthal, who was declared elected. If certain votes which were rejected had been received, Smith would have been chosen. One of the votes rejected was that of Smith himself upon stock standing in his name.^ To justify the exclusion of Smith's vote, the defendants, in their answers, alleged the following facts : In February, 1893, the estate of James M. Donahue, deceased, was the owner of forty-two thousand shares or thereabouts of the capital stock of the defendant railway company, which the superior court of Marin county had or- dered to be sold in the course of the administration of his estate. Prior to the sale an agreement was entered into between Smith, Fos- ter, and Markham for the purchase of this stock as an entirety, upon the representations of Smith that upon acquiring the shares an agree- ment would be made by them whereby, in order to secure the control of the management and business policy of the railway company, and for its prudent and economical management in the interest of all of its stockholders, the said forty-two thousand shares should, for the term of five years thereafter, be voted as a unit in the election of directors of said railway company. In pursuance of this agreement Smith and Foster, on the 24th of February, made their joint bid for the shares, offering to purchase them as an entirety for the sum of eight hundred thousand dollars and upward, and by order of court their bid was accepted, and on March 23d the sale was completed and the price paid. After the making of the bid, and before the consummation of the purchase and completion of the sale. Smith prepared the agreement for the voting of the shares as a unit that had been contemplated by the parties to the purchase, and on the 22d of -March the same was executed in triplicate between Smith, Markham, and Foster. By this instru- ment, after reciting therein that the parties thereto had purchased the forty-two thousand shares of stock, and had agreed to retain the power of voting the stock for five years, " so as to keep the control of the corporation from passing to persons other than themselves," it was " mutually agreed between said Foster, Markham, and Smith that they will, during said period, retain the power to vote said shares in one body, and that the vote which shall be cast by said shares, whether for directors or for any other purpose, shall be determined by ballot between them or their survivors." It was in the contemplation of the 1 Statement rewritten. Arguments and part of opinion omitted. — Ed. "^ The votes of Gundecker and Wagner were also rejected; the ground being tliat thej irere not bonnjide stockholders. The statement as to their rif;ht is here omitted. — Ed. SMITH V. SAN EKANCISCO & N. P. E. CO. 427 parties to the agreement that they might sell or otherwise dispose of some of the shares, and, accordingly, they made provision in this in- strument for retaining the right to vote the stock so sold by them, and annexed thereto the form of an agreement to be taken by them from their vendees. This form or draft recited the purchase of the forty- two thousand shares by Foster, Smith, and Markham, and that, " for the purpose of keeping control of said road in the interest of them- selves and of all persons who shall buy any portion of the stock from them," they have agreed that for the period of five years "they shall vote the said stock in one block " at all elections for ofB.cers. The purchase of the stock by Poster, Smith, and Markham was completed and the price therefor paid on the 23d of March, and twelve thousand three hundred and thirty-six shares of the stock were transferred on the books to each of them — five thousand shares being left in the name of the Mercantile Trust Company, subject to some prior trust. Prior to the day for the election in 1896, a conference was called to be held between Foster, Smith, and Markham, upon proper notice therefor, to determine by ballot how the vote of the shares should be cast at the next annual meeting for directors, and, in accordance with said notice, said conference was held, at which Foster and Markham were present, and, upon a ballot had thereat, it was determined that said shares should be voted for Markham, Newhall, and Lilienthal as directors. It was shown at the trial that at the meeting of the stock- holders, held on February 25th, Smith tendered a vote for the shares standing in his name, and, at the same time, Foster presented the vote of the same stock by himself and Markham in behalf of Smith. Mu- tual protests against the votes were made by different stockholders, and the vote cast by Foster and Markham was received and counted, and that east by Smith was rejected. Smith also testified that, after receiving the notice for the conference to determine the ballot to be cast, he informed Foster and Markham that he did not recognize thej^ validity or legality of the agreement, and that he withdrew from the;'/ same, and would not be bound by anything which they might do there- under. At the trial the defendants sought to introduce in evidence the agreement of March 22d, and offered to prove, in connection there- with, the matters set forth in their answer relative thereto ; but upon the objection by the plaintiffs to this offer, "on the ground that said agreement was not a proxy, and did not provide that any of the par- ties thereto should vote the stock belonging to the other, and that it was revoked before the election and was invalid as against public policy," the evidence was excluded, the court saying : " I will assume, for the purpose of my ruling, that it was a valid agreement, but that it was not an agreement which gave authority to any other person to cast the vote of Mr. Smith." The superior court found that the agreement by Smith with the other stockholders did not preclude him from the right to vote the 428 SMITH V. SAN FKANCISOO & N. P. K. CO. stock standing in his own name as he might choose, and that the vote I lay the other stockholders for his stock was unauthorized, and his own"^ vote should have been received. Judgment was thereupon rendered that Lilienthal had not been chosen as a director, and was not entitled to exercise the office, and that at the said election Smith was chosen one of the directors, and was entitled to be so recognized. A motion for a new trial on behalf of the defendants was denied, and from both the judgment and the order denying the new trial appeals have been taken. W. S. Goodfellow, Jesse W. Lilienthal, and Garret W. McEnerney, for appellants. Page, McCutcheon & Eells, for respondents. Haeeison, J. . . . . . . for the purpose of this appeal it is to be assumed that the evi- dence offered by the defendants would sustain the allegations of their answer, and the sufficiency of these averments to authorize the exclu- sion of the' vote by Smith is to be determined. . . . That the instru- ment of March 22d constitutes an agreement that the forty-two thou- sand shares are to be voted " in one body," and that the parties thereto agreed that " they " would vote the stock " in one block," is stated therein in express terms. By this instrument they also " mutually agreed " that " the vote " to be cast by said shares should be deter- mined by ballot " between them " or their survivors. To " determine by ballot " is to ascertain the result of balloting upon a proposition by those entitled to cast the ballots ; and the " vote " — that is, the voting paper or ticket to be cast for the officers, which the parties agreed should be thus determined — is to be the same for the entire forty-two thousand shares. That by virtue of this agreement an au- thority was given by each of the parties to the others to determine " the vote " to be cast by the forty-two thousand shares of stock is too clear for argument. When they mutually agreed that they would "determine" between them the vote which "shall be cast" for di- rectors, they declared by necessary implication that such vote should be cast in accordance with the results of that ballot, and that if either of them should fail to cast the vote as should be determined by the ballot, the vote so determined might be cast by the others. If we should hold that this instrument is to be construed as not giving authority to the majority of the parties thereto to cast the vote of the entire forty-two thousand shares of stock, as might be determined upon such ballot, we should be compelled to hold that the instrument was prepared in disregard of the agreement between the parties, and of the purpose for which it was to be executed. If there is any am- biguity in the language used for the expression of that agreement, it is to be construed so as to carry the agreement into effect, rather than to defeat its operation. No particular form of words is requisite to constitute a proxy. (Morawetz on Corporations, sec. 486.) Like any other agency, the instrument by which it is created may be informal, SMITH V. SAN FEANCISOO & N. P. K. CO. 429 but if, in order to give effect to its language in view of the purpose for which it is executed, it is necessary to construe the instrument as creating an agency, such construction will be given. The instrument executed between the parties must, therefore, be i held to be a proxy, and to authorize the vote of the forty-two thou- I sand shares of stock to be cast in accordance with the determination / of the majority of the parties thereto, and, if it was made upon a con- 1 sideration sufficient to bind the parties to its enforcement, it must be '^ regarded as still operative. One of the inducements for the purchase of the stock, and under which the parties entered into the agreement, was that the shares should be voted in one body, and held for five years as a unit. It is immaterial that the voting agreement was not reduced to writing and executed until after the bid had been made for the stock. It was so executed before the parties thereto had com- pleted the purchase and become the owners of the stock by paying the purchase price. Nor is the validity of the agreement or the effect of its terms different by reason of different certificates having been issued in the names of the several parties to the transaction, rather than in the name of one of them. The agreement between them was with reference to the forty-two thousand shares of stock, and that it should be voted as a unit, and the purpose of the agreement was the economical management of the road, and to prevent irresponsible per- sons from getting control. It was within the power of. the parties to contract in reference to this property as fully as with regard to any other property. They were at liberty to make as a condition of their purchase that its management should be held by either of them, or by a majority of the three, and the terms of the agreement for such pur- chase could not be repudiated by either after the purchase had been made. It may be assumed that neither of the parties would have ' entered into the transaction, or agreed upon the purchase of the stock, except upon these conditions, and it must be held that each contributed his money to the purchase of the stock upon the promise made to him by the others. There was thus a sufficient consideration for the agree- ment granting the right to vote the stock. It was in the nature of a \ power coupled with an interest, and, being given for a valuable con- j sideration, could not be revoked at the pleasure of either. (Sey v. Dolphin, 92 Hun, 230.) Although the court in excluding this evidence, assumed that the instrument was valid, counsel for respondents have presented an argu- ment in support of their further objection thereto, that the instrument is invalid by reason of being against public policy, and it therefore becomes necessary to consider this objection, inasmuch as the action of the court, rather than its reason for so acting, is to be reviewed ; for, if the instrument is invalid, the refusal of the court to allow any effect to be gained from its exercise was proper. " Public policy " is a term of vague and uncertain meaning, which it pertains to the law-making power to define, and courts are apt to 430 SMITH V. SAN FEANCISOO & K. P. E. CO. encroach upon the domain of that branch of the government if they characterize a transaction as invalid because it is contrary to public policy, unless the transaction contravenes some positive statute or some well-established rule of law. Sir G-eorge Jessel, as Master of the Eolls, said in Besant v. Wood, L. E. 12 Ch. Div. 605, that public policy is " to a great extent a matter of individual opinion, because what one man or one judge might think against public policy, another might think altogether excellent public policy " ; and in another case (Print- ing, etc., Co. V. Sampson, L. E.. 19 Eq. 466), the same jurist said: "If there is one thing which more than another public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily, shall be held sacred, and shall be-enforced by courts of justice." It is not in violation of any rule or principle of law for stockholders, who own a majority of the stock in a corpora- tion, to cause its affairs to be managed in such way as they may think best calculated to further the ends of the corporation, and, for this purpose, to appoint one or more proxies who shall vote in such a way as will carry out their plan. Nor is it against public policy for two or more stockholders to agree upon a course of corporate action, or upon the ofiicers whom they will elect, and they may do this either by themselves, or through their proxies, or they may unite in the appoint- ment of a single proxy to effect their purpose. Any plan of procedure they may agree upon implies a previous comparison of views, and there is nothing illegal in an agreement to be bound by the will of the majority as to the means by which the result shall be reached. If they are in accord as to the ultimate purpose, it is but reasonable that the will of the majority should prevail as to the mode by which it may be accomplished. It would not be an illegal agreement if articles of partnership should provide that stock in a corporation owned by the partnership, though standing in the individual names of the partners, should be voted by one of its members, and it is no more against pub- lic policy for such an agreement to be entered into between stockhold- ers whose interests in the stock are separate than where their inter- ests are joint. Viewed from consider^ions of public policy merely, it is immaterial whether such an agreement is made by the members of an existing partnership, which owns the shares, or in pursuance of an agreement by two or more persons to form a partnership for their purchase, or to purchase them for their joint account, or as one of the terms of an agreement for their purchase, by persons who contem- plate no relation to each other further than that of owning stock in the same corporation. Such agreement would, in any case, be outside of the corporation and disconnected with the interest of every other stockholder, and, in either case, the same rules would control. Whether such an agreement is illegal, so that any action or vote under it can be set aside, or is of such a character that it will not be enforced, will depend upon the object with which it is madCj or the acts that are SMITH V. SAN FEANCISOO & N. P. K. CO. 431 done under it, and will be governed by other rules of law. [Omitting quotations and references.] In cases of " voting trusts," where the owners of stock transfer the shares to trustees, with authority to vote at elections according to the direction of a majority of those holding trust certificates, and the only consideration for such transfer and agreement is the mutual promises of the several stockholders, it has been held that any stockholder may revoke his agreement and withdraw his stock at will ; and it is also held that stockholders, who become such after an agreement of this nature is entered into, are not bound by its terms, but will hold their shares freed from the limitations of the agreement. {Fisher v. Bush, 35 Hun, 641 ; Woodruff v. Dubuque, etc., Co., 30 Ped. E.ep. 91 ; Brown V. Pacific Mail S. S. Co., 6 Blatchf. 625 ; Griffith v. Jewett, 15 Week. Law Bull. 419.) . . . The agreement in question cannot be regarded as illegal by reason of being in restraint of trade. The rule invalidating contracts in restraint of trade does not include every contract of an individual by which his right to dispose of his property is limited or restrained. Section 1673 of the Civil Code makes void every contract by which one is restrained from " exercising a lawful profession, trade, or busi- ness," except in certain instances. But this is far different from a contract limiting his right to dispose of a particular piece of property, except upon certain conditions. As the owner of property has the right to withhold it from sale, he can also, at the time of its sale, impose conditions upon its use without violating any rule of public policy, and there is nothing inconsistent with public policy for two or more persons, who contemplate purchasing certain property, to agree with each other, as a condition of the purchase, that neither will dis- pose of his share within a limited period, or for less than a fixed sum, or except upon certain limitations. They have the same right to con- tract with reference to the terms under which they will hold or dis- pose of the property after it shall have been purchased, as they have to agree upon any other terms upon which the purchase shall be made, and they no more violate a rule of public policy in making such agree- ment a consideration of their purchase than would two or more part- ners who should purchase property for partnership purposes, and agree that it should not be disposed of unless their vendee would assent to certain conditions regarding its use. These terms enter into, and form a part of, the consideration for the agreement to purchase, and are as binding and enforceable as any other terms of the agreement. (New England Trust Co. v. Abbott, 162 Mass. 148 ; Hodge v. Sloan, 107 N. Y. 244 ; 1 Am. St. Eep. 618 ; Williams v. Montgomerij, 148 IST. Y. 51 9 ; Matthews v. Associated Press, etc., 136 IST. Y. 333 ; 32 Am. St. Eep. 741.) The contract in Fisher v. Bush, 35 Hun, 641, was held to be invalid for want of any other consideration than the mutual promise of the parties ; but it was said in that case : " If these parties and their associates were the promoters of this corporation, then, doubt- 432 SMITH V. SAN FRANCISCO & N. P. E. CO. less, they could have entered into a valid agreement regulating a sale of the same, and requiring the owners to hold them from market for a reasonable and definite period of time, and thus forbidding a sale by either of his interests to one against whom his associates might have a reasonable objection. {Moffatt v. Farquhar, 7 Ch. Div. 591 ; re- ported in 23 Moak Eng. Eep. 731.) A stipulation of that character would not be illegal as against public policy, as it would be simply a provision assented to by all that the newcomer into the business trans- action should be with the approval of the other joint owners." Neither is it illegal or against public policy to separate the voting power of the stock from its ownership. The statute authorizes the stockholder to vote by proxy ; and it was held in Peoples Bank v. Superior Court, 104 Cal. 649, 43 Am. St. Eep. 147, that a by-law re- stricting the selection of proxies to stockholders was invalid ; that the statute places no limitation upon the right of selection, and that a stockholder may appoint as his proxy one who is an entire stranger to the corporation. The right to appear by proxy implies of itself thaty the voting power may be separated from the ownership of the stock,! and, unless the authority of the proxy is limited by the terms of his appointment, he is necessarily required to use his own discretion in any vote that he gives. Being the agent of the stockholder, he is required to use this discretion in behalf of his principal ; but he is at liberty to use his own discretion as to the means by which his princi- pal's interest will be best subserved. The cases in which it has been said that the stockholder could not divest himself of the voting power of his stock, and that it should not be separated from the ownership of the stock, were cases which involved either the sufS.ciency of the agreement by which the voting power was transferred, or the validity of the purpose for which the power was to be exercised. The proxy must exercise a discretion of the same nature as that which the stock- holder is authorized to exercise, and an authority to do otherwise would be invalid ; but the authority to exercise a discretion differs from an authority to perform a particular act. Under an appoint- ment without words of limitation the proxy may act against the inter- ests of the stockholder, or even against the interests of the corpora- tion, and the corporation, as well as the stockholder, will be bound by his act as fully as if the stockholder had acted in person, while, if the authority had been directed in terms to that act, it might have been invalid. The distinction is that between an unlawful exercise of a lawful power, and the attempt to authorize the exercise of an un- lawful power. The question has been presented in cases of voting trusts, but an examination of these cases will show that the question has arisen either when the authority was expressly given to carry out some illegal purpose, or when, having been given without any con- sideration, though purporting to be for a definite term, subsequent owners of the stock have sought to revoke it before the expiration of the term. (Shepaug Voting Trust Cases, 60 Conn. 653, sometimes SMITH V. SAN FRANCISCO & N. P. E. CO. 433 reported under the name of Bostwick v. Chapman ; White v. Thomas Inflatable Tire Co., 52 N. J. Eq. 178.) /We have been cited to no in- stance where the purpose of a proxy given upon a sufficient considera- tion was lawful, and the person by whom the proxy was created continued to be the owner of the stock, in which the agreement has been held invali^ The stockholder cannot separate the voting power from his stock 1^ selling his right to vote for a consideration personal to himself alone, any more than he could agree for the same considera- tion to cast the vote himself, and an agreement with others to appoint a proxy upon the same considerations would be equally invalid. In Cone V. Bussell, 48 N. J. Eq. 208, an agreement by the purchaser of stock to give to other stockholders his irrevocable proxy for the pur- pose of securing and maintaining the control of the. company was held invalid, for the reason that it was one of the terms of the agreement that the directors, to be elected under its provisions, should employ the one giving the proxy at a fixed salary during its existence. Such an agreement was held to operate as an inducement to elect directors who would not act disinterestedly for the benefit of all of the stock- holders, but rather to promote the interest of the parties to the agree- ment alone, and was therefore void, as being against public policy. The court, however, said : " This conclusion does not reach so far as to necessarily forbid all pooling or combining of stock, where the object is to carry out a particular policy with the view to promote the best interests of all the stockholders." It was upon this principle that the agreements in Hafer v. New York etc. R. E. Co., 14 Week. Law Bull. 68, Guernsey v. Cook, 120 Mass. 601, and Fennessy v. Ross, 5 N. Y. Sup. Ct. App. Div. 342, were held invalid. The same princi- ple was declared in Gage v. Fisher, 65 N. W. Eep. 809. In Mobile etc. R. R. Co. V. Nicholas, 98 Ala. 92, the court held that there was nothing illegal or contrary to public policy in separating the voting power of the stock from its ownership, saying : " Where a proxy is duly constituted, and the power of the appointment is without limita- tion, the vote cast by the proxy binds the stockholder, whether exer- cised in behalf of his interest or not, to the same extent as if the vote had been cast by the stockholder in person. The invalidity of acts of this character by a proxy, rightly understood, is not made to rest upon the ground that there has been a separation of the voting power from the stockholders, but because of the unlawful purpose for which the proxy was appointed, or the unlawful end attempted to be effected by the exercise of the voting power.'' From the foregoing considerations it follows that the superior court erred in finding that Gundecker and Wagner were bona fide stock- holders in the defendant railway company, and also in refusing to receive in evidence the instrument of March 22d, and the evidence offered by the defendants in connection therewith, for the purpose of sustaining the averments of their answer. The judgment and order denying a new trial are reversed. 434 BEIGHTMAN V. BATES. Van Fleet, J., McFakland, J., and Henshaw, J., concurred. Beatty, C. J., dissenting. — I dissent from the judgment and from tlie conclusions of the court on both of the principal points decided. The contract between Smith, Markham, and Foster was, in my opinion, void as against the policy of the law giving to the holders of a majority of the stock of a corporation the right of control. Its sole purpose and object was to give to a minority of the stockholders the power to control the affairs of the corporation against the will of the majority, and that object is secured by means of this judgment. There is not time at my command to go over the decisions, but I am satisfied that the weight of authority is against the validity of any contract by which the sole owner of stock parts irrevocably with the right to vote it, with the effect of putting a minority in control of the corporation. [Remainder of opinion omitted.] Rehearing denied. BEIGHTMAN" v. BATES. 1900. 175 Massachusetts, 105.1 Holmes, C. J. These are actions upon a covenant executed by the defendants. The covenant recites that 1,360 shares of the stock of the Union Street Railway Company in New Bedford have been or are about to be purchased by a syndicate, under an agreement of Sep- tember 4, 1894, that the plaintiff has been largely instrumental in organizing the syndicate, and that " he considers that for his services therein in case the syndicate is formed, and the aforesaid shares pur- chased, he should receive for his compensation " a certain amount of stock. These recitals are followed by several covenants on the part of the defendants and one other to give the plaintiff, in stock of the company at f 169 a share, a commission of $4 a share " upon the number of shares of said stock we sell to said syndicate, less the num- ber of shares we have severally subscribed as members of said syndi- cate," and certain other deductions, in case the" compensation was not got from the syndicate. The judge before whom the case was tried found for the plaintiff, and the case is here upon a report of requests for rulings which in various forms raise the question whether such a finding can be justified in law. The syndicate referred to was formed under another written agree- ment, whereby the subscribers recite their desire to become members of it to the end that control of the railway company and advantage to them may be gained, agree to take the shares set against their names at $169 a share, and further agree after the purchase to enter 1 Statement omitted; also part of opinion. — £o BEIGHTMAN V. BATES. 433 into a pooling contract whereby all the syndicate stock "shall be voted at each annual meeting for a period of not less than three years, for such board of directors as shall be named " by a committee of five of the subscribers, with power to a majority of them to fill any va- cancy in the committee. It is said that this agreement was illegal, and that the covenant sued upon was so directly aimed at helping to bring the unlawful arrangement about that it must fall with the other. Barnes v. Smith, 159 Mass. 344, 347 ; Gibbs v. Consolidated Gas Co., 130 U. S. 396. Without deciding whether, if the covenant was dependent upon the rendering of further services, it was so closely connected with the syndicate agreement as to fall if the latter cannot be sustained, we pass to the question whether the latter agreement is unlawful on its face, bearing in mind that unless it is unlawful on its face it has the advantage of a finding in favor of the plaintiff. In dealing with this question it does not need to be said that combination of common in- terests is necessary, and constantly is taking place. It is as legitimate for a majority of stockholders to combine as for other people. The fact that they expect " gain and advantage " — in the words of the syndicate agreement — to accrue to them, does not make the combi- nation unlawful. That expectation and intent would have that effect only if the gain was to be at the expense of the corporation, or in some way was intended to work a wrong to the other stockholders. No such intent appears, and although it is impossible not to view such an arrangement with suspicion, it is also impossible to let suspi- cion take the place of proof. The only serious ground of objection is the agreement that the stock " shall be voted at each annual meeting " for three years, for a board of directors named by the committee. It is suggested that this was an unlawful attempt by the contracting parties to deprive them- selves in advance of their deliberative power and duty as stock- holders, and to submit themselves to the dictation of five men who in the future might not be even members of the corporation. Perhaps the notion upon which these suggestions are founded has been pressed somewhat further than would be warranted by more far-seeing views, but we have no occasion to discuss it in this broad form. The ques- tion before us is not whether it would be possible to carry out the contract in a way which would have made the contract bad if specified in it, but whether it was impossible to carry out the contract in a way which might lawfully have been specified in advance. We put the question in this form because there is no doubt that the subscribers might actually have done the things stipulated without giving any one a right to complain. That is to say, they might have held their stock and voted by previous understanding according to the advice of the committee, as long as they chose. The question is what they might contract to do ; for this is supposed to be a case where a contract to do lawful acts is unlawful. 436 BMGHTMAN v. BATES. The syndicate agreement does not specify how it is to be carried out. It contemplates the making of another contract. As the later contract is to be a pooling contract, it was possible, if not probable, that one element of the arrangement would be that the title to the stock should be given to a trustee, and this happened in fact. During the three years the stock seems to have been held by a bank. The stock was transferred to it, and was not transferred to the members of the syndicate. But it would have been possible, consistently with the terms of the syndicate agreement, that the committee who were to name the board of directors themselves should be the trustees. In that case the trustees, of course, would have voted on the stock. They, not their cestuis que trust, would have been the stockholders for the time being. We know nothing in the policy of our law to pre- vent a majority of stockholders from transferring their stock to a trustee with unrestricted power to vote upon it. Brown v. Pacific Mail Steamship Co., 5 Blatchf. 625, 627. See Greene v. Nash, 85 Maine, 148. Supposing that the committee had been trustees, what would the syndicate agreement have amounted to then ? Merely an agreement by each of the trustees to vote as they should jointly agree to vote, and an agreement by the subscribers not to demand back their shares for three years. The latter term certainly is not illegal, whether valid or not. A stockholder has a right to put his shares in trust, whatever his motive. If the trust is an active one he cannot termi- nate it at will, and the attempt to cut himself off by contract, instead of by the imposition of duties, from ending it, certainly is not enough to poison the covenant with the plaintiff. See Williams v. Mont- gomery, 148 N. Y. 5] 9, 625. It might be held that the duty of voting incident to the legal title made such a trust an active one in all cases. As to the arrangement for the trustees uniting to elect their candi- dates, the decisions of other States show that such arrangements have been upheld, and we do not think that it needs argument to prove that they are lawful. If stockholders want to make their power felt, they must unite. There is no reason why a majority should not agree to keep together. Faulds v. Tates, 67 111. 416 ; Smith v. San Fran- cisco & North Pacific Railway, 116 Cal. 584 ; Havemeyer v. Have- meyer, 11 Jones and Spen. 606, 512, 513. Af&rmed, according to Beach, Corporations, § 304, n. 6, and Fisher v. Bush, 35 Hun, 641, in 86 N. Y. 618. See Brown v. Pacific Mail Steamship Co., 5 Blatchf. 625, 627. We have considered such decisions elsewhere as have been called to our attention or found by us. Few of them are by courts of final resort. Nothing that we have found in them satisfies us that the judge below was not warranted in finding for the plaintiff. Judgment for the plaintiff. BEATTY V. NOETHWESTEEN TEANSPOETATION CO. 437 BEATTY V. NOETHWESTEEN TEANSPOETATION CO. 1884. (Chancery Division of Ontario), 6 Ontario, 300. 1885. {Court of Appeal of Ontario) , 11 Ontario Appeal, 205. 1886. {Supreme Court of Canada), 12 Canada Supreme Court, 598. 1887. {Judicial Committee of Privy Council), L. R. 12 App. Cases, 589.^ BiLi, IN EQUITY by Henry Beatty, a minority stockliolder, against the North Western Transportation Company, and its directors, including James H. Beatty. The bill seeks to rescind the purchase by the cor- poration of the steamer United Empire, The defendants filed a state- ment of defence. The plaintiflF joined issue, and the case was heard before Boyd, Chancellor. The material facts are as follows : — The Transportation Company is a corporation, with a capital stock of $300,000, divided into 600 shares of foGO each. On January 1, 1883, James H. Beatty owned 200 shares, and was a director. He was tlien building a steamboat, to be called the United Empire ; and desired to sell it to the company. In January, 1883, he purchased 101 additional shares. On the day of the annual meeting in Februarj', 1883, he transferred 5 shares to Eose and 5 to Laird, whereby they became qualified to be directors ; and they were then elected directors. The board was composed of five directors ; and James H. Beatty, Eose, and Laird constituted a majoritj'. The board of directors, while James H. Beatty was present and act- ing, passed a vote (called a bye-law) to purchase the steamboat of James H. Beatty upon specified terms. The directors, at the same time, voted to submit the said bye-law to a special meeting of the stockholders. At such meeting, a vote to adopt the bye-law was carried by a vote of 306 to 289. Of the 306 affirmative votes, 291 were cast by James H. Beatty, and ten by his transferees, Eose and Laird. The bill charges that the purchase was not entered into bj' James H. Beatty et als. on behalf of the company in good faith for the pur- i pose of promoting the, best interests of the company, but for the pur- J pose of serving their private interests contrary to their duty to the company and its stockholders. Subsequently all charges of fraud and collusion were abandoned. It was proved by uncontradicted evidence, and was substantially admitted, that, at the- date of the purchase, the acquisition of another steamer was essential to the efficient conduct of the company's business ; that the United Empire was well adapted for that purpose ; that it was not within the power of the company to acquire any other steamer equally well adapted for its business ; 1 Statement compiled from the various reports. The greater portions of the argu- ments and opinions are omitted. — Ed. 438 BEATTY V. NOETHWESTEEN TEANSPOETATION 00. and that the price agreed to be paid for the steamer was not exces- sive or unreasonable. The case was heard in the Chancery Division, at Toronto, before Boyd, Chanoelloe, who decreed that the purchase should be set aside. (6 Ontario, 300.) The Court of Appeal of Ontario (Hagaett, C. J., BtrRTON and OsLEB, JJ.) unanimously reversed the decree of the Chancellor. (11 Ontario Appeal, 205.) The Supreme Court of Canada (Ritchie, C. J., Fotjenier, Henry, Taschereau, and Gwynne, JJ.) unanimously reversed the last men- tioned decision, and restored the decree of the Chancellor. Sir W. J. Ritchie, C. J. Though it may be quite true, as a general proposition, that a shareholder of a companj^, as such, may vote as he pleases, and for purposes of his own interest, on a question in which he is personallj' interested, does that proposition necessarily- cover this case ? Is it not abundantlj' clear that, whatever a simple stockholder \ may do, no director is entitled to vote, as a director, in respect to any ] contract in which he is personallj' interested ? Directors cannot man- ) age the affairs of the compan}' for their own personal and private advantage ; they cannot act for themselves and, at the same time, as] the agents of tlie corporation whose interests are conflicting ; they can-' not be the sellers of propertj' and the agents of the vendee ; there must be no conflict between interest and duty ; ihey cannot occupy a posi- tion which conflicts with the interests of the parties they represent and are bound to protect. Is it not somewhat of a mockerj' to saj' that this by-law and sale were invalid and bad, and not enforceable against the company as being contrary to the policy of the law by reason of a director entering into the contract for his personal benefit where his personal interests conflicted with the interests of those he was bound to protect, but that it can be set right by a meeting of the shareholders, by a resolution carried by the vote of the director himself against a large majority of the other shareholders? If this can be done, how has the conflict between self-interest and integrity ceased ? While recognizing the general principle of non-interference with the powers of the compan}' to manage its own affairs, this case seems to me to be peculiarly exceptional ; a director, acting for the company, makes a sale, acting for himself, to the company, a transaction admit- tedly indefensible.; this purchase is submitted to the shareholders, and the director, having acquired a controlling number of votes for this purpose, secures a majority by his own votes thus obtained without which the purchase would not have been sustained, and confirms as a shareholder his invalid act as a director, and thus validates a transac tion against which the policy of the law utterly sets its face. BEATTY V. NOSTHWESTEEN TEANSPORTATION CO. 439 It does seem to me that fair play and common sense alike dictate that if the transaction and act of the director are to be confirmed, it should be hj the impartial, independent, and intelligent judgment of the disinterested shareholders, and not by the interested director him- self, who should never have departed from his duty. If he had done his duty and refrained from acting in the transaction as a director the by-law might never have been passed, and the contract of sale never entered into ; and having acted contrary to his duty to his co-share- holders he disqualified himself from taking part in the proceedings to confirm his own illegal act ; and then to say that he was a legitimate party to confirm his own illegal act seems to me simply absurd, for nobody could doubt what the result in such a case would be, as the futileness of the interested, but discontented, shareholders attempting to frustrate the designs of the interested director with his majority is too manifest ; but he, if he had done his duty towards them and refrained from entering into the transaction, would never have been in the position of going through this farce of submitting this matter to the shareholders, and when so submitted of himself voting that he, though he had acted entirely illegally, had done right, and therebj' bind- ing all the other shareholders who thought the purchase undesirable ; or in other words, by his vote carrying a resolution that the bargain he himself had made for the companj' as buj'er, from himself as seller, was a desirable operation and should be confirmed. I rest this case entirely on the position Beatty held as a director, and the duty which pertained to that office. In that view it is not necessary to discuss how far, or rather under what circumstances a shareholder may vote at a general meeting of shareholders on matters on which he is individually interested. I cannot, however, but look upon it as rather a bold and startling proposition that a shareholder should be able to offer a property for sale to the company from a bare majority of votes and by such vote, against the will of all the other shareholders, compel the compan}' to become the purchaser at his own price and on his own terms, against the wish of all the other shareholders, who may, as in this case, be a minority of 289 votes against 306. Henry and Gvfynne, JJ.', delivered concurring opinions. The case was then carried by appeal to the Judicial Committee of the Privy Council. Sir H. E. Webster, Attorney General, and Jeune, for appellants, contended that the judgment of the Court of Appeal was correct, and that of the Supreme Court should be reversed. The fiduciary position of J. H. Beatty as director had, it was submitted, nothing to do with the question. His vote as shareholder at the general meeting was the k thing in dispute, whether he was prevented from giving it on a matter I in which he was personally interested. As for his voting for the bye- ' 440 BEATTY V. NOETHWESTEEN TEANSPORTATION CO. law at the directors' meeting it had no other object or effect than that of bringing the matter before a general meeting. Af the most it was voidable and not void, and the question was as to the validlt3' of Its ratification, and that depended upon the validity of the appellant's vote as a shareholder. There is no principle of equity why a shareholder i should be disqualified from voting at a general meeting, or whj' his ) vote should be examined and disallowed, except for fraud. The dis- qualification of directors results from their agencj\ The shareholders are principals. In this case if the majority were interested in the ves- sel sold, the minority were interested in a competing line and had interests adverse to the company ; and the validity of their votes might also on the respondent's contention be examined on the ground of per- sonal interest. The motives of shareholders for their votes cannot be) inquired into. If there is no fraud they are free to exercise their own'x judgment as they please, and that exercise cannot be called in question J by other shareholders. Reference was made to Pender v. Ziushing- ton;'^ M" Doug all v. Gardiner;^ East Pant Du United Lead Min- ing Company v. Merryweatfier ;^ Mason v. Harris.* Sir Morace Davey, Q. C, and Premner, for respondent. [Argument omitted.] Sir Richard Baggallat. The question involved is doubtless novel in its circumstances, and the decision important in its consequences ; it would be very undesira- ble even to appear to relax the rules relating to dealings between trus- tees and their beneficiaries ; on the other hand, great confusion would be introduced into the afiairs of joint stock companies if the circum- stances of shareholders, voting in that character at general meetings, \\ were to be examined, and their votes practically nullified, if they also ^ stood in some fiduciary relation to the company. It is clear upon the authorities that the contract entered into by the directors on the 10th of February could not have been enforced against the company at the instance of the defendant J. H. Beatty, but it is equally clear that it was within the competency of the shareholders at the meeting of the 16th to adopt or reject it. In form and in terms the}' adopted it by a majority of votes, and the vote of the majority I must prevail, unless the adoption was brought about by unfair or J improper means. The only unfairness or impropriety' which, consistently with the ad- mitted and established facts, could be suggested, arises out of the fact that the defendant J. H. Beatty possessed a voting power as a shareholder which enabled him, and those who thought with him, to adopt the bye-law, and thereby either to ratify and adopt a void- able contract, into which he, as a director, and his co-directors had entered, or to make a similar contract, which latter seems to have been 1 6 Ch. D. 73. 2 ] Ch. D. 13. s 2H. &M. 254. ■* 11 Ch. D. 107. PENDEE V. LUSHINGTON. 441 what was intended to be done by the resolution passed on the 7th of Februarj'. It ma3' be quite right that, in such a case, the opposing minoritj' should be able, in a suit like this, to challenge the transaction, and to shew that it is an improper one, and to be freed from the objection that a suit with such an object can only be maintained by the company itself. But the constitution of the company enabled the defendant J. H. Beatty to acquire this voting power ; there was no limit upon the num- ber of shares which a shareholder might hold, and for every share so held he was entitled to a vote ; the charter itself recognised the defend- ant as a holder of 200 shares, one-third of the aggregate number ; he had a perfect right to acquire farther shares, and to exercise his voting power in such a manner as to secure the election of directors whose views upon policy agreed with his own, and to support those views at any shareholders' meeting ; the acquisition of the United Empire was a pure question of policj'^, as to which it might be expected that there would be differences of opinion, and upon which the voice of the ma- jority ought to prevail ; to reject the votes of the defendant upon the question of the adoption of the bj'e-law would be to give effect to the views of the minority, and to disregard those of the majority. The judges of the Supreme Court appear to have regarded the exer- cise bj' the defendant J. H. Beatty of his voting power as of so oppres- sive a character as to invalidate the adoption of the bj^e-law ; their Lordships are unable to adopt this view ; in their opinion the defend- ant was acting within his rights in voting as he did, though they agree with the Chief Justice in the views expressed bj' him in the Court of Appeal, that the matter might have been conducted in a manner less likely to give rise to objection. Their Lordships will humbly advise Her Majesty to allow the appeal ; to discharge the order of the Supreme Court of Canada ; and to dis- miss the appeal to that Court with costs ; the respondent must bear the costs of the present appeal. \ Jessel, M. E., in PENDER v. LUSHINGTON. 1877. Law Reports, 6 Chancery Division, 70, pp. 74-76. Jessel, M. R. This is a motion by Mr. J. Pender, on behalf of himself and all shareholders who voted with him against an amend- ment, and the Direct United States Cable Company, Limited, as Plain- tiffs, against JE. H. Lushington and other gentlemen as Defendants, in Bubstance to obtain the opinion of the Court that certain votes at a gen- eral meeting on behalf of the Plaintiff were improperly rejected by the 442 PENDEE V. LUSHINGTON. chairman. That is the substance of the case, though there are other technical questions to which I must also refer. In all cases of this kind, where men exercise their rights of prop- evt}-, they exercise their rights from some motive adequate or inade- quate, and I have alwaj-s considered the law to be that those who 'liave the rights of property are entitled to exercise them, whatever their motives may be for such exercise — that is as regards a Court of Law as distinguished from a court of morality or conscience, if such a court exists. I put to Mr. Harrison, as a crucial test, whether, if a landlord had six tenants whose rent was in arrear, and tliree of them voted in a way he approved of for a member of Par- liament, and three did not, the Court could restrain the landlord from distraining on the three who did not, because he did not at the same time distrain on the three who did. He admitted at once that whatever the motive might be, even if it could be proved that the landlord had distrained on them for that reason, that I could not prevent him from distraining because thej' had not paid their rent. I cannot deprive him of his propertj', although he ra&y not make use of that right of property in a way I might altogether approve. That is really the question, because if these shareholders have a riglit of propertj', then I tliink all the arguments which have been addressed to me as to the motives which induced them to exercise it are entirely beside the question. I am confirmed in that view bj- the case of Menier v. Hooper's Tele- graph Worlcs,^ where Lord Justice MeUish observes : "I am of opinion that, although it may be quite true that the shareholders of a company may vote as they please, and for the purpose of their own interests, j-et that the majority of shareholders cannot sell the assets of the com- pany and keep the consideration." In other words, he admits that a man may be actuated in giving his vote by interests entirelj' adverse to the interests of the companj^ as a whole. He may think it more for''\ his particular interest that a certain course may be taken which may 1 be in the opinion of others very adverse to the interests of the com- 1 pany as a whole, but he cannot be restrained from giving his vote in what way he pleases because he is influenced by that motive. There \ is, if I may say so, no obligation on a shareholder of a company to I give his vote merely with a view to what other persons may consider I the interests of the company at large. He has a right, if he thinks fit, A. to give his vote for motives or promptings of what he considers his own ) individual interest. This being so, the arguments which have been addressed to me as to whether or not the object for which the votes were given would bring about the ruin of the company, or whether or not the motive was an Improper one which induced these gentlemen to give their votes, or whether or not their conduct shews a want of appreciation of the 1 Law Hep. 9 Ch. 350, SSi. PfilCE V. HOLCOMB. 443 principles on which this company was founded, appear to me to be wholly irrelevant. Therefore I do not intend to enter into the ques- tion as to what the objects of the company were, or what was the mode in which it was proposed to carry out those objects. I am only bound to decide whether or not these people were entitled to vote. To that question I am now going to address myself.^ PEICE V. HOLCOMB et al. 1893. 89 Iowa, 123.2 Action in Equity, by minority stockholder in the Iowa EoUing MUl Company, to set aside a sale of the corporate property to Hol- comb. The property was purchased by Holcomb as the highest bidder at a public sale, which was authorized by a resolution passed at a meeting of the stockholders. Out of 393^ shares voted in the affirma- tive, Holcomb voted, in his own right, on 177^ shares ; and also voted, as a proxy, on 180 shares. In the District Court a decree was entered dismissing the plain- tiff's petition. Appeal. C. L. Poor and Thomas Hedge, for appellant. Power & Huston, for appellees. Given, J. [After deciding other questions.] The appellant cites cases announcing the familiar rule that a party holding a fiduciary relation to trust property can not become a purchaser thereof, either directly or indirectly. It is contended that the defendant Holcomb, in voting the majority of the stock, as already stated, stood in the place of the corporation, and was charged with its trust relation toward the stockholders, and, therefore, within the rule forbidding him from purchasing the property. Mr. Holcomb's relation as a stockholder was not that of agent or trustee, but a joint owner. An agent or trustee is charged with the interests of his principal or cestui que trust, and can not have any interest adverse thereto. Not so, however, as to a stockholder. He has his own interests to pro- tect, and is not charged with the care of the interests of the other stockholders. They act for themselves. The rule applicable to stock- holders is well stated in Biceps Appeal, 79 Pa. St. 204, as follows : " Where a person has the actual control of a corporation, whether 1 In Dorchester v. Youngman, A. d. 1880, 60 New Hampshire, 385, it was decided that a citizen's special pecuniary interest in a question of town affairs does not disqualify him from voting upon it. Seven suits had been brought by the town against different citizens. A vote in town meeting, authorizing the settlement of these suits, was passed by the hel p of the votes of the seven defendants. Held, that their interest did not disqualify them from voting. — Ed. 2 Statement abridged. Only so much of the case is given as relates to a single point. — Ed. 444 GUERNSEY V. COOK. such control arises from the ownership of a majority of the shares, or from his position or influence, he is held to most rigid good faith. The onus is upon him to show the fairness of the transaction if it is called in question." This brings us to inquire whether the appellee Holcomb acted in good faith. It is unnecessary that we extend this opinion by here discussing the evidence on this point. It is sufficient to say that purchasers for such property were not numerous, the sale was advertised and open, it was postponed in hope of securing bid- ders, the minimum price was fixed, and at an open sale the appellee Holcomb made his bid. It is true that the price bid was much less than the cost of the property, but it was all it would bring at an open sale, and, in view of the past failures of this new enterprise, may be said to be equal to the then value of the property. We find no evi- dence of fraud or bad faith in the transaction. What was done was authorized by the circumstances, and was done in good faith, and for the best interests of all concerned.^ Judgment affirmed. GUEENSEY v. COOK. 1876. 120 Mass. 501. Colt, J. The contract declared on has been held to be the personal contract of the defendant. 117 Mass. 548. It provided in substance on the part of the defendant and Mr. Beebe, who togetheV owned a majority of the stock of the India Companj', that the plaintiff should be made treasurer of that company at a stipulated salary ; the plaintiff on his part agreeing to take part of their stock at par, with an agree- ment that it should be taken back and an allowance made for interest, " in case it should be desirable for any reason to dispense with the plaintiflTs service as treasurer." The question is whether such a contract is void as being against public policy. Its decision depends upon the construction which must be fairly given to the terms of the contract. In consideration of the purchase of a part of their stock at a price ' named, two of the stockholders agree to secure to the purchaser the treasurership of the corporation, of which they are members, and to secure to him also a sum named, as the annual salary of the office. The purchase of the defendant's stock and the agreement relating to the office are incorporated into the contract as part of one transaction ; and each agreement is the valuable consideration of the other. The contract, if reasonably susceptible of two meanings, one legal and the other not, must indeed receive an interpretation which will support rather than defeat it, and the presumption is in favor of its legality. 1 But see Beilly v. Oglehay, A. d. 1884, 25 West Virginia, 36; and Chicago Bansom Cah Co. V. YerJces, a. d. 1892, 141 Illinois, 320. — Ei>. GUEENSEY V. COOK. 445 But this contract necessarily implies that the defendant intended to I derive, and the plaintiSf intended to give to him, a private advantage, not shared bj' the other stockholders, in consideration of his election as treasurer. And there is nothing in the facts disclosed at the trial toj show that such was not in fact the result of the transaction, or that the agreement in question was known and consented to by the other members of the corporation. It was the purpose and eflFect of the contract to influence the defend- ant, in the decision of a question affecting the private rights of others, by considerations foreign to those rights. Tlie promisee was placed under direct inducement to disregard his duties to other members of the corporation, who had a right to demand his disinterested action in the selection of suitable officers. He was in a relation of trust and confidence, which required him to look only to the best interests of the whole, uninfluenced by private gain. The contract operated as a fraud upon his associates. In Fuller v. Dame, 18 Pick. 472, a contract was held to be con- trary to public policy, and to open, upright and fair dealing, which tended injuriously to affect the interest of the corporations of which the promisee was a member. It was compared to the case of a compo- sition deed where all the creditors release the common debtor upon the payment of a certain percentage, and where a stipulation for a separate and distinct advantage is held to be a fraud on other creditors and void. Case v. Gerrish, 15 Pick. 49. Upon the same principle, agree- ments not to bid against each other at a public auction, as well as agreements for the employment of underbidders and puffers, are held to be a fraud upon tlie bidders at the sale, and void as against public ■ policj'. So contracts with brokers or agents, upon a consideration founded on violations of duty to the principal, are void. Smith v. Townsend, 109 Mass. 500. Phippen v. Stickney, 3 Met. 384. Gibbs v. Smith, 115 Mass. 592. Curtis v. Aspinwall, 114 Mass. 187. See also Waldo v. Martin, 4 B. & C. 319 ; Marshall v. Baltimore t& Ohio Railroad, 16 How. 314 ; Elliott v. Richardson, L. R. 5 C. P. 744. Upon the facts disclosed, this action, which is not in avoidance but in direct affirmance of the contract, cannot be maintained. White v. Franklin Bank, 22 Pick. 181. The objection that the contract is illegal, although it comes with no good grace from the defendant, is allowed to prevail, not as a protection to him, but for the sake of the public good, and because the court will not lend its aid to enforce an illegal contract. iKyers v. Jfawra^A, 101 Mass. 366. Taylors. Chester, h. R. 4 Q. B. 309. Judgment for the defendant. J. G. Abbott & B. Dean, for the plaintiff. B. F. Butler d; J. A. Gillis, for the defendant. 446 DUDLEY V. KENTUCKY HIGH SCHOOL. CHAPTER XII. POWER OF MAJORITY OF STOCKHOLDERS.^ DUDLEY V. KENTUCKY HIGH SCHOOL. 1873. 9 Bush. (Ky.), 576. CradocJe & Trabue, for appellant. Ira Julian, for appellee.^ Lindsay, J. The order from which this appeal is prosecuted must be regarded as final. The special demurrer to the jurisdiction of the court was sustained, and a judgment rendered against appellant for the costs of the entire proceeding. This is equivalent to dismissing the petition for the want of jurisdiction in the court, and effectually pre- cludes appellant from taking further steps in this litigation to obtain the relief desired. We are inclined to differ with the circuit court as to its want of juris- diction to enjoin the collection of so much of appellant's subscription to the high-school as had not been reduced to a judgment in the Franklin Quarter!}' Court ; but this question need not be considered in view of the fact that we feel satisfied, after a careful examination of the petition, that it sets out no cause of action, and that under the facts as presented, and the provisions of the act of the General Assembly incorporating the high-school, it cannot be so amended as to present a cause of action. The object of the corporation was to establish and maintain a high- school, and not to make money, and it has no legal right to engage in speculations or investments in real estate for the last named purpose ; but it has the expressly delegated power "to receive and hold for the benefit of said high-school any lands, tenements, etc., ... by gift, devise, donation, contract, or purchase." It is not complained that the house and lands purchased or about to be purchased from Gaines are not to be held for the benefit of the school, but that the corporation is unable to pay the contemplated price, and that the inevitable result of the pur- chase, if consummated, will be the bankruptcy of the corporation and the failure of the project to establish the school. 1 This subject is also discussed in various cases which are given under special topics treated of in subsequent chapters; especially in the cases relating to the stockholder's right to maintain suit, the cases relating to the reserved power of the legislature to alter or amend charters, and the cases on ultra vires. — Ed. 2 Citations of counsel omitted. — Ed. DUDLEY V. KENTUCKY HIGH SCHOOL. 447 It may be conceded that the facts stated in the petition fully authop jze this conclusion, and j'ct it does not follow that a court of equitj- has the power at the suit of a stockholder to interfere by injunction to pre- vent the corporation from executing a contract it has the lawful right to make. It is true that a majoritj' of stockholders, no matter how great, have not the right to divert the funds of a joint-stock incorporated company i to any other than the purposes for which it was organized ; and if such | funds are about to be so diverted, a stockholder maj' file a bill in equity \ against the company to restrain it by injunction from such diversion or misapplication. Bagshaw v. Eastern Counties Railway Co. (7 Hare, 114 ; 1 Beavan, 1) ; Marsh v. Eastern Railway Co. (40 N. H. 548). But relief will not be granted unless the corporation is about to do some act outside of the scope of its authority, or in disobedience to the pro- visions of its constitution, for so long as it exercises the powers granted b}- the charter the acts of the company must be treated by the courts as the acts of all the stockholders. Each and every stockholder contracts that the will of the majority shall govern in all matters coming within the limits of the act of incor- poration ; and in cases involving no breach of trust, but only error or mistake of judgment upon the part of the directors who represent the companj', individual stockholders have no right to appeal to the courts to dictate the line of policy to be pursued by the corporation. Angell and Ames on Corporations, sec. 393. Nor does the irregular manner in which the board of directors voted upon the proposition to make the purchase from Gaines authorize the chancellor to interpose to pre- vent its consummation. In the case of Foss v. Harbottle (2 Hare, 461), where the object of the bill in equity was to obtain relief against what was alleged to be a fraud committed by certain of the directors in an incorporated companj', which fraud consisted in the sale to themselves, as representatives of the companj^, of lands in which they were indi- viduallj' interested, Vice-Chancellor Wigram held that although the act might be voidable by the company, yet, inasmuch as a majoritj' of the proprietors might at a general meeting confirm it, he declined to inter- fere, saying, " While the court maybe 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 theoi, the governing bodj' of proprietors may defeat the decree by lawfully resolving upon the confirmation of the very acts which are the subject of the suit." So in this case, while it may be that (,he corporation has the right to avoid the purchase from Gaines, because one of the directors, without whose vote the propo- sition would have been rejected, was allowed to vote bj' proxy, yet it may be that Dudley is '.he only stockholder who disapproves of the purchase, and it might result that, at the time the court was protecting him against the payment of his subscription because of the unauthor ized action of the directors, a majority of the stockholders in general meeting might ratify or have already ratified the purchase, gad bound 448 NATUSOII V. IRVING. Dudley under his contract of subscription to submit to their wiL .'•faua regularly and legally expressed. It may be that the price agreed to be paid for the house and lands is greatly more than its value, but about this matter the opinion of the majority of the stockholders as expressed through the directory must control, and so far as the action of the court in this case is concerned it is immaterial whether the corporation acted wisely or unwisely in 'contracting a debt which possibly it will be unable to pay. The chDrter empowers it to make purchases of land, to contract debts, and to issue bonds to an amount not over two thirds of the stock subscribed ; and if these powers are so exercised as to result in loss to the stockholders, it is a misfortune against which the courts can aflford no protection. Judgment affirmed. NATUSCH V. IRVING et als. 1824. Gow on Partnership, Appendix No. VI. Page 398.1 Plaintiff, on behalf of himself and all others the shareholders, mem- bers, or partners of the Alliance British and Foreign Life and Fire Assurance Companj', filed this bill against the president and directors, praying, inter alia, for an injunction to restrain them from carr3'ing on the business of marine insurance in the name or on the account of the companj', and from applying the capital of the company to any such purpose. The case made by the bill and afiidavits was, in part, as follows : A prospectus was issued for the formation of an unincorporated com- pany to grant fire and life insurance, with a capital of five million pounds divided into fifty thousand shares, plaintiff subscribed for fifteen shares, paid the required deposit, insured his life in the company and paid the insurance premium. He was willing also to execute a proper deed of settlement. After the plaintiff had subscribed, &c., the ma- jority of the company undertook to carry on the additional business of marine insurance. They prepared a deed of settlement which contained provisions for enabling the company to carry on marine insurance ; and which plaintiff refused to execute. Plaintiff objected to the company's carrying on a marine insurance business. The directors inforrfled plaintiff that, if he was dissatisfied with the course intended to be pursued, he might receive back his deposit with interest, and also have his life policy cancelled and the premium returned. LoED Eldon, Chancellok. 1 Statement abridged. Part of opinion omitted. The case was first reported in Gow, and lias since been reported in 2 Cooper, Tempore Cottenham, 358. — Ed. NATUSCH V. IRVING. 449 3. An offer is made to the plaintiff that he maj' receive back his deposit with interest from the date of the payment, and he is desired to consider himself as having received notice thereof But it is not, I apprehend, competent to any number of persons in a partnership (unless they show a contract rendering it competent to them) formed for specified purposes, if they propose to form a partnership for very different purposes, to effect that formation by calhng upon some of their partners to receive their subscribed capital and interest and quit the concern ; and, in effect, merely by compelling them to retire upon such terms, so to form a new company. This would, as to partner- ships, be a most dangerous doctrine. Where a partnership is dissolved (even where it can be in a sense dissolved the instant after notice to dissolve is given, if there be no contract to the contrary), it must still continue for the purpose of winding up its affairs, of taking and settling all its accounts, and converting all the propertj', means and assets of the partnership existing at the time of the dissolution as beneijoially as may be for the benefit of all who were partners, according to their respective shares and interests ; and the other partners cannot say to him, to \ whom they have given an offer of his deposit and interest, Take that, and we are a new company, keeping the effects, means, assets, and ' property of the old, as the property of the new partnership. 4. The company will indemnify the plaintiff against loss by its trans- actions already had, or hereafter to be had, not for the specified pur- poses of the institution. But the right of a partner is to hold to the specified purposes his partners whilst the partnership continues, and not to rest upon indemnities with respect to what he has not contracted to engage in. 5. A dissatisfied partner may sell his shares for double what he i originally gave for them. But he cannot be compelled to part with ] them for that reason ; it may be his principal reason for keeping them, I having the partnership concern carried on according to the contract. - The original contract and the loss which his partners would suffer by a dissolution, is his security that it shall be so carried on for him and them beneficially, and with augmented improvement in the value of his shares and their shares. If six persons joined in a partnership of life assurance, it seems clear that neither the majority, nor any select part of them, nor five out of the six, could engage that partnership in marine insurances, unless the contract of partnership expressly or impliedly gave that power ; be- cause if this was otherwise, an individual or individuals, by engaging in one specified concern, might be implicated in any other concern whatever, however different in its nature, against his consent. But if a part of the six openly and publicly professed their intention to engage the partnership in another concern, and clearly and distinctly brought this to the knowledge of one or more of the other partners, and Buch one or more of the other partners could be clearly shown to have 450 NATUSCH V. lEVING. acquiesced in such intention, and to have permitted the other partners to have entered upon and to have engaged themselves and the body in such new projects, and thereby to have placed their partners, so en- gaged, in diflficulties and embarrassments, unless they were permitted to proceed in the farther execution of such projects, if a court of equity would not go the length of holding that such conduct was consent, it ■' would scarcel}'^ think parties so conducting themselves entitled to the festinum remedium of injunction. It may be taken that the principle that would apply to the partner- ship of six, will applj' to this partnership of 600 or 700 ; 340 have exe- cuted in respect of not quite half the number of shares : there probably may be therefore 600 or 700 members. To those who have not had occasion to observe the boldness of speculation, it may seem astonishing that persons, and so many in number, should have engaged themselves in a speculation so little explained, and undertaken to execute deeds, of the contents of which they had so little information. To those who know the difficulty of applying the rules of law and equity to societies constituted of such numbers of persons not incorporated, it is not matter of surprise that persons, ignorant of those difficulties, should become members of such societies ; it may be matter of surprise to them that persons who know the difficulty of applying those rules should become members, even where the nature of the speculation is clearly explained, and full information is given of the contents of the deeds to be exe- cuted. Much has been done with respect to the difficulty alluded to, by provisions how those who have demands upon such societies are to sue, and how such societies are to be sued ; much remains to be done, and particularly as to rendering simple and effectual the remedies of the members of such societies against each other. It is observed that the members of this society underwriting will be each liable to the bank- rupt laws. That depends upon the act of parliament which is to take effect in May next.^ Shares may devolve to feme coverts, infants, &c. ; Dut whatever are the difficulties, courts must struggle to remedy them, and to prevent particular members of those bodies from engaging other members in projects in which they have not consented to be engaged, or the engaging in which they have not encouraged, assented to, em- powered, or acquiesced in expressly or tacitly, so as to make it not equitable that they should seek to restrain them. The principles which a court would act upon in the case of a partnership of six must, as far as the nature of things will admit, be applied to a partnership of 600. • ■•• ••■• • The injunction was granted. 1 5 Geo. 4, c. 98, s. 2, by which an underwriter is declared to be a trader liable to the bankrupt laws, and see 6 Geo. 4, c. 16, s. 2. Formerly it was held that an under writer, merely in that character, could not be a bankrupt! Ex parte Bell, 15 Vesey, S35. ASHTON V. BUEBANK. 451 ASHTON V. BURBANK. 1873. 2 Dillon, 435.1 Suit on a note given for an assessment upon stock in a corporation, Original charter authorized companj' to transact a "life and accident insurance " business. After defendant's subscription to the stock, the charter was amended, the name was changed, and the corporation was authorized to transact the business of " fire, marine, and inland insurance." The amended charter was accepted, but in point of fact the corpota- tion took no risks daring the short period it afterwards did business except such as were authorized by its original charter. The defendant neither procured nor assented to the amendatory act, nor did be know of it until after its passage, and thereupon he protested against it and refused to pay the note on this ground. The note was sold to plaintiflE by the insurance company after it ceased to do business, and long after the note was due. Dillon, J. 3. The change in the charter, by which a life and accident com- pany was authorized to transact fire, marine, and inland insurance, is an organic change of such a radical character as to discharge pre- vious subscribers to the stock of the company from any obligation to , pay their subscription, unless the change is expressly or impliedly assented to by them. Here there was no such assent, and no acquies- cence in the structural change made in the charter of the company. The company could not, against such a subscriber, maintain a suit to collect his subscription, and take the monej' and use it as capital for the transaction of business under the charter as altered. We think, in such a case, the subscriber is not bound to enjoin action under the \ amended charter, but may, if he elects, defend against an action to : recover on his subscription to the stock. If the company accepted the amended charter, as it did by adopting a new name, it is not essential to such a defence to show that at the time of the trial the corporation had actually exercised the enlarged powers conferred upon it. The defendants are not bound, on their subscription, to pay to the company monej- which, if paid, may be used as capital to carry on the business authorized by the amended charter. Judgment for the defendants. Nelson, J., concurs. ' Statement abridged. Only so much of the case and of the opinion given as relates W one point. — Ed. 452 HARTFORD AND NEW HAVEN RAILROAD CO. V. CEOSWELL. HAETFOED AND N. H. E. CO. v. CEOSWELL, 1843. S Bill (N. Y.), 383. Assumpsit, tried at the New- York circuit in March, 1841, before Gridley, C. Judge. The action was brought to recover certain instal- ments upon the defendant's subscription to the capital stock of the plaintiffs' companj'. On the trial the case was this : In May, 1833, the legislature of Connecticut passed an act authorizing the plaintiffs to construct a rail-road from the town of Hartford to the city of New- Haven. The capital stock was divided into shares of $100 each, and the defendant subscribed for and was allowed 10 shares. The sub- scription was in these words: "Whereas the general assembly of the state of Connecticut, at their session in May, 1833, passed a resolution incorporating the Hartford and New-Haven Eail-Eoad Company, with power to construct a rail-road or way from the town of Hartford to the city of New-Haven : We do hereby subscribe to the stock of said com- pany the number of shares annexed to our names respectively, on the terms, conditions and limitations mentioned in said resolution. New- York, July 31, 1835." In May, 1839, the legislature of Connecticut amended the act of incorporation bj' authorizing the companj- to " pro- cure, charter or purchase and hold " such number of steamboats, to be used in connection with their road, as they might deem expedient, to an amount not exceeding $200,000 ; and, for that purpose, to increase their capital stock to tbe same amount. On the 2d of July following, the board of directors resolved to accept the amendment, and to adopt it as a part of the charter. They also resolved that the stockholders who were paying up their instalments should be allowed a preference in the distribution of the new stock to be created in pursuance of the amend- ment. In September, 1839, at a general meeting of the stockholders, the resolution to accept the amendment was ratified. Due notice of this meeting was given ; but the defendant was not present, nor did it appear that he had at any time signified his assent to an acceptance of the amendment. Intermediate the date of the defendant's subscription and the amendment of the charter, the instalments sought to be recov- ered were regularly called for by public notice to that effect, and a per- sonal demand thereof was shown to have been made of the defendant, who refused to pay. The road was completed and put in operation before the commencement of the suit. Upon these facts a verdict was rendered for the plaintiffs by consent, subject to the opinion of the court upon a case. S. P. Staples, for the plaintiffs. 0. Mc Vean, for the defendant. 5y the Court, Nelson, Ch. J. The main objection taken to a recov- ery in this case is, that the plaintiffs are seeking to enforce the per- formance of a different contract from that into which the defendant HAETFORD AND NEW HAVEN KAILEOAD CO. V. CROSWELL. 453 entered when he subscribed for the stock ; in other words, that the defendant never assented to the contract upon which the action is founded. The original charter conferred upon the company all the usual and necessary powers for locating and constructing a railroad from the town of Hartford to the city of New-Haven. The ten shares sub- i scribed for by the defendant were expressly taken upon " the terms, | conditions and limitations " mentioned in the charter. And sucli would doubtless have been the legal effect of the subscription had no reference to the charter been made in it. The contract thus entered into was as specific and definite as the charter of the company could make it ; and the meaning and intent of the parties cannot therefore be mistaken. It was a contract to take stock in an association incor- i porated for a particular object, having such limited and well defined/ powers as were necessary to the accomplishment of that object. The defendant assented to the object by his subscription, and thereby agreed that his interest should be subject to the direction and control of the powers thus expressly conferred, but nothing more. Since entering into this contract, the plaintiffs have procured an amendment of their charter, by which they have superadded to their original undertaking, a new and very different enterprise — and, for aught that can be known, a very hazardous one — with the necessary additional powers to carry it into effect. Instead of confining their operations to the construction and management of their rail-road between Hartford and New-Haven, they have undertaken to establish and main- tain a line of water communication b}' means of steamboats, at an expense not to exceed $200,000 ; to all which, it is insisted, the con- tract of the defendant has become subject, without his approbation or assent. It is most obvious, if incorporated companies can succeed in estab- lishing this sort of absolute control over the original contract entered into with them by the several corporators, there is no limit to which it may not be carried short of that which defines the boundary of legis- lative authority. The proposition is too monstrous to be entertained for a moment. Corporations possess no such power. Indeed they can \ exercise no powers over the corporators beyond those conferred by the \ charter to which they have subscribed, except on the condition of their i agreement or consent. This is so in the case of private associations, where the articles entered into and subscribed by the members are regarded as the fundamental law or constitution of the society, which can only be changed by the unanimous voice of the stockholders. {Livingston v. Lynch, 4 John. Oh. Hep. 573 ; Coll. On Part. 641.) So here, the original charter is the fundamental law of the association — the constitution which prescribes limits to the directors, officers and agents of the company not onl}', but to the action of the corporate body itself — and no radical change or alteration can be made or Bllowed, by which new and additional objects are to be accomplished 454 HAETFOED AND NEW HAVEN EAILEOAD CO. V. CEOSWELL. or responsibilities incurred by the company, so as to bind the indi viduals composing it, without their assent. The question has been the subject of consideration in Massachusetts and Pennsylvania, and in each the courts have not hesitated to main- tain the inviolability of the contract as originallj- entered into, denying to the company the power of altering it essentially and of binding the subscribers who have not given their assent. In the case of The Mid- dlesex Turnpike Corporation v. Locke, (8 Mass. Hep. 268,) the suit was brought upon a subscription contract for stock, by which the defendant agreed to take one share and to pay all assessments made upon it. The ground of defence which prevailed was, that the location of the turnpike road had been changed by an act of the legislature ; after the defendant's subscription, the act having been passed at the instance of the corporation ; and that the defendant had never assented to the alteration. The court said : " The plaintiffs rely on an express contract, and were bound to prove it as they allege it. Here the proof is of an engagement to pay assessments for making a turnpike in a cer- tain specified direction. The defendant may truly saj', non hcec in fmdera veni. He was not bound by the application of the directors to the legislature for the alteration of the course of the road, nor by the consent of the corporation thereto." The same principle was recog- nized and admitted in the case of The Indiana & Ebenshurgh Turn- pike Co. V. Phillips, (2 Penn. Rep. 184.) I do not deny that alterations may be made in the charter by the procurement of the companj', without changing the contract so essen- tiallj"^ as to absolve the Bubscriber. Such would be the case, perhaps, in respect to mere formal amendments, or those which are clearly enough beneficial, or at least not prejudicial to his interests. A modi- fication of the grant may frequentl}' be advisable, if not necessary, in order to facilitate the execution of the very object for which the com- panj' was "originally established ; and I admit there are intrinsic diflS- culties in the way of laj'ing down any general rules by which to distinguish between the two kinds of cases. Each must depend upon its own circumstances, and be disposed of with due regard to the invio- lability belonging to all private contracts. Some of the cases which have occurred exemplifj' the difficulties attending the question. In Irvin v. The Turnpike Co., (2 Penn. Rep. 466,) it was held that a benefit which results to individual property by the location of the road, did not, in contemplation of law, enter into the consideration of the contract of subscription. Hence, it was there decided that the subscriber was bound, notwithstanding a change in the location of the road made by an act of the legislature against his remonstrance ; and this though the change was obviously to his preju- dice in point of fact. The decision, it will be perceived, is contrary to the case before referred to in Massachusetts. The court, moreover, were not unanimous, Eogers and Kennedy, Js. having dissented. In Gray V. The Monongahela Navigation Co., (2 Watts & Se^g. 156,) STEVENS V. RUTLAND AND BURLINGTON EAILEOAD CO. 455 the same learned court held, that an alteration in the charter, by which additional privileges were granted to the corporation, was not such a violation of the contract of subscription as would relieve the subscriber, although the additional privileges might extend the liabilities of the company and thus incidentally affect him. I refer to the last two cases as affording a very full and able exam- ination of the subject, without intending, at this time, to assent to their conclusions or to all the reasonings of the learned chief justice who delivered the opinions. In each of them, however, the general principle before asserted in The Indiana & Ebensb. Turnpike Co. v. Phillips is recognized, viz. that the alteration by the legislature may be so extensive and radical as to work a dissolution of the contract ; but an effort is made so to modify and regulate the application of the principle as to admit of improvements in the charter, useful to the public and beneficial to the company, without this consequence. In the case before us, the change in the powers and purposes of the plaintiffs' company has been so extensive as to preclude us from sanc- tioning a recovery upon the defendant's subscription, unless we are prepared entirely to abandon the principle above stated and to declare that the interests of subscribers shall be subject to the will and pleasure of a majority of the stocliholders. Judgment for the defendant. STEVENS V. EUTLAND & BURLINGTON E. CO. 1851. 29 Fermoni, 545.1 Bill in chancery, preferred before the Chancellor of the Third Judicial Circuit, against the Rutland & Burlington Railroad Company and three of its directors, by a stockholder ; the object of which is to obtain an injunction, restraining defendants from using the corporate funds or credit for the purpose of constructing a railroad from Burlington to Swanton. The original charter authorizes the building of a railroad from Burlington in a southerly and southeasterlj' direction to a point on the Connecticut River. It provides that the capital shall be one million dollars ; with the right in the corporation to Increase it to an amount sufficient to complete said road and furnish all necessary apparatus for conveyance. The corporation was organized, the stock taljen, and the road constructed and put in operation. The plaintiff subscribed, and paid for, five shares ; and is still the owner of the same. After the plaintiff had become a stockholder, and after the road was in operation, the legislature passed an additional act, author- izing the corporation to extend its railroad from Burlington northerly to Swanton, a distance of about thirty miles ; also providing that the 1 Statement abridged. Portions of opinion omitted. — En \ 456 STEVENS V. RUTLAND AND BtTELlNaTON RAILROAD CO. corporation, in the construction of this extension, shall have all the rights and privileges and be subject to all the liabilities contained in the original charter. This additional act was accepted by the board of directors. The directors caused a meeting of the stockholders to be called, to see if thej' would accept of this act as an amendment of their charter ; and threatened, in case of acceptance, to apply the corporate funds in constructing the extension against the will of the minority and particularly of the plaintiff. After the bill was filed, and prior to the hearing, the meeting was held, and a majority of the stockholders voted to accept the additional act as an amendment of their charter. The defendants filed no aflfldavits, nor did they apply for a delay of the hearing for the purpose of answering the bill. Bennett, Chancellor. The question is, can the orator, upon such a state of facts, claim, at the hands of the chancellor, his injunction. It is an admitted principle, that in partnerships, and joint stock associations, they cannot by a vote of the majority change or alter their fundamental articles of copartnership or association, against the will of the minoritj', however small, unless there is an express or im* plied provision in the articles themselves that they may do it. It is equally well settled, that a court of chancery will, upon the application of an individual member of a partnership, or joint stock association, restrain, by injunction, -the majority from using the funds or pledging the credit of the partnership or association in a business not warranted, and not within the scope of their fundamental articles of agreement. Courts of equity treat such proceedings by a majoritj', as a fraud upon the other members, which they will neither sanction or permit. To prevent the commission of fraud, by injunction, has been one of the earliest and most appropriate heads of equity jurisdiction, as well as to relieve against it, when committed. It was well conceded, in the argument on the defense, that if the cor- poration had been about to proceed to a construction of the contem- plated extension without the act of 1850, it would have been a proper case for an injunction. The only question which can be open to debate is, as to what shall be the effect of the act of 1850, and a subsequent \ adoption of the act by the corporation, upon the individual rights of a— ' shareholder who does not assent to its adoption ? If bound by it, there is no equity in this bill. It is, and must be admitted, that the legisla- ture has no constitutional power, unless it be reserved in the grant, to change or alter an act of incorporation without consent, and thereby cast upon the company new and additional obligations, or take from them rights guaranteed under the original charter. And indeed this the legislature have not attempted to do. It is also equally true that it is a part of the law of corporations, that they act according to the voice of the majority. But it is to be remembered, that this is not a suit in which the plaintiff seeks to protect himself in any corporate right, but in his own individual right, growing out of the fact of his having become a corporator by his subscription and its payment, to the STEVENS V. EUTLAND AND BURLINGTON ftAILROAD CO. 457 capital stock of the company. One of an aggregate corporation may contract with the company, as well as a third person ; and the rights of the individual so contracting are no more distinct and independent in the one case than in the other. The plaintiff, by his subscription, as- sumed to pay to the corporation, and only for the purpose specified in the charter, its amount, according to the assessments ; and there was at the same time a trust created, and an implied assumption on the part of the corporation, to apply it to that object, and none other The corporation also assumed upon themselves to account to this cor- porator for his share of the dividends, when this road should be com- pleted and put in operation, and for his share of capital stock, though not in numero. Tlie charter, in this case, gives to the state the right to purchase out the road of the corporation, after a given number of years, upon certain terms therein specified. The relation between each original shareholder and the corporation is the same. The obligation of the contract between the legislature and the corporation, after an acceptance of the charter, is no more sacred than that which is created between the corporation and the individual corporator. Does any one suppose the legislature could, without the consent of parties, absolve a corporator from liability on his subscription to the corporation, m modify it? and can they do the reverse of it? It is conceded that there is a class of alterations in a charter, which the corporation may obtain and adopt, that would not so essentially change the contract as to absolve the corporator from his subscription, or give him a right to complain in a court of justice, in case he had previously paid it. Where the object of the modification or alteration of the charter is auxiliary to the original object of it, and designed to enable the corporation to carry into execution the very purpose of the original grant, with more facility and more beneficially than they other, wise could, the original corporator cannot complain ; and I should ap- prehend it would make no difference with the rights of a corporation, in such a case, though he could show that the charter, as amended, was less beneficial to the corporators than the original one would have been. The ground upon which such amendments bind the corporator, I deem to be his own consent. When he becomes a corporator by his signing for a portion of the capital stock, he in effect agrees to the by-laws, rules, and votes of the companj-, and there is an implied assent, on his part, with the corporation, that they may apply for, and adopt such amend- ments as are within the scope, and designed to promote the execution of the original purpose ; and he signs, and the corporation receive his subscription, subject to such implied contingency; and if we regard it in the nature of a license, only, it would not alter the principle. Both parties having acted upon it, it would not be countermandable. But suppose the object of the alteration is a fundamental change in the original purpose, and designed to superadd to it something which is bej-ond and aside of it ; does the same principle apply ? [After cit- ing and commenting on various cases, the last of which is Hartford 458 STEVENS V. EUTLAKD AND BURLINGTON EAILEOAD CO. &, N. H. R. Co. V. Croswell, 5 Hill, 385, the learned Chancellor pro- ceeds :] Chief Justice Nelson, in his opinion, lajs down this general proposition, " that corporations can exercise no power over the corpo- rators, beyond those conferred by the charter to which they have sub- scribed, except on the condition of their agreement or consent." This is a sound proposition. The consent or assent may, however, be implied in a class of cases, as has already been stated, where the amendment is not regarded as fundamental, and can be brought within the scope of the original purpose of the association ; and this is going to the very verge of the powers of the corporation. It is diflfleult, and ■would be unwise, to attempt to lay down any general rules to determine in what precise cases the assent of the corporator should be implied, and in what not. It is sufficient for the present purpose to say, that his assent cannot be implied, in a case like the present, from a majority vote. Courts may differ, and doubtless will, in regard to what alter- ations shall be sufficient to constitute a fundamental change. But in the present case, I think, on this point there can be but one opinion. The termini of the road, as fixed by the charter, are Burlington, and some point on the west bank of Connecticut River, in the county of Wind.sor or Windham. The capital stock is one million of dollars, with a right in the corporation to increase it to an amount sufficient to com- plete said road, and furnish the necessary apparatus for conveyance. The supplementary act of 1850 purports to authorize the corporationJ within three years, to construct and extend their railroad from the terminus in Burlington, to some point in Swantou, in the county of Franklin, a distance of about thirty miles ; and the act provides that in the construction of the road, thej' shall have all the rights and privi- leges, and be subject to all the liabilities, contained in their original charter, and the acts in addition to it. The franchise granted to this company was territorial ; and an ex- tension of the termini necessarily is an extension of the franchise. It cannot remain the same thing in substance, until it can be established that a part is equal to the whole. Besides, the company maj- increase the capital stock to such additional sum as shall be necessary to con- struct the extension. The statute of 1850 is little less in effect, if anything, than an at- tempt to create in a summary manner, and by the way of I'eference, a new corporation, and to transfer all the old corporators to it. If all the corporators had assented to this transfer, it was well enough. The change in the purpose was not more fundamental in the case, from the 5th of Hill than in this. It is not necessary that the business should be changed in kind, to change the original purpose. If this is not a change in purpose, it would not be to extend the road in one direction to Canada line, and in the other to Massachusetts line ; and there would be no limits to the control which the corporation might acquire over the individual corporators, and this, too, without their consent, except what arises from the confines of legislative authority. \ STEVENS V. RUTLAND AND BURLINGTON RAILROAD CO. 459 The change, then, in the charter being fundamental and the corpora- tion not being able to bind the plaintiff b^' a majority vote, what must be the result? If he had been sued for an assessment upon his stock, he might have claimed that he was absolved from all liabilitj' upon the acceptance of the amendment. And is not this reasonable ? Shall it be said that the legislature and the corporation have power to embark this corporator in a speculation to which he has never consented? If it can be done in one case it can in another. But having pa:id his funds into the corporation, he has a right in chancery to compel a faithful performance of the trust by the corporation, in conformity to the origi- nal charter, and to keep them within its purview. No one can suppose that upon the payment of his subscription, the personal identity of the plaintiff was merged in the corporation, or that he ceased to have dis- tinct and independent rights. In Kex v. Eastern Counties Railway Company, 1 Eng. Railway Cases 509, the King's Bench issued a man- damus, upon the application of a minority, against the companj', direct- ing them to proceed in the construction of a railroad which had been chartered between two points, the corporation having stopped short of one of the termini, and voted to go no further. In the case before us, it must follow, if the plaintiff is not bound by the conjoined effect of the act of 1850, and a majority vote of the cor- poration, the defendants can stand on no better ground, than a volun- tary association, who are about to go bej-ond and aside of their original articles, against the will of a minorit3-. This, in effect, was conceded in the argument. There was nothing improper in the passage of the act of 1850, though upon the application of a portion of the directors of the company, as stated in the bill. No attempt is made by the legislature to impair the obligation of anj' contract between themselves and the corporation, or to cast upon the company any new and addi- tional burthens without their consent. There was no attempt to impair any contract arising under the prior charter, between the corporation and the corporator as an individual, or disturb any vested right in either. The act is not mandatorj-; and there is, in fact, an implied condition annexed to it, that it is to be accepted by all whose individual and corporate interests are to be affected by it, before it shall become ooerative. But suppose this act had been mandatory upon the corpo- ration and the several stockholders, to build this extension in the road within three years ; would not all cry out against its palpable injus- tice? Suppose, instead of this, the legislature had left it optional with the corporation to accept or reject the act of 1850, and had provided, that in case of the acceptance of the amendment by the corporation, it should bind the corporators who dissented from it, or did not assent to it, and this too, in their individual rights ; would there not be the same reason to cry out against it? Would it not, by its carrying a Btockholder into an enterprise which he had never consented to, and changing the principles of liability between the corporation and the individual corporator from what they were under the original compact, 460 STEVENS V. EUTLAND AND BUKLINGTON EAILEOAB CSO. Impair and disturb vested rights under it? I have no hesitation In say- ing, that, in my opinion, it would be beyond the pale of the constitu- tional authority of the legislature. In Ellis V. Marshall, 2 Mass. 269, it was held that no man could be made, by act of legislation, a member of an aggregate corporation without his personal consent ; and the same principle would seem to apply when he is asked to remain and become a corporator under a supplementary act, to be attached to and become a part of the charter, where that which it is proposed to superadd is vital, and constitutes a fundamental change in the charter, which is but the constitution of the company. [The learned Chancellor here discussed various authorities, includ- ing Ware v. Grand Junction Water Co., 2 Eussell and Mylne, 461, In reference to this case, he said {inter alia) : " I apprehend, that the views expressed by the Lord Chancellor in that case, if sound, must rest upon one of two grounds ; either that the change asked for in the charter was not a fundamental one, or else upon the ground of the transcendent powers of a British parliar ment. ... It is evident that Lord Bkougham . . . grounds himself upon the sovereign and uncontrollable powers of the parliament. . . . But with us, no legislature can transcend the bounds of the constitu- tion."] The Rutland and Burlington Railroad Company is but a private corporation, so far as the stockholders are concerned; though as it regards the powers of the legislature to authorize the taking of private property for public use, it may be said to be a qua public corporation. The stock is owned by individuals who compose the corporation, and from which they design to derive a profit; and they manage the business in view to their own interest; and it does not become a public corporation because the public interests may be incidentally promoted by it. In principle it is like a turnpike, a canal, or bridge charter ; Ten Eych v. Delaware and Baritan Canal Company, 3 Harr. (N. J.) 200. I think it is obvious beyond a reasonable doubt, upon principle and authority, that the plaintiff is not bound in his indi- vidual rights as a corporator, by force of the act of 1850 and the majority vote of the corporation, without his individual assent. In the case of public corporations, as in towns, counties, &c., a different rule may obtain. The distinction between private and public associ- ations and corporations has been well settled since the days of Lord Coke. CCoke Little. 181, b.) In case of public associations and corporations the public good re- quires that the voice of the majority should govern, and hence the power is more favorably expounded than when created for private purposes; and it would seem that public convenience required the adoption of such a rule. But in case of private associations and cor- porations it is not the doctrine that a majority can bind the minority in a matter beyond and aside of their original articles of association, STEVENS V. EUTLAND AND BURLINGTON EAILEOAD CO. 461 or charter of incorporation, unless it be by special agreement giving such power, wMcb must be a part of the original association. If, in a case like the present, the majority cannot bind the minority, it is plain that there is an equity in this bill, and that the defendants can stand in no better situation than if they had, by a vote of the company, proceeded to build the extension, and to apply the funds and credit of the corporation to that purpose, without any additional act of the legislature. This doctrine of Lord Chancellor Eldon [in Natusch v. Irving'^ necessarily grows out of the doctrine that it is the business of courts of justice to enforce the contracts of parties, not to make them. To give to courts not only the power to enforce, but also the power to make, or even modify in one iota a contract fairly made, would be the rankest despotisni. The ground assumed is, that this "Corporation had the funds of the original stockholders for an object distinctlj' defined in the original charter, and that the}' cannot be allowed to apply them to any other purpose whatever, without the consent of the stockholders, and that to do it would be a breach of trust. In regard to the expediency of bringing this bill, the chancellor can- not, and has no right to judge. The orator has the constitutional and sole right of determining this matter ; and if he thinks it expedient, we must acquiesce in it ; and no plea of the public good or inequality of interests involved can justifj- the chancellor in denying to the orator a right which is clearl}' accorded to him by well established chancery principles. The public good is best promoted by an impartial adminis- tration of justice according to the right of the case ; and courts can- not measure the equality or inequality of interests in the litigant parties and make that a basis for a decision, notwithstanding what has been urged in the argument. Where it is clearly shown that a corporation is about to exceed its powers, and to apply their funds or credit to some object beyond their authority, it would, if the purpose of the corporation was carried out, constitute a breach of trust ; and a court of equity cannot refuse to give relief by injunction. See Agar v. The Regent's Canal Company, Cooper's Eq. 77 ; The River Dun Navigation Company v. North Mid- land Railway Company, 1 Eng. Railwav Cases 153-4. It cannot justify the chancellor in refusing to exercise the juris- diction of chancery because the defendants may claim the right to proceed under color of the act of 1850. It is a settled principle that the circumstance of the defendant's acting under color of law, simply, can form no justification. The question, after all, will be : does the law justify the act which is being done, or threatened to be done ? Osborn v. The Bank of the United States, 9 Wheaton, 738. ti a law is unconstitutional it can give no authority. If the power it confers is abused or exceeded, the person acting under the color of law is a I 462 STEVENS V. EUTLAND AND BURLINGTON BAILEOAD CO. wrong doer. In the case at bar the corporation had no power to build the extension under their original charter ; and the act of 1850 is not binding upon the orator without his consent. The injunction must therefore be allowed, but only so far as to re- strain the defendants until the further order of the chancellor from applying the present funds of the corporation, or their income from the present road, either directly or indirectly to the purpose of build- ing said extension in said road, or to pay land damages and other expenses which may be contingent upon the building of it ; and also from using or pledging, directly or indirectly, the credit of the corpo- ration in effecting the object of the extension ; and at the same time the company will be left at liberty to build the extension with any new funds which they may see fit to obtain for that specific object. Though this is but an interlocutory decree,.made upon the plaintiff's equitable rights as disclosed in the bill, still "it having been twice argued, and it being a case of considerable interest and importance, I have deemed it proper to publish, somewhat at length, the grounds of my opinion. "To err is human;" and if, upon more mature consid- eration, the conclusion of my own mind shall be found to be vinsound, and not in accordance with principle and authority, I rejoice that they may be corrected by a superior tribunal.' After the above decision was announced, and before the injunction was issued, the defendants proposed to file bonds to indemnify the plaintiff against all damages which he might sustain by reason of the extension ; upon which the chancellor suggested, that he did not deem it competent for him to make contracts for the parties ; and that upon the authority of the case of Natusch v. Irving et al., it could make no difference, if filed, in the result.^ 1 The case was not carried to a higher court. — Ed. 2 In Forrester v. Boston cf Montana, fc. Co., A. D. 18D8, 21 Montana, 544, the minority stockholders of a Montana corporation sought to enjoin the ratification of a transfer of tho entire corporate property to a foreign corporation, in consideration of the latter corporation delivering its entire stock to the former corporation and assuming all its liabilities. By the agreement of transfer, the stockholders in the Montana corporation, who did not choose to accept shares in the foreign corporation in exchange for their present shares, were en- titled to receive from the foreign corporation $170 for each share not exchanged. Upon the hearing of the order to show cause why an injunction pendente lite should not issue, the defendants offered a bond in the penal sum of $50,000, conditioned, in substance, that if the defendants shall, when requested by plaintiffs, purchase from them the 200 shares owned by plaintiffs at the market price thereof and pay any damages that might be sustained by them because of any action that might be taken at the meeting of the stock- holders called to ratifj' the transfer, the obligation should be void, but otherwise to be in foi-ce. The defendants further offered to execute a bond in such form, or with such con- ditions, in such amount, and with such sureties, as the court might designate, in lieu of the bond so offered, if it were deemed in any wise insufficient. The District Court declined to accept such bond, and granted the injunction order. The defendants appealed from the order granting the injunction. The opinion on this branch of the case was as follows: PiGOTT, J., pp. 551, 552. " The court did not err in refusing to accept the bond or undertaking tendered by defendants. See Cook, Stock & S. § 502 ; Stevens v. Railroad Co., 29 Vt. 545; Railroad Co. v. Collins, 40 Ga. 582; Tomhi^sonv. Railway Co., 35 Ch. Div. 675; Thomp. Corp. § .S45. Section 876 of the Code of Civil Procedure confers upon the court a discretionary power to vacate an injunction granted ad interim or pendente lite, Irhere the alleged wrong or injury la reparable and capable of being adequately compen- PHILLIPS V. PEOVIDENCE STEAM ENGINE CO. 463 PHILLIPS V. PEOVIDENCE STEAM ENGINE CO. 1899. 21 Rhode Island, 302. Bill in Equity to restrain a sale of the property of a corporation, ordered by a vote of the majority of the stockholders, brought by a minority stockholder. The facts are stated in the opinion. Heard on bill, answer, and replication. Bill dismissed. Stiness, J. The complainant, a stockholder, seeks to restrain the respondent corporation from disposing of its property. The company is doing business under an extension by its creditors, in the terms of which an installment becomes due in November next. It is agreed that this cannot be met, and that the company will be unable to go on in business because the creditors refuse a further extension. In view of these facts, an arrangement has been made to form a new company, in which creditors holding extension notes will take preferred stock to the extent of one-half of their claims, while other subscribers will furnish enough cash to pay for the plant and provide a working capi- tal. The terms of the proposed sale give to the present stockholders $70,000 over and above the indebtedness of the company, amount- ing to about $228,000, making a total payment of about |298,000. The estimates of the value of the property vary from $327,000 to $397,000, the latter being the complainant's estimate ; but it does not appear that either party has reason to expect that either sum would be realized at a forced sale. This is not a ssrie in which the other stockholders are to gain any advantage beyond the privilege, which is also offered to the complainant, of taking his proportionate amount of cash or its equivalent stock in the new company, as he may prefer. It is in effect a cash sale to strangers, approved by stockholders representing 3,675 shares against 75 held by the complainant. While this majority cannot affect any rights to which he is entitled, it tends to show a fair price. It is a well-known result, to which courts of justice cannot be blind, that large plants of this kind are often, if not eated for in money, upon defendant's executing such an undertaking as the court may require. We do not think the court abused its discretion. As counsel well say, if plain- tiffs were clearly entitled to an injunction in this case, the district court would not have been justified in accepting an undertaking in lieu of the injunction, which would be licen- sing the commission of a wrong not susceptible to compensatory damages. Although- the present value of the shares held by plaintiffs may be accuratelj' determined by a judgment, and the profits by way of future dividends on their shares that might accrue from the Montana Company predicted with approach to reasonable certainty, yet, if the transfer and the vote of the shareholders in attempted ratification thereof be ultra vires as to them, then it is manifest, upon the plainest principles of law, that no court may rightly compel them to dispose of their shares in invito. Tomkinson v. Railway Co., supra, Beach. luj. §§ 295, 296; Mills v. Railway Co., supra. If, as matter of law, the proposed transfer was shown to be ultra vires the corporation, plaintiffs were entitled, as of right, to the injunc. tion; and in such event, were a bond accepted and injunction refused, the fact would seem apparent that the court had decided that plaintifits' property could not be taken without their consent, and at the same time had permitted it to be done, — an inconsistency need- ing no comment." — Ed. 464 PHILLIPS V. PEOVIDENCE STEAM ENGINE CO. usually, sold at a great sacrifice in case of a forced sale. We should not have to go outside of the records of our own court to find proof of this fact. A sale being necessary, the question is how shall it be made. The prayer of the bill is that a receiver may be appointed ; that the business may be wound up and the company dissolved ; and the argument is that the sale of the effects should be at public auction. The question, then, is whether the complainant is entitled to such a decree. There is a difference of opinion as to the power of a corporation to sell its entire property and thus practically to retire from business. Some courts hold that it may be done by the consent of all the stock- holders (Am. & Eng. Ency. L. 2 ed. toI. 7, p. 734, note 1), and others hold that it may be done by a majority. Ditto, notes 2, 3, and 4. All of the authorities cited in note 1, however, do not hold that the con- sent of all the stockholders is necessary, e. g. Treadwell v. Salisbury, 7 Gray, 393 ; Wilson v. Miers, 100 Eng. Com. Law, 248, et al. But the editor adds : " There seems to be no doubt that it may do so when . it is no longer able to profitably continue its business." We think that this is the correct rule. It has been recognized in this State. Hodges v. N. E. Screw Co., 1 E. I. 312, 350. In Wilson T. Prop'rs Central Bridge, 9 E. I. 590, Brayton, C. J., said : " K"o case has been cited, and, in view of the diligence of counsel in this case, we may say there is no case which holds that where the purpose of the incorporation could not be accomplished, the business contem- plated could not be carried on ; where the capital had been exhausted in endeavors to go on. Having no means to go further ; a company thus laboring under burdens which they could no longer bear, could not release themselves by a surrender of their franchise to the State which ■ granted and which was willing to receive it, and that by a majority. This is not only for their benefit, but it is a necessity, and it would be hard indeed if one stockholder could by his dissent prevent such relief against the prayer of all other members of the company." In Peahody v. Westerly Water Works, 20 E. I. 176, a necessary limita- tion to this rule was recognized in the words : " The action of the company was taken by a vote of more than 1,100 out of a total of 1,350 shares. There is no proof of unfairness, oppression, or fraud in such action. The case as presented is simply that of a stockholder who differs from a large majority of his fellow stockholders as to the expediency of a sale." " • The principle upon which these cases rest is that a corporation may dispose of its property by a majority vote, in cases which are free from unfairness, oppression, and fraud. Against wrongs of this kind equity will interfere. To this effect are Lawman v. Lebanon B. B., 30 Pa. St. 42 ; Treadwell v. Salisbury, 7 Gray, 393 ; Leathers v. Janney, 41 La. Ann. 1120; Sewell v. Hast Cape May Co., 50 K J. Eq. 717; Sargent v. Webster, 13 Met. 497 ; Warfield v. Marshall, 72 la.' 666 ; Wilson V. Miers, 100 Eng. Com. Law, 348 ; see also Miner's Ditoh Co. V. Zellerbaoh, 37 Cal. 543. PHILLIPS V. PEOVIDENCE STEAM ENGINE CO. 465 The complainant does not charge improper conduct, but simply that he considers the price inadequate and unjust ; and hence he prays for a receiver and a sale of the property by auction. Ordinarily when a court orders a sale it can only be done by auction. A court cannot negotiate a private sale, and it orders an auction as the fairest chance for all parties to bid and buy. But when the parties in interest have negotiated a sale which is fair to all concerned, and there is nothing to show that a larger price may reasonably be expected, it does not follow that an auction sale would be ordered. This question was con- sidered in Quidnick Co. v. Chafee, 13 E. I. 402, in which the trustee had an offer for the entire property, approved by nearly all the cred- itors. Then other parties intervened, agreeing to bid the amount named at auction, and the court ordered a sale by auction. In the present case there is no evidence that anybody is willing to give as much as the offer proposed, or that there is any reason to suppose that it will bring as much or more. The only testimony put in by the complainant is that the tools will probably bring more than they are valued at by the company, while as to the bulk of the property, the real estate, &c., there is no evidence of market value. Moreover, the complainant does not show that he desires to bid. upon the property himself, or that he knows of any one who would bid at a sale. In this absence of evidence that a larger total might be expected from an auction sale we see no reason to disturb the agreement already made, which, upon the testimony given, seems to be fair. The complainant relies strongly on Mason v. Pewabio Co., 133 U. S. 50. In that case the court had appointed a master to value the pro- perty, which he reported to be nearly $500,000. A majority of the company had arranged a sale to themselves at $60,000. Naturally, in view of such gross inadequacy, the court ordered a sale by auction. The case was very different in its details from the case before us. In Wilson v. Prop'rs Central Bridge, 9 E. I. 590, the city of Pro» vidence had control of the corporation and had sold the corporate property to itself. The court restrained the city from taking posses- sion and ordered a sale by auction. That, too, was a different case from this one. The court is bound to look to the interests of all parties, and espe- cially to protect the rights of a minority from oppression and fraud. But where, as in this case, no such thing is charged, and nothing is shown to lead to the belief of a better total price, the complainant makes no case for interference. To show that movable tools may be sold at a price somewhat, but not largely, higher than that at which they are scheduled, is quite a different thing from showing that the plant as a whole would sell for more than the price offered. To set aside the sale under these circumstances would be to risk a certainty for an uncertainty, without any testimony on which to base a hope of benefit to the stockholders from such interference. We see no reason for such a step in the dark. Bill dismissed. 466 ELTTON LAND CO, V. DOWJELL. ELYTON LAND CO. v. DOWDELL. 1896. 113 Alabama, 177.1 Bill in equity filed by Annie Dowdell, tlie owner of five shares in tlie Elyton Land Company, for the purpose of annulling a convey- ance of its property by that corporation to the Elyton Company, and also of annulling a mortgage executed by the latter company to secure certain bonds. • Some years before the conveyance the Elyton Land Company hav- ing on hand, as profits, a large amount of notes, had issued dividend certificates to the amount of $1200 per share. These certificates had subsequently been paid for in bonds of the company, denominated " Dividend Trust Bonds." The plaintiff had disposed of her bonds. Her rights as a bondholder are not involved in this litigation, but only her rights as a shareholder. The Elyton Land Company, under its charter and amendments, was authorized to buy land and sell lots ; to borrow and lend money ; to guaranty indebtedness ; to build, rent, lease, and use buildings ; to issue bonds in amount not to exceed five millions of dollars ; and to take stock in other corporations. In 1893, the Elyton Company was incorporated, with authority to engage in many enterprises not included in the original or amended charter of the Elyton Land Co. The fourth section of the act incor- porating the Elyton Co. enacts, " that said corporation may purchase the property, real, personal, and mixed, of the Elyton Land Com- pany : provided that such sale is made under the laws now in force, and nothing in this act shall be construed to impair or in any manner whatsoever to affect the rights of any stockholder of the Elyton Land Company." ... At a regular meeting of the stockholders of the Elyton Land Com- pany, a majority of the stockholders voted to sell its entire assets to the Elyton Company. The terms of the sale were, that the Elyton Company should pay all the liabilities of the Elyton Land Company ; and issue $2,500,000 bonds, $1,796,000 of which were to be issued to the holders of the dividend trust bonds in payment thereof ; and in addition issue 10 shares of its stock to each holder of 1 share of stock in the Elyton Land Co. Thereupon the Elyton Land Company trans- ferred all its property to the Elyton Company. The latter issued the bonds provided for, and executed a mortgage to secure them. The stipulated amount of stock was also issued, and was delivered to such of the stockholders as were willing to receive it in exchange for the stock held by them in the Elyton Land Company. No other arrange- ment or provision was made to pay the stockholder in the Elyton Land Company for his share, except to accept the stock in the Elyton 1 Statement abridged. Arguments omitted. — Ed. ELTTON LAND CO. V. DOWDELL. 467 Company. It is alleged in tlie bill, and not traversed in the plea, that complainant was not present, was not represented, and had no notice of the meeting of the directors of the Elyton Land Company at which it was resolved to sell its property to the Elyton Company. Imme- diately after the consummation of the transaction between the two corporations, complainant filed her bill. To the bill, the respondent filed a plea and answer in support of the plea. The plea set forth the history of the « Dividend Trust Bonds ; " alleged that they were valid obligations of the Elyton Land Company ; and that the plaintiff, having accepted her proportion of the bonds with full knowledge of the facts, is estopped to deny that they are binding obligations of the Elyton Land Company. The court ruled that the plea was insufficient as a defense to the bill. Appeal. Alex. T. London, and Tompkins & Troy, for appellants. Gordon Macdonald and Smith & Weatherley, contra. Coleman, J. [After stating the case.] . . . . . . We do not doubt the right of complainant to relief, so far as the defense is rested upon the plea. In the first place, by its charter, The Elyton Company was authorized to purchase the property of The i Elyton Land Company, " provided that such sale is made under the laws now in force, and nothing in this act shall be construed to inv-] pair, or in any manner whatsoever to affect the rights of any stock- holder of The Elyton Land Company." At the time of the sale andli transfer of its property, The Elyton Land Company was solvent, a going corporation, and its stock was very valuable..- Its duties and powers were fixed by its charter, and its business evidently man- aged with great skill and success, for the benefit of its shareholders. The Elyton Company by its charter was authorized to engage in many enterprises not within the scope of the powers of The Elyton Land Company. A shareholder in the latter might not be willing! to become a shareholder in the other. By the sale and transfer of' the property, The Elyton Land Company divested itself of all its property and capacity to continue the business for which it was organ- ized. If the sale stands, the owner of stock in The Elyton Land*^ Company is compelled to accept the stock of the new corporation, or hold stock in a corporation without capital assets. We lay no stress on the argument, that by its amended charter. The Elyton Land Com- pany is authorized "to take stock" in other corporations. It was certainly never intended by that provision, to authorize The Elyton Land Company to effect its own dissolution by a sale of all its assets, and " take the stock " of another company in payment for distribu- tion to the shareholders or any shareholder, without the consent and contrary to the preference of the shareholder. But it is too clear for argument, that the two million shares of stock of The Elyton Company were to be issued to The Elyton Land Company, as a mere conduit to the shareholder of The Elyton Land Company, and not to 468 MOEEIS V. ELTTON LAND CO. be held and owned as capital assets of The Elyton Land Company. It may be that a private business corporation may sell out its entire property by and with the consent of less than all its stockholders, for the purposes of paying its debts, or for the purposes of dissolu- tion and settlement, but when this is the purpose, it must be clearly understood, and the terms and conditions of the sale must be within the contractual relations between the corporation and its creditors or shareholders. There can be no presumption that a creditor or stock- holder of the dissolved corporation will accept in payment of his demand, anything but money. He cannot be required to do so arbi- trarily. While the plea shows the consent and ratification of the complainant to the issue of the certificate of twelve hiindred dollars to the shareholder for each share of stock, and its subsequent pay- ment by a dividend bond, it does not show consent or ratification of the sale of the property and the execution of the mortgage. It is manifest that the whole plan of organization of The Elyton Company, was in the interest of those who held the dividend bonds, without reference to the interest of the stockholder. These bonds at first maturing, within three or four years were a lien or charge only upon $2,400,000 of its promissory notes, leaving all its other property unin- cumbered. By the arrangement, the dividend bonds, amounting to only f 1,796,000, secured by a lien upon $2,400,000 of notes, were con- verted into gold bonds, running thirty years, and were secured by a mortgage upon all the property-owned by The Elyton' Land Company. The bonded indebtedness was increased over a half million dollars. The Elyton Company, from the pleading, did not own a dollar of capi- tal other than that acquired by the purchase from The Elyton Land Company. The facts set up in the plea do not present an estoppel as to the complainant whatever may be their effect upon the dividend bond- holders, and the other stockholders, who aided in carrying out the arrangement, or have since ratified it. — Kean v. Johnson, 9 N.- J. Eq. 401 ; N. 0. &g. B. B. Co. v. Harris, 27 Miss. 517. Decree of City Court affirmed. MOEEIS V. ELYTON LAND CO. et al. 1899. 125 Alabama, 263.1 Bill in equity, by Mrs. Susie M. Morris, a stockholder in the Elyton Land Company, brought for the same purpose as the bill in Elyton Land Co. v. Dowdell, supra, p. 466. The plaintiff was an infant at the time of the transactions complained of. 1 Only so much of the report is given as relates to a single point. Arguments waitted. — Ed. MORRIS V. ELYTON LAND CO. 469 Plaintiff applied for the appointment of a receiver. On the submission of the cause upon the application for a receiver, the chancellor decreed that the transaction assailed by the bill was not binding as to the complainant who was a non-assenting share- holder of the Elyton Land Company, but that the relief to which she was entitled was the payment of the value of her shares of stock in said Elyton Land Company; and he directed that the respondents pay into the court $12,000 to await the final hearing of the cause, to be held as security for the satisfaction of the final decree ; further decreeing that unless they did so within the time named, a receiver would be appointed without further notice. The required deposit was made, and thereafter the chancellor entered a decree denying the appointment of a receiver, and refusing to extend to this cause the existing receivership in catise No. 2104, which was pending in the same court. From this decree the complainant appeals, and assigns the rendition thereof as error. Cabaniss & Weakley, for appellant. Alex. T. London, and Thomas G. Jones, contra. Pee Curiam. [After reaffirming the decision in Elyton Land Co. V. Dowdell, 113 Ala. 177 ; supra, p. 466.] We think there can be no doubt of the proposition, that a court of ^ chancery can and will undo an act, which is ultra vires, as well as j prevent the same by injunction. There is an equity of rescission as i/ well as of prevention. 2 Spelling on Corp. § 615 ; City of Chicago v. Cameron, 120 111. 447 ; City of Knoxville v. R. B,. Co., supra ; Byrne's Case, 65 Conn. 336 ; Elyton Land Co. v. Dowdell, supra. The shareholder's suit, when brought, is for the benefit of the cor- poration and all shareholders. It is not the suit of the shareholder for his individual interest. The relief granted is the same, as if the corporation sued. — 4 Thompson, Corp., § 4491 ; 2 Pomeroy's Eq., § 1095 ; 1 Morawetz, Corp., § 262 ; Mount v. Badford Trust Co. et al., 5 Am. & Eng. Corp. Cases (n. s.), 92. It would necessarily and logically follow from this principle that a moneyed compensation to the complaining shareholder for the value I of his stock could not against his objection be decreed as his relief. To do so would be nothing more nor less thau compelling the share- j holder to sell his stock, which a court of equity has not the power to J do. That it would be to the benefit of the corporation and all other shareholders in it, to let the transaction stand and compel the dissen- tient to accept compensation for his stock, is an argument that rests upon no higher grounds than that of expediency. In the administra- tion of justice by the courts, principle should never be sacrificed at the altar of expediency. — Forrester v, Boston & Montana, &c., Co., supra ; Kean v. Johnston, supra ; Mills v. B. B. Co., supra ; Stevens V. B. B. Co. et al, 29 Vt. 545. The application for a receiver was heard on the bill as amended 470 BAETHOLOMEW V. DEEBY EUBBEB CO. and exhibits, and answers of respondents, and upon affidavits filed in support of the bill and answers. Upon the undisputed facts in the case, we are of the opinion that the application for a receiver should have been granted, and that the receivership in cause No. 2104 pend- ing in said chancery court should have been extended to this cause. Erom the action taken by the chancery court, it is evident that the chancellor was of the opinion that upon the facts the complainant was entitled to a receiver in the absence of a deposit by the respondents with the register of the court of $12,000 as a security for the com- plainant by way of compensation for her stock in the event of her recovery upon a final hearing. But in this alternative provision, the learned chancellor misconceived the character of the complainant's suit as well as the nature of relief to which she was entitled. For the suit, though brought in her name, was in legal contemplation and effect a suit by the corporation, and the relief, if any had, would be a recovery for the corporation. That the case is a proper one for the extension of the receivership upon the conceded facts is shown by the following authorities: Beach on Eeceivers, §§ 88, 789; Gluck & Becker on Receivers, 42, § 16 ; High on Eeceivers, § 292 ; Ala. Nat. Bank v. Mary Lee C. & B. Co., 108 Ala. 288 ; Bridgeport Dev. Co. v. Tritsch, 110 Ala. 274 ; Scott v. Ware, 65 Ala. 174 ; Stevens v. Davison, 18 Gratt. 819 ; Fonca Mill Co. v. Mikesell, 8 Am. & Eng. Corp. Cases, (n. s.), 740. The decree of the chancery court is reversed and the cause remanded. BAETHOLOMEW v. DEEBY EUBBEE CO. et al. 1897. 69 Connecticut, 521.1 Suit by minority stockholders of a manufacturing corporation, to compel the surrender and cancellation of a lease of its plant to Loe- wenthal. The directors voted to make the lease, and gave notice of a special stockholders' meeting to confirm their action. The action of the directors was approved by all the stockholders present at the meeting. The term of the lease thus confirmed was for one year, with a privi- lege upon the part of the lessee to renew the lease from year to year, for a period not exceeding nine years, upon the same rent and con- ditions. The lease also provided that at the expiration of any year the lessee might purchase the property if he chose, at a price to be determined upon by an appraisal made in conformity to the mode therein designated. Other facts are stated in the opinion. The respondents demurred to the complaint. 1 Statement abridged. Arguments omitted. — Ed. BARTHOLOMEW V. DERBY RUBBER CO. 471 Edwin B. Gager and Wm. S. Downs, for the respondents Loewen- thai et al. V. Mimger, for the petitioners. Andkbws, C. J. The plaintiffs are a minority of the stockholders of the Derby Rubber Company. They ask that a certain contract called a lease, between the said company and the other defendants, be set aside and declared to be void. The record shows that this con- tract was made by the directors of the company ; that it was, before delivery, submitted to a meeting of the stockholders duly called for that purpose, and that by a unanimous vote of the stockholders pre- sent at that meeting and holding a majority of all the stock, it was afS.rmed and ratified. The plaintiffs, although duly notified of said meeting and the purposes for which it was to be held, voluntarily remained away. If the contract was really ultra vires of the corporation, the plain- tiffs may claim that it should be set aside. The contract contains an option to the lessee to become the purchaser of the property at a price to be fixed by a sort of arbitration. The complaint avers that it is the intention of the directors and the majority stockholders, in case the option is used, to divide the money received amoug all the stock- holders and wind up the affairs of the corporation. As a conditional contract to sell the property, this agreement is not questioned ; nor could it well be questioned. It is competent for any business corpo- ration to sell its property, pay its debts, divide its assets and wind up its affairs. Especially is this so if the corporation is in an embarrassed condition. It is as a lease for ten years without a sale, that the con- tract is said to be ultra vires. We speak of the contract hereafter as v a lease. The sole question then is : Was' the vote ratifying the lease, | and so the lease itself, ultra vires and void ? We are inclined to think the lease was not void. The lessee is to continue the same business which the corporation was organized to carry on. The lease, therefore, is not a change in the business, but only a change in the management of the business. The financial con- dition of the corporation is now depressed, and its business cannot be made profitable under its own management, for want of capital. Ad- ditional capital is not available. But neither the directors nor the majority stockholders have so far lost confidence in the concern as to be willing peremptorily to wind up its affairs. The lease was entered into as the best, perhaps the only, means of carrying the corporation over this period of depression, and in the meantime obtaining some income for the stockholders. If a sale takes place it is certain that the property will be worth more in operation than if left idle. Such leases have repeatedly been sustained by the courts of equity. The case of Featherstonhaugh v. Lee Moor Porcelain Clay Co., L. E. 1 Eq. 318, 326, was like the one in hand, in this : Minority stock- holders asked to have a lease of the entire property of the corporation set aside. That company was incorporated for "the working, pre- 472 BARTHOLOMEW V. DERBY RUBBER CO. paration, and sale of porcelain clay," with power to combine " mining operations " with the original business. After a period of unsuccess- ful working, a majority of the stockholders voted to and did lease the whole of the works and buildings of the company for the period of twenty-one years. It was held that this was a valid lease, not beyond the power of the company to make. The Vice-Chancellor, Sie Wil- liam Page Wood, in giving the opinion, said : " It appears to me that I should be controlling improperly the effect of this deed, if I did not allow this company to do that act which through the medium of their directors they have done. . . . Have the company by this act which they intend to carry into effect, . . . either on the one hand abandoned their purposes, ... or on the other hand, exceeded their purposes ? Have they done either one or the other ? It appears to me they have not abandoned the purposes of the company. They have granted a lease for twenty-one years, and, so far, they have agreed to take a rent for their property instead of working it themselves, and taking the profit. At the end of twenty-one years they are to have the whole of the property back, and, as it appeared to them (that is the true way to put it, for they are the sole judges on that part of the case), they would have it back in a more profitable condition. . . . They have not exceeded their powers, because nobody can contend that parting with their property for a certain time is exceeding their powers, beyond this, that during all that time they are not carrying on the business. But, as to that view, I apprehend that it is perfectly competent for a meeting (t. e., of the stockholders) to say : ' China clay is in a very depressed state — the market is very bad — and we agree it is better not to work it for two or three years.' That would be entirely within their functions, and they would not be said, in that respect, to have abandoned their work, or to have exceeded the functions allowed them." The bill was dismissed with costs. In Simpson v. Westminster Palace Hotel Co., 8 H. L. Cas. 712, 718, a company was established " for the erection, finishing, and mainten- ance of a hotel, . . . and the doing all such things as are incidental or otherwise conducive to the attainment of " that object. The direct- ors of the company let, for a stipulated period of five years, to the head of a government department for the business of his ofB.ce, a large part of the hotel. There was evidence that this use would be advan- tageous to the company in its intended business. This, too, was a bill by minority stockholders asking that the lease might be declared invalid. It was held that the arrangement was valid. In the House of Lords, the Lord Chancellor (Lord Campbell) said : " From the large rent immediately to be received by the company for the occupa- tion of the one hundred and sixty-nine rooms by the India Board; from the monopoly to be enjoyed by the company in supplying so many persons with refreshments ; and from the fashionable reputation to be conferred on the hotel by this association, the opinion expressed by the majority of the stockholders, that the arrangement is beneficial BAHTHOLOMEW V, DEEBY EUBBEK CO. 473 to them, is likely to be verified. This anticipation would not be suffi' cient if the original undertaking had been abandoned, or if there was any extension of the original undertaking; but as there is neither abandonment nor extension of the original undertaking, and the ar- rangement may assist instead of obstructing the prosecution of the original undertaking, I must advise your Lordships to affirm the decree appealed against." In Temple Grove Seminary v. Cramer, 98 N. Y. 121, a company in- corporated as an academy, or seminary of learning, was held not to have exceeded its powers by leasing one of its buildings during the vacations for a boarding-house. See also Lafond v. Deems, 81 N. Y. 507. In Brown v. Winnisimmet Co., 11 Allen, 326, a company char- tered as a ferry company let one of its vessels not needed in its ferry business to be used in another business. This was held not to be an ultra vires contract. See also City Hotel v. Dickinson, 6 Gray, 586 ; French v. Quincy, 3 Allen, 9 ; Lyndeborough Glass Co. v. Mass. Glass Co., Ill Mass. 315 ; Calloway Mining, etc., Co. v. Clark, 32 Mo. 305 ; Watts' s Appeal, 78 Pa. St. 370 ; Dupee v. Boston Water Power Co., 114 Mass. 37. We have considered this case on the assumption that the action of the directors and the majority stockholders was done in good faith and in the honest belief that they served the best interests of all con- cerned. If fraud had been charged a very different case would have been presented. Counsel for the plaintiffs says in his brief that the lease was fraudulent on its face. But fra.ud is not charged in the complaint. Fraud is never to be presumed. While fraud may in some cases be inferred from the facts, it is never to be inferred unless it is charged ; and then only where the facts and circumstances indi- cate clearly that fraud has been committed. The Superior Court is advised that the complaint is insufficient, and to sustain the demurrer. In this opinion the other judges concurred.^ 1 " The remaining errors complained of . . . may be considered together, namely, that the directors of the corporation, plaintiffs, had no power to make the lease sued on. It is supposed that a company chartered for the purpose of manufacturing and refining oil can- not lease its entire property, and so defeat the verj' purpose for which its charter was granted. But corporations, unless expresslj'' restrained by the act which establishes them, or some other act of assemblj', hare, and always have had, an unlimited power over theii respective properties, and may alienate and dispose of the same as fully as any individual may do in respect to his own property. Hence an insolvent corporation may make a general assignment for the benefit of its creditors, and this power may be exercised by the directors, unless special provision to the contrary is made in the charter. Dana v. Bank of United States, 5 Watts & Serg. 223. If they can alienate absolutelj', they may lease, which is but a partial or temporary alienation, Omne majus continet in se minus." Sharswood, J., in Ardesco Oil Co. v. North American #c, Co., A. d. 1870, 66 Pa. State, 375, pp. 381, 382. — Ed. i74 PAESONS V. TACOMA SMELTING AND REFINING 00. PAESONS V. TACOMA SMELTING AKD EEFINIlirG CO. 1901. Supreme Court of Washington, 65 Pacific Reporter, 7()5.i Appellant Parsons, original plaintiff, brings suit as a stock- holder of the Tacoma Smelting and Refining Company against the corporation and its trustees, and the Tacoma Smelting Company. Parsons and certain other stockholders who have intervened and united with him as plaintiffs, pray for the cancellation of a lease exe- cuted by the Tacoma Smelting and Refining Company to the Tacoma Smelting Company. The Tacoma Smelting and Refining Company was incorporated in 1887. It purchased a smelting plant and carried on business. In 1898, a proposition to lease all its plant and properties to a new cor- poration, called Tacoma Smelting Company, was submitted by the trustees to a meeting of the stockholders, and was then approved by a majority of all the stockholders. Before this meeting a majority of the stock in the old corporation had been purchased by the new corporation ; and a large portion of this stock, represented by Rust as trustee, was voted on at the stockholders' meeting. A lease for ten years was executed Dec. 6, 1898. It included all the properties, smelting plant, buildings, machinery, and all property of every description, whether real, personal, or mixed, belonging to the Tacoma Smelting and Refining Company, and also included a provi- sion for purchasing all ore and finished products and supplies then on hand, at its market value, to be thereafter inventoried and appraised, and for which $30,000 was afterwards paid in settlement of the lessor's liabilities. The lessee also covenanted that within six months it would expend at least $30,000 in making improvements and better- ments on the smelting plant ; that it would pay $5,000 per annum rental, together with taxes, insure the property, and at the end of the term return the property in as good condition, wear and tear excepted, as when received. At the time of executing the lease, the old corporation owed about $50,000 for borrowed money, and it had no funds on hand. Other facts as to the condition of the old corporation are stated in the opinion. Rbavis, C. J. [After stating the facts ; and holding that there was not a legal quorum of trustees present at the meeting of the board when a resolution was adopted in favor of leasing the property.] The objects of the incorporation of the Tacoma Smelting & Refin- ing Company are stated in its articles to be the building, acquiring, owning, and constructing and operating of works and buildings for the purpose of milling, reducing, smelting, and refining gold and sil- ver ores, purchasing and handling of such ores, advancing moneys 1 Statement abridged from opinion. Oul}' 80 much of the report is given as relates to a single point. — Ed. PARSONS V. TACOMA SMELTING AND REFINING CO. 475 thereon, and acquiring, purchasing, owning, and operating of such appliances and adjuncts as may be necessary or convenient for the prosecution of the business ; the purchasing, owning, and acquiring of mines and all other lands that may be necessary or convenient in oper- ating said business ; and generally to do all other acts which, in the judgment of the trustees, may be proper or essential to the success- ful carrying on of the purposes and objects of the corporation. It is apparent that no express power to lease all the property of the cor- poration is contained in the articles. The articles of incorporation, as observed, are a contract. Each individual stockholder assumed the liability of the payment of his subscription to the capital stock in money or money's worth, and the corporation engages to carry on the business for which it is organized. Its business is managed by the board of trus^ tees, but always within the fundamental limitations of the articles of incorporation. . . . The stockholders have equal rights to participate in the profits of the business according to the value of the stock owned by each, and each stockholder is entitled to the protection of his charter rights. He may insist that the business be conducted according to the articles ; and, while the wishes of the majority of the stockholders^ are potent in the administration of all the business of the corporation, and, where exercised without fraud or oppression, are controlling upon the minority, yet the action of the majority cannot prevail where it impairs the contract right of a stockholder. The reasons urged for the necessity of the lease in question are that the Tacoma Smelting & Refining Company was unable to procure capital to conduct its busi- ness efficiently ; that it had liabilities which were pressing, and had no available funds to make payment. It may be well to suggest an inquiry into the condition of the corporation at the time the proposal to lease the property was made. It had a plant of considerable value. It apparently exceeded in value the liabilities, and, while the amount is not definitely shown, it appears that a large portion of the subscrip- tions to the capital stock had not been paid. Mr. Eust testified that some of the subscribers to the capital stock had been requested to advance capital to conduct the business, but that no such advance- ments had been made. It is nowhere intimated that the board of trustees had attempted to exercise its appropriate powers to collect the unpaid subscriptions to the capital stock. In fact, it would seem, from the reasons suggested in the resolution adopted by the majority of the stockholders, that they did not desire this capital stock to be drawn upon in the prosecution of the corporate business. It cannot be concluded from the record before us whether other action by the board of trustees might not keep the corporation a going concern, and enable it to perform the objects of its organization. It may be implied from the testimony that a cogent reason for the action of the trustees was the enlargement of the smelting business by the organ- ization of a new corporation, which should include within it the pro- moters and members of several large mining companies, so that the 476 PARSONS V. TACOMA SMELTING AND REFINING CO. product of those mines could be brought to the smelter, and a much larger business established. The promoters of the new corporation and of the lease evidently desired to secure control of the stock in the old company. The acceptance of the lease seems to have been upon condition that the new company acquire a majority of the stock. It is urged that under the circumstances surrounding the transaction the trustees had the power to execute the lease. The authorities cited by counsel for respondents have been examined, and those most pertinent will be considejed. [The learned Judge here commented on Bartholomew v. Bubber Co., 69 Conn. 621 ; Hennessy v. Muhleman, 67 N. Y. Supp. 864 ; Ardesco Oil Co. V. North American Oil & Min. Co., 66 Pa. State, 376 ; and Plant V. Ice Co., 103 Georgia, 666. The opinion then proceeds.] But, on the other hand, there are well-adjudged cases holding that a lease of all the property of a corporation cannot be made. That the stockholders cannot make such lease is ruled in Copeland v. Gaslight Co., 61 Barb. 60. In Small v. Matrix Co. (Minn.) 47 N. W. 797, the Minneapolis Company leased its property to the Electro Matrix Com- pany to carry on the same business and the lease was ratified by a majority of the stockholders. The court observed : " We do decide that such a surrender of the property, and, so far as possible, of the functions, of a corporation, in order that, while it is to still continue in existence, its business may be carried on by another corporation, to which such transfer is made, would violate the rights of a non- assenting stockholder arising from the contract, implied, if not ex- pressed, in the creation of such an organization, and he would be entitled to have such' acts restrained by injunction." The same de- claration is made in Black v. Canal Co., 24 N. J, Eq. 455. In Byrne V. Manufacturing Co. (Conn.) 31 Atl. 833, a corporation was organized for the purpose of succeeding to and carrying on the business of an insolvent corporation. The court declared that this could not be done ; that such a transfer would be sustained only when the purpose was a bona fide winding up of the business of the existing corporation, and that any dissenting stockholder could maintain an action to enjoin such a disposition of the corporate property. A distinction may be observed between a sale of all the property and a lease of all the property. In that of a sale no further liability rests upon the stock- holder. The corporation is in fact discontinued. In that -of the lease the business is discontinued, and the profits derived by the lessee, but the stockholders' obligations may continue. Under our statutes the corporate existence is limited in time. This was not usual in the older cases. And, further, section 4275, 1 Ballinger's Ann. Codes & St., contains the complete procedure for the dissolution of the corporation at the will of two-thirds of the stockholders. These statutes apparently contemplate the conduct of the business for which the corporation is organized through its own appointed agencies, or, at the choice of two-thirds of the stockholders, a dissolu- BLACK V. DELAWAEE AND RARITAN CANAL CO. 477 tion. It is true, an insolvent corporation may make an assignment for the benefit of its creditors against tlie will of a non-consenting stockholder, and probably any appropriate proceedings in equity might be taken to relieve a failing corporation by such disposition of its property as should be equitable, which did not violate any con- tractual relations of the stockholders. It is concluded upon the whole record presented here that the lease in controversy is voidable at the suit of a non-consenting stockholder. [It was then held, that the new corporation had no right to pur- chase shares in the old corporation for the purpose of controlling its property and business. The opinion concludes.] It appears that the appellants are entitled to have the lease ad- judged void, and, further, that the stock of the Tacoma Smelting & Refining Company owned by the new company shall not be used in voting at stockholders' meetings in the old company. The judgment is reversed, with direction to the superior court to adjudge the lease void, and that it be cancelled, and that the Tacoma Smelting Company be enjoined from voting the stock held by it in the Tacoma Smelting & Eefining Company.^ DuNBAK, FuLLEKTON, and Anders, JJ., concur. Vait Stckbl, J., IN BLACK v. DELAWAEE AND EAEITAU CANAL CO. t 1873. 24 New Jersey Eguity, 455, pp. 464-466. [The questions arose upon a bill filed to enjoin the United Compa- nies of New Jersey from executing a lease of their roads and canal to the Pennsylvania Eailroad Company for the term of 999 years.] Van Syckbl, J. . . . The certificate for stock declares that the holder is entitled to a certain number of shares of the capital stock, which consists of the corporeal works and property, with valuable franchises to be used by the corporation for their profit, by the taking of tolls and fares ; with the right to acquire and dispose of such 1 " It has been suggested that a power of sale must include the power to exchange, be- cause the greater includes the less; but no such comparison can properly be made, as neither includes the other, and neither is part of the other. In the event of a sale, pro- perly and fairly conducted, whether by public auction, by sealed bids, or by any other method calculated to produce the best result attainable, each of the stockholders has an equal right to become the purchaser of the whole or any part of the corporate assets, each is equally interested in obtaining the highest price for the common property, and each is entitled to an equal pro rata share of the proceeds ; but if the holders of any number of shares, however large, be authorized to exchange the corporate assets for the capital stock of a foreign corporation, the law furnishes no measure by which to determine the prudence or wisdom of the exchange or to test the fidelity of those clothed with the power and charged with the duty incident to such proceedings." PiGOTT, J., in Forrester v. Boston 4' Montana ^c. Co., a. d. 1898, 21 Montaiia, 544, p. 662. — Ed. 478 BLACK V. DELAWARE AND EAEITAN CANAL CO. property as may be essential in the legitimate exercise of their funo. tions, under the management and control of directors, of which any corporator, by and with the consent of the requisite number of his associates, may be one. The prospect of increased gains, consequent upon the growth of population, and added business, is a valuable in- cident also to the ownership of the stock. Such are the rights Tested in the stockholder under the law and by virtue of his engagement with his associates, before the lease is effected. After the lease takes effect, his company is denuded of all these corporeal, substantial properties, its structure for the next nine hun- dred and ninety-nine years is totally altered, and instead of what he before possessed, he would be compelled to accept an annual rent, fixed without his concurrence, and secured by the personal responsi- bility of the corporate lessee ; for pending the term, which is perpetual for all practical purposes according to our allotted years, the visible, tangible assets would be dissipated and decayed. The right of re-entry can scarcely be entitled to the name of security. The shareholder would still have the paper upon which his certifi- cate is printed, but in place of the earnings, he must be content with a share of the reserved rental in a corporation possessed of the single faculty of maintaining its organization for the distribution of such rent, stripped of all the franchises for the exercise of which it was founded. Without his consent, and against his protest, he would lose his share in the old thing, and be forced, as an unwilling captive, into a new and wholly different venture. A statement of the con- sequences which necessarily flow from this project, demonstrates the futility of attempting to establish it without legislative consent. Equity looks at the substance of things, and not at mere names. For all substantial, practical purposes, a lease for nine hundred and ninety-nine years is a conveyance in fee. It would carry us to a period as distant in the future, as the time of Alfred the Great is remote in the past, and if our courts should permit corporations, without legislative authority first had, to make any disposition of their entire franchises that a controlling interest might determine upon, the private rights of minorities would be no more secure against invasion now, than they were in those semi-barbarous days. It may also be considered as settled, that a corporation cannot lease or dispose of any franchise needful in the performance of its obliga- tions to the state, without legislative consent. Nor is the diflculty avoided by the proposition that a corporate body, by and with the assent of a majority of the corporators, may abandon their business. Even if this was true, upon such dissolution, the franchises could not be transferred, but would revert to the sovereignty from which they were derived, and the shareholders would become partners or joint owners in the assets, and for their share in such assets, they could not be compelled to accept an annual rent for nine hundred and ninety-nine years. . . . DOW V. NORTHERN R. R. 479 Dob, C. J., m DOW v. NOETHEEIST E. E. ei al. 1887. 67 New Hampshire, 1. [TJpoiT a bill in equity, by minority stockholders of the Northern Eailroad, seeking to enjoin the operation of the Northern Eailroad by the Boston & Lowell Eailroad under a lease for 99 years, approved by a two-thirds vote of the stockholders.] Doe, C. J. . . . The lease of the Northern to the Lowell is an at- tempt to compel the plaintiffs, dissenting stockholders of the Northern, to exchange for ninety-nine years all their interest in the Northern for an annuity, secured by a right of entry, practically equivalent to a mortgage enforceable by strict foreclosure. The possibility of a non- payment of the annuity, and a resumption of the carrier business by the Northern, has no bearing on the question of the validity of the exchange of that business for the annuity. This question is to be de- cided on the possibility and the presumption that the Northern will have no occasion to resort to its security. The circumstance that the money to be received by the Northern is divided into many sums, due at different times, is immaterial. The law of the case is what it would be if the price paid for the estate of ninety-nine years had been paid in a single sum before the purchaser took possession of the road, and the security given were merely for the performance of covenants not relating to the payment of the price. The payment of the whole price in one sum, and ths division of it among the Northern stockholders, would leave them members of their corporation and owners of an estate in remainder. Instead of being a step in a process of dissolv- ing the Northern company and winding up its affairs, the lease requires that company to "keep up and preserve its organization." Whether each stockholder's share of the price of the estate sold is paid to him in one sam at one time, or in many sums at many times, the sale of the road for ninety-nine years is not a provision for the Northern company's working the road, which by the terms of the sale is to be worked during that time, not by the Northern and the Lowell as joint principals, nor by the Lowell as agent of the Nor.thern, but by the Lowell for the Lowell as sole principal. As agents, the majority can do whatever is necessary to carry on, for their principal, the principal's business of a common carrier be- tween Concord and Lebanon. Within limits, they can select the mode and means of executing their agency. The lease, instead of being a mode or means of their carrying on that business for their principal, transfers it to another principal for ninety-nine years, and transfers their principal to the vocation of a landlord and rent-receiver, which is not, in kind or degree, the same business as carrying passengers and freight. The legal scope of their employment is within the 480 DOW V. NORTHERN R. R. bounds of their principal's business, or, at most, those bounds and a proceeding for winding up that business, and dissolving their principal. The retirement of the Northern company from the industrial activity of common carriers to the leisure of mere rent-receivers was a change in the object of the partnership. The legal character of the change did not depend upon the circumstance that the partners- never intended to perform all their mental and manual labor in per- son. The labor now done and the tolls now received on the road are not theirs. "... Because the corporators may, with the consent of the state, i by the vote of a majority or two thirds in interest, abandon their en-J terprise, sell out their property, and return his share of the proceed^ to each stockholder, it does not follow that by the same authority tha works may be leased to be carried on and conduc ted by others^ corporation continuing to exist. The right to elect the directors, bj whom the business is to be managed, is a provision in the charter which the state or a majority cannot interfere with ; it is a contract.\ The true question on that point here is, whether the making of this lease and contract is an exercise of the power of managing the busi- ness and concerns of the corporation conferred in the charter, such as can be used by consent of a legal majority of corporators, without that of all." Zabriskie, Chancellor, in Blaelc v. Canal Co., 22 N. J. Eq. 130, 407. See, also, 22 N. J. Eq. 405, 408, 415, 416 ; Zabriskie v. Bailroad, 18 N. J. Eq. 183. By their charter-contract all the stockholders of the Northern Eail- road agreed that their partnership business should be the transporta- tion of passengers and freight on their road, including certain inci- dental enterprises contributing to the transaction of that business. They formed the partnership for no other private purpose than the benefit to be derived from their performance of this contract, legally altered as it may be, under legislative permission, by their express or implied assent. No alteration has authorized a part of the company to suspend the company's performance of the contract by transferring their road and business to other principals for ninety-nine years. The plaintiffs have not acquiesced in the transfer and suspension, but have objected seasonably, and presumably in good faith, for the purpose of protecting their Northern shares. The lease violates the partnership contract, and takes from the. plaintiff s an equitable estate of ninety- nine years without their consent, and without prepayment of the value of the estate taken. Whatever names are used to designate the trust and agency of the corporate partnership and the relation existing be- tween each stockholder and the company, he has some remedy for their breach of the contract. " Wherever there is a legal right vested in a party, he must, in some court, have the means of enforcing that right." Adley v. WhitstaUe Co., 19 Ves. Jr. 304, 305. DOW V. NORTHERN E. B. 481 The private property of the Northern company, subject to a public right of transportation, is held in trust by the corporation for the benefit of the stockholders. The corporation is trustee, holding the legal title. The stockholders are the beneficiaries, holding the equi- table interest. " The jurisdiction to enforce performance of trusts arises where property has been conferred upon and accepted by one person on the terms of using it for the benefit of another." Adams Eq. 26. The rule is, that the equitable ownership includes a legal right to a performance of the trust which can be specifically enforced in a court of equity ; and the authorities do not recognize a breach of corporate trust as an exception to the rule. An injunction against the lease as a breach of the Northern trust is, in effect, a decree that the trustee specifically perform the charter- contract and the trust declared in it. In the bill, the plaintiffs ask that the Northern company and their directors be ordered to resume the control, management, and operation of the Northern road. A de- cree for the plaintiffs, whether affirmative or negative in form, would run against the trustee, — not a mere imaginary person, but the whole body of stockholders, whose performance of their corporate trust is performance of their partnership contract. Whether the plaintiffs' rights, accruing from the contract, are called contractual or fiduciary, they are subject to the general rule that inequitable performance is not specifically enforced when recoverable damages for non-perform- ance are an ample remedy. The equity to compel specific perform- ance of contract arises where an agreement, binding at law, has been infringed, and the remedy at law by damages is inadequate. Adams Eq. 77 ; Story Eq., ss. 716, 717, 717 a ; Fry Spec. Perf., s. 40 ; Pom. Spec. Perf., s. 3 ; Southern Express Co. v. Railroad, 99 U. S. 191, 200; Eckstein v. Downing, 64 N. H. 248 ; Black v. Canal Co., 22 N. J. Eq. 130, 399. But the adequacy of a compensatory suit on a broken con- tract does not always depend upon the breach being financially inju- rious to the plaintiff. A breach that would be pecuniarily beneficial to him may be of such a nature in other respects that nothing short of prevention will be just. If the price fixed by a written executory agreement for the sale of a farm is more than the value, that fact is not an answer to a bill brought by the purchaser against the vendor for specific enforcement of the agreement. The purchaser, financially benefited by the violation of his legal right, would be financially in- jured by resorting to the remedy of a suit for nominal damages. " Compensation in damages, measured by the difference in price as ascertained by the market value and by the contract, has never been regarded in equity as such adequate indemnity for non-fulfilment of a contract for the sale or purchase of land as to justify the refusal of relief in equity." Jones v. Newhall, 115 Mass. 244, 248. The ven- dor's payment of the difference is not regarded by the law as a full, sufficient reparation for the purchaser who made the contract " on a 482 DOW V. NOKTHEEN E. R. particular liking to the land." Buxton v. Lister, 3 Atk. 383, 384 ; Sto. Eq., s. 717. The damage is irreparable in the legal sense. A written contract of farming partnership may be specifically en- forced by an injunction against its violation when a majority of the partners make an unauthorized attempt to turn the whole partnership property and business over to other principals for ninety-nine years in exchange for an annuity or other investment. On the question of equity jurisdiction, the mere expediency of the exchange as a financial measure would be as immaterial as the corporate or unincorporate form of the partnership organization. The recovery of one dollar by an expenditure of one hundred, in a suit at law, would not be a suf- ficient remedy for a partner objecting to the illegal change of his busi- ness. Specific relief would not be less necessary than in the case of a refusal to perform a written agreement for the sale of land. Performance of the Northern charter-uontract would not be vin- dered inequitable in law by the mere fact of non-performance being more beneficial to the stockholders. The plaintiffs' equitable right to be principals in the common-carrier business between Concord and Vermont, according to their contract, would not be barred by a finding that it would be better for them to exchange that business for the occupation of a lessor, or the business of a road running from Concord to Maine or Massachusetts. They have not agreed that their partners may take them from the stipulated position of principals in the work of carrying passengers and freight between Concord and Lebanon, and give them any other vocation in which a court or jury may think they would be more profitably and judiciously employed. Their expulsion for ninety-nine years from the Northern carrier business, in violation of their partnership contract, is a case in which the general principle of equity gives an injunction, and the evidence shows no exceptional reason for withholding the specific relief necessary to prevent their wrongful exclusion from their chosen employment. steinway's petition.' 483 CHAPTEE Xm. STOCKHOLDER'S EIGHT TO INSPECT COEPOEATE EECOEDS AND PAPEES. In re STEINWAY'S PETITION. 1899. 159 New York, 250. [Petition, by Henry W. T. Steinway, for an inspection of the books and records of the Steinway & Sons corporation. The Appellate Division of the Supreme Court granted the petition, with certain regulations. An appeal was taken from this decision. The facts are stated in the opinion.] Edward C. James and G. W. C'otterill, for appellants. The method prescribed by the statute creating this corporation, and by the general statutes and rules and practice of the -courts, for the examination of the corporate books by a stockholder is exclusive, and is inconsistent with the right claimed in this case to examine the books of account [citing authorities]. The law allows no general right to a stockholder to inspect the books of the corporation. In- spection can only be ordered in aid of a suit brought or defended [authorities]. Assuming that the jurisdiction in cases of this kind is discretionary, that discretion is not arbitrary, but is governed by legal rules, and was not properly exercised by the Appellate Division in this case. . . . Wheeler Hi Peckham and Edward B. Hill, for respondent. Vann, J. Steinway & Sons, once a copartnership, became a cor- poration in 1876 under the General Manufacturing Act of 1848, and the relator has been a stockholder therein ever since. He now holds 1,440 shares of its stock of the par value of $144,000, out of a total of 20,000 shares of the value of 12,000,000, but with an actual value much in excess of that sum. He has not been an officer of the cor- poration since 1881, and he has had no means of knowing much about the management of its affairs since 1892, when he was given an opportunity to examine the books. Since then he has been substan- tially ignorant as to all the details of the management, and has had no 484 "steinwat's petition. access to the books or records. Learning of certain practices that he considered improper, on April 12th, 1894, and March 27th, 1895, he made protests in writing to the company, but no attention was paid to them. On the 6th of April, 1896, he made a written request for leave to examine the books, but receiving no reply, on the 15th of that month he wrote requesting information, proper in character, upon certain subjects, and to this communication he received an answer from the secretary, dated April 23d, 1896, written in behalf of the board of trustees, virtually refusing the information asked for on the ground that the relator intended to use it in " hostility to the interest of the stockholders." On the 5th of April, 1897, he endeavored to ascertain certain material facts at the annual meeting, but without success, and thereupon he requested the officers and directors to afford his accountants and attorneys access to the books of account, vouchers and records of the company for the years 1892 to 1896, inclusive, for the purpose of examining the same. Eeceiving no reply, on the 8th of- May, 1897, he served a written request upon the treasurer for a statement in writing, under oath, of the affairs of the company, em- bracing a particular account of all its assets and liabilities for each of the several fiscal years from 1892 to 1896, inclusive, and in response to this he received a general statement placing the assets at more than three millions of dollars, but distributed into only fourteen items, eight of which were over $100,000 each. The liabilities included but eight items, three of which were the capital stock, the surplus and the profit of 1896. This was the first information as to the company's affairs which the petitioner had been able to obtain in five years, ex- cept that he once saw the balance sheet and inventory of January, 1893. Since 1891 the dividends declared bj' the company have dwin- dled in amount. In 1896 the dividend was only five per cent, but never before since 1883 had less than ten per cent, and sometimes as much as eighteen and twenty per cent, been divided in dividends. The relator claimed in his petition for a writ of mandamus to per- mit inspection of the books, that the officers of the corporation were engaged in an attempt to form an English stock company for the con- trol of its business, with the design of selling their shares of the capital stock, or exchanging them for a much greater amount of shares in the English company, and that efforts had been made by the stockholders and officers to induce him to sell his stock at $260 a share ; but, as he insisted, it was impossible for him to fix upon any price without an opportunity to investigate the condition of the com- pany. He specified various acts which he alleged to be improper on the part of the officers, such as the payment of exorbitant rentals, carrying on a banking business, allowing unusual rates of interest, inventorying the assets too low, and paying the trustees salaries with no equivalent in services. The opposing affidavits contain a large amount of matter relating to aggravating conduct on the part of the relator in the past, and steinway's petition. 485 alleging improper motives and ulterior aims on his part. Many gen- eral allegations of the petition were denied in hmc verba, without stafr ing the real facts. The presildent and other ofiBcers of the corporation denied the allegations of improper conduct on their part and claimed that the relator wished to force them to buy him out at an extrava- gant price. As no alternative writ was issued and the relator pro- ceeded to argument upon his petition and the opposing affidavits, his right to a peremptory writ depends upon the conceded facts, the same as if he had demurred to the allegations of the defendants. {People ex rel. City of Buffalo v. N. Y. C. & H. B. B. B. Co., 156 N. Y. 670 ; Matter of Haebler v. New York Produce Exchange, 149 IST. Y. 414 ; People ex rel. Corrigan v. Mayor, ete., 149 If. Y. 216 ; People v. S., W. & 0. B. B. Co., 103 N. Y. 95 ; Code Civ. Pro. § 2070.) While many of the facts alleged in the petition were denied, enough were left undenied to present a case for the exercise of judgment and discretion on the part of the Supreme Court, provided it has power in any case not expressly covered by statute, to authorize the inspection, wholly or in part, of the books of a manufacturing corporation, upon the application of a stockholder. The Special Term denied the application of the relator for a per- emptory writ of mandamus commanding the ofScers of the corporation to exhibit certain of its books and papers to him, but upon appeal to the Appellate Division the order of the Special Term was reversed by a divided vote, and the prayer of the petition granted, with certain regulations as to the time, place, and manner of exhibiting- the books and papers. The Appellate Division allowed an appeal to this court, and certified the following question for decision : " Has the Supreme • Court the power, upon the petition of a stockholder, to compel by mandamus the corporation to exhibit its books for his inspection ? " The relator does not claim that the power in question has been con- ferred upon the court by statute, but he insists that it is a part of its inherent power. This position involves an inquiry into the origin and extent of the authority of the Supreme Court and its power of visitation, or of examining into the affairs of corporations according to the common law. [The learned Judge held, that the present Supreme Court of New York has all the powers of the English Court of King's Bench and the Court of Chancery as they existed in 1775 ; except as modified by the State Constitution or Statutes.] The right of a corporator, who has an interest in common with the other corporators, to inspect the books and papers of the corporation, for a proper purpose and under reasonable circumstances, was recog- nized by the Courts of King's Bench and Chancery from an early day, and enforced by motion or mandamus, but always with caution so as to prevent abuse. (Bex v. Fraternity of Hostmen, 2 Str. 1223 and note ; Gery v. Hopkins, 7 Mod. 129, case 175 ; Bichards v. Pattinson, 1 Barnes' Notes of Cases, 156 ; Young y. Lynch, 1 Sir W. Blackstone, 486 steinway's petition. 27 ; The King v. Shelley, 3 D. & E. 141 ; The King v. Bdbb, 3 D. & E. 679, 580 ; The King v. Merchant Tailors' Company, 2 B. & A. 115 ; In re Burton, L. J. [312, B.] 62 ; In re West Deven Mine, L. E. [27 Ch. Div.] 106.) Lord Kenton, in rendering jndgment in The King v. Bahb, assumed " that in certain cases the members of a corporation may be permitted to inspect all papers relating to the corporation." In Gery v. Hopkins the court, on granting the order to produce, said : " There is great reason for it, for they are books of a public company and kept for public transactions, in which the public are concerned, and the books are the title of buyers of stock by act of Parliament." In Bex Y. Fraternity of Hostmen, the reporter states that the court said : " Every member of the corporation had, as such, a right to look into the books for any matter that concerned himself, though it was in a dispute with others." The following cases arose in this state, but the most of them are not strictly in point, as they rest mainly upon statutory authority, which does not extend to the case in hand [citing authorities.] The courts of other states compel the officers of corporations to allow stockholders to examine the books upon due application for a proper purpose. In Lewis v. Brainerd (53 Vt. 520) the court said : " The shareholders in a corporation hold the franchise and are the owners of the corpo- rate property, and as such owners they have the right, at common law, to examine and inspect all the books and records of the corporation at all seasonable times, and to be thereby informed of the condition of the corporation and its property." In Huylar v. Cragin Cattle Co. (40 N. J. Eq. 392, 398) it was said : " Stockholders are entitled to inspect the books of the company for proper purposes at proper times, and they are entitled to such inspec- tion, though their only object is to ascertain whether their affairs have been properly conducted by the directors or managers. Such a right is necessary to their protection. To say that they have the right, but that it can be enforced only when they have ascertained, in some way without the books, that their affairs have been mismanaged, or that their interests are in danger, is practically to deny the right in the majority of cases. Oftentimes frauds are discoverable only by examination of the books by an expert accountant. The books are not the private property of the directors or managers, but are the records of their transactions as trustees for the stockholders." In Commonwealth v. Phoenix Iron Co. (105 Pa. St. Ill, 116), the rule was laid down that, "unless the charter provides otherwise, a shareholder in a trading corporation has the right to inspect its books and papers and to take minutes from them for a definite and proper purpose at reasonable times. The doctrine of the law is that the books and papers of the corporation, though of necessity kept in some one hand, are the common property of all the stockholders." Upon a second appeal in the same case, sub nam. Phoenix Iron Company v. steinway's petition. 487 Comvionwealth (113 Pa. St. 663, 572), the court said : " Under the circumstances mentioned for the purposes stated, we are of opinion that according to our ruling when the case was here before, the re- lator is clearly entitled to an examination of the books and papers of the company. Such a right is, of course, not to be exercised to gratify \ curiosity, or for speculative purposes, but in good faith and for a specific honest purpose, and where there is a particular matter in dispute involving and affecting seriously the rights of the relator as a | stockholder. ... A stockholder in a trading corporation must cer- tainly have some rights which a board of directors should respect. Sellers (the relator) was not bound to accept the mere statement of the board, whether under oath or otherwise, as to the contents of the books, etc. He had a right to a reasonable personal inspection of them, and with the aid of a disinterested expert might make such ex- tracts as were reasonably required in the preparation of the bill" he purposed to bring. The relator, we think, has a clear right under the writ and return to the relief he asks, and it is plain that he has no specific legal remedy for the enforcement of that right ; and the exist- ence of a supposed equitable remedy is not a ground for refusing the mandamus." In Cockburn v. Union Bank of Louisiana (13 La. Ann. 289, 290), the court, in granting a mandamus requiring the ofiicers of a corpora- tion to allow access by a stockholder to the books, said : " A stock- holder in a corporation possesses all his individual rights except so far as he is deprived of them by the charter or the law of the land ; as long then as the charter or the rules and by-laws passed in con- formity thereto, and the law, do not restrict his individual rights, he possesses them in full and can demand to exercise them. It cannot be denied that it is the right of every one to see that his property is well managed and to have access to the proper sources of knowledge in this respect." The same court in a like case declared that a stock- holder in a trading corporation " has in the very nature of things, and upon principles of equity, good faith and fair dealing, the right to know how the affairs of the company are conducted, whether the capital of which he has contributed so large a share is being pru- dently and profitably employed or otherwise. ... In order to comply with this call and to vote understandingly, it was certainly requisite for the relator to know the condition of the affairs and business operations of the company and be enabled from this knowledge to act for the best interests of the stockholders and of the company." (State of Louisiana v. Bienville Oil Works Co., 24 La. Ann. 204, 208 ; see, also. Stone v. Kellogg, 46 N. E. Eep. [111.] 222 ; Stettauer v. N. Y. & Scranton Con. Co., 42 JST. J. Eq. 46 ; People v. Walker, 9 Mich. 328 ; State V. Bergenthal, 72 Wis. 314.) The elementary works unite in holding that a corporator has the right in question, and that mandamus is a proper remedy. Mr. Wait, in his work on Insolvent Corporations, after reviewing the authorities, 488 steinwatt's petitiok. says : " It will be apparent from an examination of these authorities that the rule iu favor of a stockholder's right of inspection and in- vestigation of corporate books and papers is becoming very broad and general." (§ 504.) But while the learned author recognizes the rule, he insists, and we agree with him, that an inspection should " not be granted to facilitate speculative schemes or to gratify idle curiosity." He declares that " mandamus is the most complete and effective form of redress available to a stockholder or party in case of a denial of the right of inspection." (§ 516.) Mr. Cook, in discussing the question, says that " the stockholders of a corporation had, at common law, a right to examine, at any reasonable time and for any reasonable pur- pose, any one or all of the books and records of the corporation. This rule grew out of an analogous rule applicable to public corporations and to ordinary copartnerships, the books of which, by well-established law, are always open to the inspection of members." (2 Cook on Corporations, § 511.) " The prevailing doctrine in the United States is said to permit an incorporator the same freedom in examining the books of the company as a partner has with respect to the books of his firm, but the right only extends to such documents as are necessary to the stockholder's particular purpose. . . . Statutes giving the shareholders of corpora- tions the right to inspect the corporate books have been passed in many of the American states and in England. These statutes, how- ever, do not supplant the common-law right." (1 Beach on Private Corp. § 75.) Judge Thompson, in his work on Corporations, says : " One of the privileges incident to ownership of stock in a corporation is that of an inspection of the books and condition of the company, and this privilege, in general, becomes a right when the inspection is sought at proper times and for proper purposes." (§ 4406.) He further declares that when the right is guaranteed by statute the motive for its ex- ercise is immaterial, but when it rests upon the common law it will not be allowed for speculative purposes, the gratification of curiosity, or where its exercise would produce great inconvenience. (§§ 4412- 4420.) (See, also, Angell & Ames on Corp. [9th ed.] § 681 ; Morawetz on Corp. § 473 ; High's Extraordinary Legal Eemedies, § 308 ; 19 Am. & Eng. Ency. of Law, 231.) We think that, according to the decided weight of authority, a stockholder has the right at common law to inspect the books of his corporation at a proper time and place, and for a proper purpose, and that if this right is refused by the ofiicers in charge a writ of man- damus may issue, in the sound discretion of the court, with suitable safeguards to protect the interests of all concerned. It should not be issued to aid a blackmailer, nor withheld simply because the interest of the stockholder is small, but the court should proceed cautiously and discreetly, according to the facts of the particular case. To the extent, however, that an absolute right is conferred by statute, steinway's petition. 489 nothing is left to tlie discretion of the court, but the writ should issue as a matter of course, although even then, doubtless, due precautions may be taken as to time and place so as to prevent interruption of business, or other serious inconvenience. The appellants, however, insist that certain statutory provisions relating to the subject are exclusive, and as they do not extend to the case under consideration, that the Appellate Division had no right to grant the writ. The history of legislation upon the subject in brief is as follows : By the General Manufacturing Act of 1848 it was made the duty of the trustees of corporations organized under it to keep a transfer book, which was required to " be opened for the inspection of stockholders and creditors of the company," substantially every busi- ness day at the oifice of the corporation. (L. 1848, ch. 40, § 25.) This section was subsequently amended so as to require the treasurer to make a statement of the affairs of the company upon the request of per- sons owning a specified percentage of the capital stock. (L. 1854, ch. 201, § 1 ; L. 1862, ch. 472, § 1.) The Business Corporations Law of 1875 required the directors of corporations organized thereunder " to cause to be kept at its principal oflB.ce or place of business, correct books of account of all its business and transactions, and every stockholder in such corporation shall have the right at all reasonable times by him- self or his attorney to examine the records and books of account of such corporation." (L. 1875, ch. 611, § 16.) These statutes were all repealed in 1892 by the General Corporation Law. (L. 1892, ch. 687, pp. 1816-1819.) During the same year the Stock Corporation Law was passed, which provides that every stock corporation shall keep a stock book, which " shall be open daily, during business hours, for the inspection of its stockholders and judgment creditors, who may make extracts therefrom." (L. 1892, ch. 688, § 29;) It also requires the treasurer, upon the request of stockholders owning a fixed percentage of the capital stock, to furnish a statement of all its assets and lia- bilities. (Id. § 62.) We do not think that the statute now in force is exclusive, or that it has abridged the common-law right of stockholders with reference to the examination of corporate books. By enabling a stockholder to get some information in a new way, it did not impliedly repeal the common-law rule which enabled him to get other information in an- other way, for the courts do not hold the common law to be repealed by implication, unless the intention is obvious. By simply providing an additional remedy the existing remedy was not taken.away. The statute merely strengthened the common-law rule with reference to one part thereof, and left the remainder unaffected. It dealt with but a single book, and as to that it amplified the qualified right previously existing, by making it absolute and extending it to judgment credi- tors. The stock book has no relation to the business carried on by a corporation, and the change was doubtless made to enable stockhold- ers to promptly learn who are entitled to vote for directors, and judg- 490 CINCINNATI YOLKSBLATT CO. V. HOFFMEISTER. ment creditors to learn who are liable as stockholders for a failure to comply with the provisions of the act. The statute is silent as to the other books, and provides no system of inspection as a substitute for the right of examination at common law. The provision for a report from the treasurer was not designed to take away an old right, but to give a new one, not as a substitute but as an addition. We think that the common-law right of a stockholder with refer- ence to the inspection of the books of his corporation still exists, unimpaired by legislation ; that the Supreme Court has power, in its sound discretion, upon good cause shown, to enforce the right, and that such power is a part of its general jurisdiction as the successor of the courts of the colony of New York, which had the jurisdiction of the Court of King's Bench and the Court of Chancery in England. It follows that the order appealed from should be affirmed, with costs, and that the question certified should be answered in the affirm- ative. All concur. Order affirmed. CUsrCINNATI YOLKSBLATT CO. v. HOFFMEISTEE. 1900. 62 Ohio State, 189.1 Eekok to the Superior Court of Cincinnati. Hoffmeister's petition alleges that he is a stockholder in the Cin- cinnati Volksblatt Company ; that he has requested the corporation to allow him to inspect its books and records and to fix a reasonable time for said inspection ; but that the corporation has refused to allow him to inspect the books and records. The petition prays that the defendant be enjoined from refusing to allow him to inspect its books and records. A demurrer having been overruled, the defendant filed an answer ; and the petitioner in his reply took issue with new matter alleged in the answer. Upon trial, the court found the issues for the plaintiff ; that he is entitled to inspect any of the books and records of the defendant at any reasonable time ; and that he may make such inspection by himself, or by agent, bookkeeper or accountant ; and may take copies of any of said books and records. Judgment was entered enjoining defendant from preventing the inspection and tak- ing of copies as aforesaid. Charles W. Baker, for plaintiff in error. Alfred B. Benedict and Jerome D. Creed, for defendant in error. Spear, J. [After deciding that plaintiff had not mistaken his remedy.] . . . 2. It being determined that the action was properly brought, and that the court had jurisdiction, is the petition sufficient, or must the 1 Statement abridged. Argumenta omitted. — Ed. CINCINNATI VOLKSBLATT CO. V. HOFFMEISTER. 491 plaintiff, before he can have standing in court, set out what his reasons for desiring the inspection asked are, and show that he is actuated by proper motives and in the pursuit of justifiable ends ? Such is the contention of plaintiff in error. The statute is, section 3254 : " And the books and records of such corporation shall at all reasonable times be open to the inspection of every stockholder." But it is insisted that this provision is not intended to enlarge the right, but is a mere af&rmation of the common law rule, and that that rule embodies many conditions, among them that the stockholder must allege and prove that he is acting iu good faith. Without stop- ping to discuss the extent of, and the limitations upon, the rule as established by the common law (for the holdings are at variance upon it), we inquire what reason there is for saying that the intent of the legislature was to merely affirm the common law rule ? If that had been all, why take the trouble to legislate on the subject at all ? Is it not more reasonable to conclude that the object was to get rid of all uncertainty and of various conditions, whatever they were, and establish the right by a rule, clear, direct, simple, and practically without qualification ? The language is plain. The right given is clear. One condition, and one only, is attached, viz. : that the right can be exercised only at reasonable times. Ordinarily the motive, or purpose, of the -^arty who is in the exercise of, or is about to exercise,' a clear legal right, is unimportant. Letts v. Kessler, 64 Ohio St. 73, and authorities cited; McDonald v. Smalley, 1 Pet. 620. A like rule prevails as to one's pursuit of an equitable remedy. Morris v. Tut- hill, 72 N. Y. 575 ; Davis v. Flagg, 35 N. J. Eq. 491 ; Thompson on Corp., sec. 4412, and authorities cited. No reason is apparent why the rule should not apply to the case at bar. We are of the opinion that where a suitor demands the enforcement of a clear right given him by law, whether the remedy be legal or equitable, his motive for such action is not a proper subject for judicial investigation. The petition stated a cause of action and if supported by the evidence warranted the granting of equitable relief. 3. Was the order of the trial court too broad ? The finding by the court of all the issues for the plaintiff settles the questions of fact for this court, but it is not improper to add that there was an entire failure to show, on the part of defendant, that the plaintiff was acting from the improper motives charged in the answer, and that the evidence, all of which we have read and considered, fully justifies the finding in favor of the plaintiff. So that, even had the petition been obnoxious to a demurrer in failing to allege a proper purpose for the suit, the defendant, having obtained a full hearing on the charges stated in the answer, would have no ground of complaint on account of the action of the court on the demurrer. The contention is that whatever right of examination the statute gives is a personal right, and must be exercised by the stockholder in person. Since when, we would inquire, has it been the law that 1 492 CINCINNATI VOLKSBLATT CO. V. HOFFMEISTEE. one wlio has given him a clear right as to property may not exercise it by any proper agent ? The proposition has the quality of novelty, but it is not sound. It must be apparent, on reflection, that if so circumscribed a limit were placed on the right, its exercise in many instances would be futile. Foster v. White, 86 Ala. 467 ; Mitchell v. Rubber Co. (N. J.), 37 Corp. Cases, 42, and notes, and same case in 24 Ap. Eep. 407 ; State ex rel. v. Bienville Oil Works, 28 La. Ann. 204. Nor is the right limited to one inspection. It is an incident to ownership of stock, and may be exercised at any reasonable time so long as the relation of stockholder subsists. The right to take copies from the records follows as an incident to the right to inspect. It rests, as does the entire right to examination rest, upon the broad ground that the business of the corporation is not the business of the ofB.cers exclusively, but is the business of the stockholders. Phoenix Iron Company v. Commonwealth, 113 Pa. St. 563 ; Mutter v. Ry. Co., L. E. 38 Chy. Div. 92. We refrain from extended discussion of the questions involved, be- cause they are fully and ably discussed, and the authorities cited at large, in the briefs of the respective counsel which precede, and to which attention is here directed. [See 62 Ohio State, pp. 191-196.] We would add, however, that the rights of the plaintiff in this case are based upon a recognition of his standing as an inffegral part of the corporation. The idea that the corporation is an entity distinct from the corporators who compose it, has been aptly characterized as " a nebulous fiction of thought." Much learning has been indulged in and much space occupied by text-writers and others in an effort to differ- entiate the essential character of a corporation from that of its stock- holders, and great ingenuity has been displayed in the argument, but it has been in the main a fruitless metaphysical discussion. For the purpose of description and in defining corporate rights and obliga- tions, and characterizing corporate action, the fiction that the corpo- ration is an artificial person or entity, apart from its members, may be convenient and possibly useful, but in the opinion of the writer the argument favoring the essential separate entity of the corpora- tion fails, and it is believed that the effort has resulted in misleading conceptions and in much confusion of thought upon the subject. When all has been said it remains that a corporation is not in reality a person or a thing distinct from its constituent parts, and the con- stituent parts are the stockholders, as much so in essence and in reality as the several partners are the constituent parts of the part- nership. Stripped of misleading verbiage, the corporation is a device created by law whereby an aggregation of persons who may avail themselves of its privileges by organization, are permitted to use their property in a way different from that which is permitted to others who do not so organize, and with certain special advantages, among which are a measure as to personal liability for debts, and the power to perpetuate the organization, denied by the law to all others. With CINCINNATI VOLKSBLATT CO. V. HOFFMEISTER. 493 this conception of a corporation, it would seem to follow as matter of course, that the property of a corporation, although subject under some conditions to rights of creditors, is, in the last analysis, that of the stockholders, and that when one seeks an inspection of its books, records, or property, he is in reality but seeking an inspection of his own, and that this should be accorded fully, freely, and at all times when such inspection will not unreasonably inconvenience others who have like interest in and rights to the property, and that the attempt to unreasonably hamper such inspection, by officers, managers, or others, is an unjust exercise of power and one which courts should not saiiction. INor can the officers of the corporation, or the other stockholders, justly complain. They have chosen this method of investing their means and conducting the business for personal profit, a method which, as we have seen, is especially favored by the law, and they should expect to endure such inconveniences, and such chances of exposure of management, as the method entails. In other words, it is not unreasonable that they should be required to take the bitter with the sweet. Ko error is found in the judgments of the courts below, and they will be Affirmed. 494 SMITH V. HUED. CHAPTER XIV. STOCKHOLDER'S EIGHT TO BEING SUIT IN EEFERENCE "^ "TO COBPOEATE MANAGEMENT, OE TO PEOTECT COEPOEATE INTEEESTS. SMITH V. HUED et als. 1847. 12 Metcalf (Mass.), 371.1 This was a special action on the case, by a stockholder of the Phoenix Bank against the directors. There were two counts ; one founded in non-feasance of official dut^^ the other in misfeasance. The first count alleged (inter alia) tliat it was the duty of the direc- tors to direct and superintend the proceedings of the officers, and to exercise reasonable vigilance in seeing that the property of the bank was not lost, wasted, or misused ; but that the directors disregarding their dutj', and contriving together to injure and deceive the plaintiff therein, neglected to give reasonable personal attention to the business of the bank ; and negligently permitted the whole business to be managed by the president, 'W'juiian, who loaned its monies on in- sulgc ient secu rities, used certain^ums himse1^~aimnade loans to^ individual directors exceeding the limits of the law ; wherebj- the bank capital became whollj- lost, and plaintiff was made liable, under the law, for his proportion of the capital lost bj' the official mismanage- ment of the directors, and further liable to pay large sums for the redemption of the bills of the bank. The second count alleged {inter alia) that the directors, disregard- ing their duties, and contriving together to injure and deceive the plain- tiff therein, concurred with each other that the whole business should be managed by the president, Wj'man, as he should see fit; and that defendants themselves declared dividends when there were no profits, and caused false returns to be made to the State authorities, by whichl means plaintiff was misled and induced to rely on the secuiitj- of his) investment. And, generally, the second count cliarged as acts of the defendants (done through Wyman) the matters which, in the first count, were charged as negligences and permissions, and deduced 1 Statement abridged. Arguments omitted. — Ed. SMITH V. KURD. 495 therefrom in like manner the failure of the bank, and the special dam- age to the plaintiff. The count concluded with an averment that • defendants, by " misconducting the business of said bank, as aforesaid, I so wilfully, deceitfully and fraudulently mismanaged the business and/ property of the said bank, that the whole capital thereof was utterly lost and wasted." Defendants demurred to the declaration. jB. M. Curtis and -B. Hand, for defendants. Gardiner ( Greenleaf with him), for plaintiff. Shaw, C. J. This is certainly a case of first impression. We are not aware that any similar action has been sustained in England, or in any of the courts of this country. It is founded on no statute. It is an action on the case, at common law, brought by an individual holder of shares in an incorporated bank, against the directors, not including , the president, setting forth various acts of negligence and malfeasance, 1 through a series of years, in consequence of which, as the declaration | alleges, the whole capital of the bank was wasted and lost, and the j shares of the plaintiff became of no value. The circumstance that noy such action has been maintained, would certainly be no decisive objec- tion, if it could be shown to be maintainable on principle. But the fact, that similar grievances have existed to a great extent, and in numberless instances, where such an action would have presented an obvious and effective remedy, affords strong proof, that in the view of all such suffering parties, and their legal advisers and guides, there was no principle on which such an action can be maintained. If an action can be brought by one stockholder, it maj' be brought bj- the holder of a single share ; so that for one and the same default of these directors, thirty-five hundred actions might be brought. If it may be sustained by proof of an act, or series of acts, of carelessness, neglect, and breach of duty, in managing the affairs of the bank, by which the whole value of the stock is destroj'ed, it ma\', on the same principle, be maintained on any act or instance of such negligence, by which the shares are diminished in value fifty, ten, five, or one per cent. Still, notwithstanding these consequences, if the plaintiff has a good right of action, upon recognized and sound legal principles, his action ought to be sustained. But the court are of opinion that the action cannot be maintained ; and that on several grounds, a few of the more prominent of which may be alluded to. 1. There is no legal privity, relation, or immediate connexion, be- i tween the holders of shares in a bank, in their individual capacity, on I the one side, and the directors of the bank on the other. The directors are not the bailees, the factors, agents or trustees of such individual | stockholders. The bank is a corporation and body politic, having a separate existence as a distinct person in law, m whom the whole i stock and property of the bank are vested, and to whom all agents, j debtors, officers and servants are responsible for all contracts, express 496 SMITH V. KURD. or implied, made in reference to such capital, and for all torts and injuries diminishing or impairing it. The very purpose of incorpora- tion is, to create such legal and ideal person in law, distinct from all the persons composing it, in order to avoid the extreme difficulty, and perhaps it is not too much to say the utter impracticability, of such a number of persons acting together in their individual capacities. The practical difficulty would be nearly as great, whether it were held that all must join in an action to recover damage for an injury to the com- mon property, or that each might sue separately. The stockholders do, indeed, ordinarily elect the directors ; but it is as parts and members of the corporation, in their corporate capacity, in modes pointed out by the charter and by-laws, so that the directors are the appointees of the corporation, not of the individuals. Indeed, I believe there is a provision in the bank charters — there certainly was formerly — which is equally to the present purpose ; namely, that the Commonwealth shall be at liberty to add a certain amount to the capital of various banks, and appoint a proportional number of direc- tors. Such directors, so appointed, pursuant to the charter regulating the legal organization of the bodj', would stand in all respects on the footing of directors chosen by the stockholders. If these were liable to the action of individual stockholders, those would be, in like manner. 2. The individual members of the corporation, whether 4hey should, all join, or each act severally, have no right or power to intermeddle! with the property or concerns of the bank, or call any officer, agent or' servant to account, or discharge them from any liability. Should all the stockholders join in a power of attorney to any one, he could not take possession of any real or personal estate, any security or chose in i action ; could not collect a debt, or discharge a claim, or release dam- 1 age arising from any default; simply because they are not the legal i owners of the propertj', and damage done to such property is not ani injurj' to them. Their rights and their powers are limited and wel» defined. They are members of an organized bodj', and exercise such powers as the organization of the institution gives them. Stockholders! in banks have a separate right to dividends, when declared, and to a\ distributive share of the capital stock, if any remains when the charteu of the bank is at an end, and its debts paid. 3. But another important consideration is, that the injury done to i the capital stock by wasting, impairing, and diminishing its value, is not, in the first instance, nor necessarily, a damage to the stockholders. I All sums which could, in any form, be recovered on that ground, would be assets of the corporation, and when collected and received by directors, receivers, or any other persons entitled to receive the same, they would be held in trust, first to redeem the bills and pay the debts of the bank ; and it would be only after these debts vrere paid, and in case any surplus should remain, that the stockholders would be entitled to receive any thing. It is, therefore, an indirect, contingent and sub- SMITH V. HUED. 497 ordinate interest, which each stockholder has, in damages so to be recovered against directors. If, upon such indirect, contingent, and remote interest, individual stockholders could recover for the defaults of directors, and especially, as is alleged in this case, where these defaults have been so great as to sink the capital, a fortiori would the j creditors of the_bank individuallj' have a right to maintain similar! actions ; because their claim upon the funds, being prior to that of/ stockholders, would be somewhat more immediate and direct. In the same connexion, it is obvious to remark, that a judgment in favor of one stockholder would be no bar to an action by a creditor, nor a judgment by both, to an action by the corporation. 4. But it is said, that although the real and personal estate, the securities and capital stock, are, in legal contemplation, vested in the corporation, yet the individual has a separate and distinct property and interest in his particular shares, by. anj' injury' to which he may have a separate damage. To some extent, it is true that he has a sev- ,eral interest in his shares ; but it is to be taken with some qualifica- tions. Strictly speaking, shares in a bank do not constitute a legal estate and property ; it is rather a limited and qualified right which the stockholder has to participate, in a certain proportion, in the benefits of a common fund, vested in a corporation for the common use ; it is a qualified and equitable interest, a valuable interest, manifested usually b^' a certificate, which is transferable. To the extent of this separate and peculiar interest, a stockholder, no doubt, might maintain his separate and special action, according to the nature of the wrong done to him in respect to it ; as trover or trespass, for the conversion or tortious taking of his certificate ; trespass on the case for refusing to make a transfer on a proper occasion ; assumpsit for a dividend de- clared, and the like. But an injury done to the stock and capital, by negligence, or misfeasance, is not an injurj' to such separate interest, but to the whole body of stockholders in common. It is like the case of a common nuisance, where one who suflTers a special damage, pecu- liar to himself, and distinguishable in kind from that which he shares in the common injury, may maintain a special action. Otherwise, he cannot. Co. Lit. 56 a. 3 Steph, N. P. 2372. Lansing v. Smith, 8 Cow. 146. But we are pressed with the argument, that for every damage which one sustains, which is caused by the wrongful act of another, he ought to have a remedy. This is far from being universally true. Another maxim in regard to claims for damage is, causa proxima, non remota, spectatur. Thousands of instances occur, in which one sustains conse- quential and incidental damage from the misconduct of another, with- out a remedy at law. By the misconduct of the oflflcers or agents of a parish, town, county, or even of the State or the Union, defalcations may take place, treasure be squandered and wasted, and all the mem- bers of the respective aggregate bodies sufi'er damage, for which the law, from the nature of the case, can afford no direct remedy. But the 498 DODGE V. WOOLSEY. true answer to tLe objection is, that stockliolde'rs have a remedy, a theoretic one indeed, and perhaps often inadequate, in the power of the corporation, in its corporate capacitj', to obtain redress for injuries done to the common property, by the recovery of damages ; and each individual stockholder has his remedy, through the powers thus vested in the corporation, for the common benefit. On the whole, the court are of opinion that the demurrer is well taken, and that the action cannot be maintained. DODGE V. WOOLSEY. 1855. 18 Howard ( W. S.), 331.1 Appeal from the U. S. Circuit Court for the District of Ohio. This is a suit in equity b^' John M. Woolsej'^, to enjoin the collection of a tax, assessed by the State of Ohio, on the Commercial Branch Bank of Cleveland, a branch of the State Bank of Ohio. The de- fendants are Dodge, the tax collector, the directors of the bank, and the bank itself. Woolsey avers that he is a citizen of Connecticut, that he is the owner of thirty shares in the Branch Bank of Cleveland, that Dodge and the other defendants are all citizens of Ohio, and that the Com- mercial Branch Bank is a corporation, made such by an act of the legislature of Ohio. He alleges that, by the act of incorporation, the Bank was to paj' semiannuallj' to the State a certain percentage on its profits, which was to be in lieu of all taxes to which the corporation, or the stockholders on account of their stock, would otherwise be subject. He further alleges that subsequent changes were made by the constitu- tion and statutes of Ohio, undertaking to tax the Bank at a different and more burdensome rate. He asks the Court to enjoin Dodge from , collecting by distress a tax which has been assessed against the Bank under this law ; contending that the subsequent statute and assessment are in violation of the clause in the U. S. Constitution, which prohibits States from passing laws impairing the obligation of contracts. He finally declares that, as a stockholder of the Bank, he had requested the directors to take measures, by suit or otherwise, to assert the franchises of the Bank against the collection of what he believes to be an unconstitutional tax, and that they had refused to do so. Dodge filed an answei-, in which he denied that Woolsey had made any application to the directors to prevent the collection of the tax. But it was agreed by the counsel that such an application had been * Statement abridged. Only so much of the case is given as relates to one pointi >-Ed. DODGE V. WOOLSEY. 499 made ; and tliat the directors replied that, thougti concurring in the view that the tax was illegal, yet, in consideration of the man}' obstacles in the way of testing the law in the Courts of the State, they could not consent to take the action which they were asked to take. Spalding and Pugh, for appellant. Stanberry and Vinton, for appellee. Watne, J. [After stating the case]. Upon the foregoing pleadings and admission, the circuit court ren- dered a final decree for the complainant, perpetually enjoining the treasurer against the collection of the tax, under the act of the 13th February, 1852, and subjecting the defendant, Dodge, to the payment of the costs of the suit. From that decision the defendant, Dodge, has appealed to this court. His counsel have relied upon the following points to sustain the appeal : 1. The complainant does not show himself to be entitled to relief in a court of chancery, because the charter of the bank provides that its affairs shall be managed bj' a board of directors, and that they are not amenable to the stockholders for an error of judgment merely. And that in order. to make them so, it should have been averred that they were in collusion with the tax collector in their refusal to take legal steps to test the validity of the tax. 2. It was urged that this suit had been improperly brought in the circuit court of the United States for the district of Ohio, because it is a contrivance to create a jurisdiction, where none fairly exists, by sub- stituting an individual stockholder in place of the Commercial Bank as complainant, and making the directors defendants ; the stockholder being made complainant, because he is a citizen of the State of Con- necticut, and the directors being made defendants to give countenance to his suit. 3. It was said, if the foregoing points were not available to defeat the action, that it might be contended that the defendant was in the discharge of his official duty when interrupted by the mandate of the circuit court, and that the tax had been properly assessed by the law of the State, in conformity with its constitution, of the 1st September, 1851. We will consider the points in their order. The first comprehends two propositions, namely : that courts of equity have no jurisdiction over corporations, as such, at the suit of a stockholder for violations of charters, and none for the errors of judgment of those who manage their business ordinarilj'. There has been a conflict of judicial authority in both. Still, it has been found necessar}-, foi- prevention of injuries for which common-law courts were inadequate, to entertain in equity such a jurisdiction in tha progressive development of the powers and effects of private corpora- tions upon all the business and interests of society. It is now no longer doabted, either in England or the United States> 500 DODGE V. WOOLSEY. that courts of equity', in both, have a jurisdiction over corporations, at the instance of one or more of their members ; to apply preventive remedies by injunction, to restrain those who administer them from doing acts which would amount to a violation of charters, or to prevent any misapplication of their capitals or profits, which might result in lessening the dividends of stockholders, or the value of their shares, as either may be protected by the franchises of a corporation, if the acts intended to be done create what is in the law denominated- a breach of trust. And the jurisdiction extends to inquire into, and to enjoin, as the case may require that to be done, any proceedings b^- individuals, in whatever character they maj- profess. to act, if the subject of com- plaint is an imputed violation of a corporate franchise, or the denial of a right growing out of it, for which there is not an adequate remedy at law. 2 Russ. & Mylne Ch. E., Cunliffe v. Manchester and Bolton Canal Companj-, 480, n.; "Ware v. Grand Junction Water Companj-, 2 Russ. & Mylne, 470 ; Bagshaw v. Eastern Counties Railway Companj', 7 Hare Ch. E. 114 ; Angell & Ames, 4th ed. 424, and the other cases there cited. It was ruled in the case of Cunliffe v. The Manchester and Bolton Canal Company, 2 Russ. & Mylne Ch. R. 481, that where the legal remedy against a corporation is inadequate, a court of equity will interfere, and that there were cases in which a bill in equity will lie against a corporation by one of its members. "It is a breach of irust towards a shareholder in a joint stock incorporated companj-, established for certain definite purposes prescribed by its charter, if the funds or credit of the company are, without his consent, diverted from such purpose, though the misapplication be sanctioned by the votes of a majority ; and, therefore, he may file a bill in equity against the company in his own behalf to restrain the companj' by injunction from any such diversion or misapplication." In the case of Ware v. Grand Junction Water Company, 2 Russell & Mylne, a bill filed by a member of the companj' against it. Lord Brougham said : " It is said this is an attempt on the part of the company to do acts which thej- are not empowered to do by the acts of parliament," meaning the charter of the company; "so far I restrain them by injunction." "Indeed, an investment in the stock of a corporation must, by everj- one, be con- sidered a wild speculation, if it exposed the owners of the stock to all sorts of risk in support of plausible projects not set forth and au- thorized by the act of incorporation, and which may possibly lead to extraordinary losses." The same jurisdiction was invoked and applied in the case of Bagshaw v. The Eastern Counties Railway Com- pany ; so, also, in Coleman v. The same company, 10 Beavan's Ch. Reports, 1. It appeared in that case that the directors of the com- pany, for the purpose of increasing their traflflc, proposed to guarantee certain proflts, and to secure the capital of an intended steam packet company, which was to act in connection with the railway. It was held, such a transaction was not within the scope of their powers, and DODGE V. -WOOLSET. 501 they were restrained by injunction. And in the second place, that in such a case one of the shareholders in the railway company was entitled to sue in behalf of himself and all the other shareholders, except the directors, who were defendants, although some of the shareholders h'ad taken shares in the steam packet company. It was contended in this case that the corporation might pledge, without limit, the funds of the company for the encouragement of other transactions, however various and extensive, provided the object of that liability was to increase the traffic upon the railway, and thereby increase the traiflc to the share- holders. But the master of the rolls, Lord Langdale, said, "there was no authority for anything of that kind." But further, it is not only illegal for a corporation to applj- its capital to objects not contemplated by its charter, but also to apply its profits. And therefore a shareholder may maintain a bill in equity against the ^directors and compel the company to refund any of the profits thus improperly applied. It is an improper application for a railway com- pany to invest the profits of the company in the purchase of shares in another company. The result of the cases is well stated in Angell & Ames, paragraphs 391, 393. " In cases where the legal remedy against a corporation is inadequate, a court of equity will interfere, is well settled, and there are cases in which a bill in equity will lie against a corporation by one of its members." " Though the result of the authorities clearly is, that in a corporation, when acting within the scope of and in obedience to the provisions of its constitution, the will of the majority, duly ex- pressed at a legally constituted meeting, must govern ; yet beyond the ' limits of the act of incorporation, the will of the majority cannot make , an act valid ; and the powers of a court of equity may be put in motion j at the instance of a single shareholder, if he can show that the cor-) poration are employing their statutory powers for the accomplishment of purposes not within the scope of their institution. Yet it is to be/ observed, that there is an important distinction between this class of i cases and those in which there is no breach of trust, but only error and I misapprehension, or simple negligence on the part of the directors." . . .' We have then the rule and its limitation. It is contended that this case is within the limitation ; or that the directors of the Commercial Bank of Cleveland, in their action in respect to the tax assessed upon it, under the act of April 18, 1852, and in their refusal to take proper measures for testing its validity, have committed an " error of judg- ment merely." Now, in our view, the refusal upon the part of the directors, by their | own showing, partakes more of disregard of duty, than of an error of J judgment. It was a non-performance of a confessed official obligation, amounting to what the law considers a breach of trust, though it may not involve intentional moral delinquency. It was a mistake, it is true, 502 PEABODY V. FLINT. of what their duty required from them, according to their own sense of it, but, being a duty by their own confession, their refusal was an act outside of the obligation which the charter imposed upon them to pro- tect what they conscientiously believed to be the franchises of the bank. A sense of duty and conduct contrary to it, is not "an error of judg- ment merely," and cannot be so called in any case. It amounted to i an illegal application of the profits due to the stockholders of the bank, into which a court of equity will inquire to prevent its being made. Thinking, as we do, that the action of the board of directors was not " an error of judgment merely," but a breach of duty, it is our opinion that they were properly made parties to the bill, and that the jurisdic- tion of a court of equity reaches such a case to give such a remedy as its circumstances may require. This conclusion makes it unnecessary for us to notice further the point made by the counsel that the suit should have been brought in the name of the corporation, in support of which they cited the case of the Bank of the United States v. Osborn. The obvious difference between this case and that is, that the Bank of the United States brought a bill in the circuit court of the United States for the district of Ohio, to resist a tax assessed under an act of that State, and executed by its auditor, and here the directors of the Com- mercial Bank of Cleveland, bj' refusing to do what they had declared it to be their duty to do, have forced one of its corporators, in self- defense, to sue. If the directors had done so in a State court of Ohio, and put their case upon the unconstitutionality of the tax act,, because it impaired the obligation of a contract, and had the decision been against such claim, the judgment of the State court could have been re-examined, in that particular, in the supreme court of the United States, under the same authority or jurisdiction bj' which it reversed the judgment of the supreme court of Ohio, in the case of the Piqua Branch of the State Banic of Ohio v. Jacob Knoop, treasurer of Miami county, 16 How. 369. Decree of Circuit Court affirmed. Cateon, J., Daniel, J., and Campbell, J., dissented. PEABODY ET AL. V. FLINT et als. 1863. 6 Allen (Mass.), bi> Bill in equity, brought March 9, 1860, by two stockholders of the Lowell and Salem Railroad Companj-, for themselves and in behalf of the other stockholders, against certain directors and agents of said companj', and of the Lowell and Lawrence Railroad Company, whose 1 Arguments omitted, — Ed. PEABODY V. FLINT. 503 railroad connected with that of the former company, and others, charg- ing various acts of conspiracj- and fraud, bj' wliioh the interests of the » stockholders in the Salem and Lowell Railroad Companj- were preju- I diced and sacrificed, for the benefit of the Lowell and Lawrence Rail- / road Company ; and especially in reference to false and fraudulent representations and practices for the. purpose of injuring the credit of the Salem and Lowell Railroad, and enabling them to issue and take its bonds, on the 20th of August 1856, secured by a mortgage of prop- erty of the company, at prices below their true value ; and also in reference to a contract executed on the 1st of October 1858, by which the Lowell and Lawrence Railroad Company were to "do and perform all the transportation of persons and freight upon and over the Salem and Lowell Railroad," and to pretended settlements made between said companies. The bill also set forth that, since the plaintiffs had reason to suspect the frauds and conspiracies charged, they have demanded explanations of the defendants, petitioned the general court for an investigation, and endeavored to procure the election of directors who would cause the matters to be investigated, but, being in a minoritj', have failed to succeed. The defendants filed a general demurrer. The plalntiflfs, at the argument, ■ moved to amend their bill by joining the Salem and Lowell Railroad Company as defendants. This ease was argued in Januarj' 1862. Jl G. Abbott and T. Wentworth, for defendants. S. H. Phillips and J. A. Gillis ( W. P- Webster with them,) for plaintiffs. Chapman, J. The bill sets forth a very complicated case. A full consideration of the charges of fraud which it contains would involve the necessity of examining the various legislative acts which it recites, and the contracts and dealings which it sets forth. But such a discussion is unnecessarj-. The principal ground of demurrer relied on by the defendants is, i that the plaintiffs have not, and never had, any remedy for such injuries as they complain of; that, conceding the truth of the allegations that the directors of the Salem and Lowell Railroad Compan\', either by themselves or with the consent and connivance of a majority of their \ stockholders, combined, either among themselves, or with the Lowell and Lawrence Railroad Company or its directors, or with any of the other defendants, to defraud a minority of the stockholders of the Salem and Lowell Railroad Company, and in pursuance of this combination did the acts alleged, and so dealt and managed as to destroy the value of the stock as set forth, j'et the onlj' relief which the minority can have is the very imperfect one of selling out their stock for what it will bring in market. This doctrine is said to result from the nature of corporate propertj', which, being owned absolutely by the corporation, is under the absolute control of a majority of the stockholders, and of such directors as they clioose to elect. Their decisions and acts, it is said, are final, and the minority are bound to submit to them. 504 PEABODY V. FLINT. But this doctrine, if correct, would place the property of stockholders in a corporation in a perilous condition. For it would enable the managers of one corporation to get the control of another by the pur- chase of a majority of its stock for the purpose, and then to manage its affairs in such subservience to the interests of their own corporation, as to render the stock of the minority wortliless, and avail themselves of its value without compensation. The demurrer concedes, for the purposes of this discussion, that the managers of the Lowell and Law- rence Railroad Companj' have thus acted in respect to the minority of stockholders in the Salem and Lowell Railroad Company. It requires no great sagacity to see how similar frauds may be practised in behalf of many other railroads against connecting or rival roads, so that a system of railroad connections may become a system of frauds. If it maj' be practised with impunity between railroad corporations, it may also be practised between manufacturing corporations, and a managing majority may, at their pleasure, sacrifice the interests of the minority for the benefit of another corporation owned b}- them. The same remark is true in respect to several other classes of business corpora- tions. The question thus presented is of great importance, because there is no known practicable method of establishing and managing railroads except by means of corporations ; and many other great enterprises and branches of business which require, for their successful prosecution, a large and permanent investment of capital, are also usually and most conveniently established and managed by means of corporate organizations. This doctrine is also said to result from the nature of corporations and corporate property, as stated in Smith v. Hurd, 12 Met. 371. The views taken in that case are unquestionably correct ; and they apply with especial force to that class of corporations whose stock- holders have little more power than to elect officers, who, when elected, are invested by law with the sole and exclusive power of managing the concerns and business of the corporation. The corporation itself is regarded as a distinct person ; and its property is legally vested in itself, and not in its stockholders. As individuals, they cannot, even by joining together unanimously, convej' a title to it, or maintain an action at law for its possession, or for damages done to it. Nor can they make a contract that shall bind it, or enforce by action a contract that has been made with it. The artificial person called the corporation must manage its affairs in its own name, as exclusively as a natural person manages his property and business. The officers, though chosen by vote of the stockholders, are not their agents, but the agents of the corporation ; and they are accountable to it alone. Therefore one or more of the stockholders cannot maintain an action at law against the officers for an}' breach of official duty that injures the corporate prop- erty as a whole. An injury done by the directors of a company to an individual by inducing him to become a member of the company by means of false representations is actionable, because it is an injury PEABODY V. FLINT. 505 to him and not to the compan}'. Gerhard v. Bates, 2 El. & Bl. 476. But the interest of stockholders is, as stated in Smith v. Surd, cited above, merel}- a qualified and equitable interest. But if there is an equitable interest, there must result from it equi- table relations and equitable rights ; and these rights may be enforced by equitable remedies. As between the corporation itself and its officers, it was long since held that they were trustees, and that a court of equity would hold them responsible for everj- breach of trust. Charitable Corporation v. Sutton, 2 Atk. 400. The corporation itself holds its propertj' as trustee for the stockholders, who have a joint inter- est in all its property and effects, and each of whom is related to it as cestui que trust. The corporation may call its officers to account if thej- wilfully abuse their trust, or misapply the funds of the company ; and if it refuses to sue, or is still under the control of those who must be made defendants in the suit, the stockholders who are the real parties in interest may file a bill in their own names, making the corporation a party defendant; or a part "of them may file a bill in behalf of them- .selves and all others standing in the same relation, if convenience requires it. Robinson v. Smith, 3 Paige, 222, and cases there cited. See also the other authorities cited for the plaintiffs on this point; and Hersey v. Veazie, 24 Maine, 9, and Smith v. Poor, 40 Maine, 415, cited by the defendants. If other parties have participated with the officers in such proceedings, they maj', according to the established principles of equity pleading, be joined as parties. In the discovery of frauds, and in furnishing remedies to parties defrauded, equity does not sufier technicalities to stand in its way, but seizes upon the substance of the case, and holds all parties to their just responsibilitj-, following trust property into the hands of remote grantees and purchasers who have taken it with notice of a trust, in order to subject it to tlie trust. The objection, therefore, that a court of equity has no power to furnish a remedy in a case of this character, is untenable. But there is another objection to the bill which must prevail. Equitj' regards diligence as one of its important elements ; and it dis- countenances laches as inequitable ; and unreasonable delay to prose- cute an existing claim is a bar to a bill in equity, especially when the parties cannot be restored to their original position, and injustice may be done. Yeazie v. Williams, 3 Story E. 610. Task v. Adams, 10 Cush. 252. Fuller v. Melrose, 1 Allen, 166. Story on Eq. § 1520 and note 3. In this case there has been unreasonable delay. The bill was sworn to March 9, 1860. The mortgage complained of was executed August 20, 1856, and the lease to the Boston and Lowell Kailroad Company, October 1, 1858. The contracts and dealings to be investigated and readjusted commenced in 1850, and continued till the execution of the mortgage, and even to the execution of the lease in 1858. Every day's dela^' increased the complication and the difficulty of making an 506 LAND, &c., CO. V. MoINTYEE. equitaWe adjustment of them. In the mean time, the stock in the cor- j porations must have been frequently changing hands, and there are I no means of adjusting the equities growing out of such changes. A similar remark is applicable to the holders of the bonds secured bj' the mortgage. The nature of the case required the utmost diligence, in order to prevent injustice. Yet the plaintiffs delaj-ed more than three years and a half after the making of the mortgage, and until after they I had sought aid from the legislature. It does not appear that they had not at that time sufficient knowledge of the facts to enable them to prosecute, or that they have since gained any important information : and a decree such as they now seek maj- injuriously affect many per-\ sons who have become stockholders or bondholders during the period \ of this delay. For this reason the demurrer is sustained, and the bill dismissed. '^ Marshall, J., in LAND, &c., CO. v. McINTYEE. 1898. 100 Wisconsin, 245, pp. 256, 257. Marshall, J. . . . "Th e general r nlei^ tba.ttyhpi-p g ip" seof actio n exists in favor o f a co rporation , and its governing body refuses t o enforce it, any member thereof may do so by suing in equity in behalf of himself and all_o thers similarly situated^ . . . The purpose of the remedy in such cases is not to interfere with the exercise of legal dis- cretion on the part of those charged with the primary duty of enfor- cing corporate rights, but to furnish relief where there is an unjusti- fiable neglect or refusal to exercise such discretion. Neither is the remedy confined to the one which the corporation may invoke, whether equitable or legal. The remedy afforded to a member of a corporation is necessarily in equity, for he has no direct interest to be protected 1 "Now the doctrine of laches in courts of equity is not an arbitrary or a technical doc- trine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay . are most material. But in every case, if an argument against relief, which otherwise would be granted, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either part}' and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy." Lokd Selboene, in Lindsay Petroleum Co. v. Heard, L. R. 5 Privy Council Cases, 221, pp. 239, 240 ; and see errata in same volume. Stockholders "must apply so recently after the doing of the act of which they complain that the court may stop or undo the wrong to them without doing equal or greater wrong to some other person. . . ." If the stockholder " wants protection against the consequences of an ultra vires act, he must ask for it with sufficient promptness to enable the court to do justice to him without doing injustice to others." Van Fleet, V. C, in Sabe v. Dunlap, 51 New Jersey Equity, 40, pp. 46, 48. —Ed. FOSS V. HARBOTTLE. 507 by a personal action. He must proceed in equity or not at all, join- ) ing the corporation as a party in the capacity of trustee for all its members. " So the test is not whether the corporation can sue in equity, but whether it can sue at all. Whether its remedy, if exercised direct, would be at law or in equity, that of the member indirectly interested to enforce its rights, must always be in equity. That is his only remedy. The direct injury to be remedied is to the corporation as a whole. The cause of action belongs to the corporation, but is enforce- able, rather than that justice shall utterly fail, by the remedy in equity at the suit of its members. . . . " So the rule is firmly established, that where a cause of action exists in favor of a corporation, whatever be its proper remedy, if its governing body refuses to proceed, justice cannot thereby be defeated, for those upon whom the injury indirectly falls may obtain redress in equity." . . . FOSS V. HAEBOTTLE. 1843. 2 Hare, 461.1 Bill in equity by Foss and Turton, shareholders in a corporation styled the Victoria Park Company, on behalf of themselves and all other shareholders, against five persons who had been directors, and also against several other persons. The case stated in the bill was, in part, as follows : At or after the formation of the company was agreed upon, an arrange- ment was fraudulently concerted between certain parties (including a majority of the directors), with the object of enabling themselves to derive a profit or personal benefit from the establishment of the companj*. The arrangement was, that certain of the parties should be appointed directors, and should purchase for the company certain lands owned by themselves and by other parties to the combination, at greatly increased and exorbitant prices. The directors, accordinglj', before the passing of the act, agreed to purchase certain lands at rents or prices greatly exceeding those at which the vendors had purchased the same. After the passing of the act of incorporation, the directors and their confederates proceeded to caiTy into execution the previously formed design of fraudulently profiting by the establishment of the company and at its expense. The directors, accordingly, on behalf of the companj', purchased from themselves, and from the other parties, lands charged with chief or fee-farm rents, greatl3' exceeding the rents paj-able to the persons from whom the said vendors had purchased the same. By these means, the company took the land, charged not only with the chief 1 Statement abridged. Arguments and part of opinion omitted. — Ed. 508 rO,3S V. HAEBOTTLE. rents reserved to the original landowners, but also with additional rents reserved and payable to the immediate vendors (the directors et als.). In further pursuance of the same fraudulent design, the directors, after purchasing the said land for the company, applied about 27,000^. of the monies in their hands, belonging to the companj-, in the purchase or redemption of the rents so reserved to themselves and their associates, leaving the land subject only to the chief rent reserved to the original land- owners. The lands purchased by defendants were re-sold by them to the company at a profit and at a price considerably exceeding the real value of the same. Owing to the sums appropriated bj' the directors to themselves, and paid to others in reduction of the increased chief rents, and payment of such rents, and owing to their having otherwise misapplied monies, the funds of the company in their hands were exhausted, and they raised large sums upon mortgage or incumbrance of lands and property of the com- pany, which they had no authority to do under the act of incorporation. Some of the lands thus mortgaged, though the equitable property of the company, did not stand in the name of the company ; and hence some of the mortgagees had no notice of want of authority on the part of the mortgagors. The bill further alleged, that there had ceased to be a su£Scient number of directors to constitute a board for transacting the business of the company ; and that, in the present circumstances of the com- pany and of the board of directors, the shareholders had no power to take the property of the company out of the hands of the former directors, or to appoint directors to supply the vacancies, or to wind up, or dissolve, the company, without the assistance of the court. ' The bill also alleged, that the defendants concealed from the plaintiffs and the other shareholders the aforesaid fraudulent and improper acts and proceedings ; and that plaintiflfs and the other shareholders had only re- cently ascertained the particulars thereof, so far as they were now stated. The bill prayed, that an account might be taken of the losses and expenses incurred in consequence of the said fraudulent and improper dealings of the defendants with the monies, lands, and property of the company, which they were liable to make good, and that they might be respectively decreed to make good the same, including in particular the profits made by buying and re-selling the said land ; that it might be declared that the mortgages upon the lands, etc., created as aforesaid, so far as regards the defendants who executed the same or were privy thereto, were created fraudulently and in violation of the provisions of the act, and that certain of the defendants might be decreed to make good to the company the principal and interest due upon such of the mortgages as were still subsisting ; that inquiries might be directed to ascertain which of the mortgages could be avoided and set aside as against the persons claiming the benefit thereof, and that proceedings might be taken for avoiding them accordingly; and that a receiver might be appointed. FOSS V. HAEBOTTLE. 509 Certain of the defendants demurred to the bill, assigning for cause, want of equity, want of parties, and multifariousness. Lowndes, Bolt, Walker, and Qlasse, in support of the demurrers. James Russell, Houpdl, and jBartrum, for the bill. WiGRAM, Vice-Chancellor. The relief which the bill in this case seeks, as against the Defendants who have demurred, is founded on several alleged grounds of complaint ; of these it is only necessary that I should mention two, for the consideration of those two grounds involves the principle upon which I think all the demurrers must be determined. One ground is, that the directors of the Victoria Par^ Company, the Defendants Sarbottle, Adshead, JByrom, and JBealeyX have, in their character of directors, purchased their own lands of them- 1 selves for the use of the companj^, and have paid for them, or, rather, taken to themselves out of the monies of the company a price exceeding the value of such lands : the other ground is, that the Defendants have raised money in a manner not authorized by their powers under their act of incorporation ; and, especially, that they have mortgaged or incumbered the lands and property of the companj', and applied the monies thereby raised in effect, though circuitously, to pay the price of the land which they had so bought of themselves. [Part of opinion omitted.] For the present purpose, I shall assume that a case is stated, entitling the company, as matters now stand, to complain of the transactions mentioned in the bill. The Victoria Park Company is an incorporated body, and the conduct with which the Defendants are charged in this suit is an injury not to the Plaintiffs exclusively ; it is an injury to the whole corporation by individuals whom the corporation entrusted with powers to be exercised only for the good of the corporation. And from the case of the Attor- ney-General V. Wilson^ (without going further), it may be stated as undoubted law, that a bill or information by a corporation will lie to be relieved in respect of injuries which the corporation has suffered at the hands of persons standing in the situation of the directors upon this record. This bill, however, differs from that in the Attorney- General V. Wilson in this, — that instead of the corporation being formally^ represented as plaintiffs, the bill in this case is brought by two indi- / vidual corporators, professedly on behalf of themselves and all the other members of the corporation, except those who committed the injuries complained of, — the plaintiffs assuming to themselves the right and power in that manner to sue on behalf of and represent the corporation itself. It was not, nor could it successfully be argued, that it was a matter of course for any individual members of a corporation thus to assume to themselves the right of suing in the name of the corporation. In law, the corporation, and the aggregate members of the corporation, are not the same thing for purposes like this ; and the only question can be, whether 1 Cr. S^ Ph. 1 510 FOSS V. HARBOTTLE. the facts alleged in this case justify a departure from the rule which I prima facie would require that the corporation should sue in its own ) name and in its corporate character, or in the name of some one whom the law has appointed to be its representative. The demurrers are, — first, of three of the directors of the company, who are also alleged to have sold lands to the corporation under the circumstances charged ; secondlj', of JBealey, also a director, alleged to have made himself amenable to the jurisdiction of the Court to remedy the alleged injuries, though he was not a seller of land ; thirdly*, of Denison, a seller of land, in like manner alleged to be implicated in the frauds charged, though he was not a director ; fourthly, of Mr. Bunting^ the solicitor, and Mr. Lane, the architect of the companj-. These gentlemen are neither directors nor sellers of land, but all the frauds are alleged to have been committed with their privity, and they also are in this manner sought to be implicated in them. The most convenient course wUl be, to consider the demurrer of the three against whom the strongest case is stated ; and the consideration of that case will apply to the whole. The first objection taken in the argument for the Defendants was, that the individual members of the corporation cannot in any case sue in the form in which this bill is framed. During the argument I inti- mated an opinion, to which, upon further consideration, I fully adhere, that the rule was much too broadly stated on the part of the Defendants. I think there are cases in which a suit might properly be so framed. Corporations like this, of a private nature, are in truth little more than private partnerships; and in cases which may easily be suggested, it would be too much to hold, that a society of private persons associated together in undertakings, which, though certainly beneficial to the public, are nevertheless matters of private property, are to be deprived of their civil rights, inter se, because, in order to make their common objects more attainable, the crown or the legislature may have conferred upon them the benefit of a corporate character. If a case should arise of injury to a corporation by some of its members, for which no adequate remedj' remained, except that of a suit by individual corporators in their private characters, and asking in such character the protection of those rights to which in their corporate character they were entitled, I cannot but think that the principle so forcibly laid down by Lord Gotten- ham in Wallworth v. Solt,''- and other cases, would apply, and the claims of justice would be found superior to any difficulties arising out of technical rules respecting the mode in which corporations are required to sue. But, on the other hand, it must not be without reasons of a very urgent character that established rules of law and practice are to be departed from, — rules, which, though in a sense technical, are founded on general principles of justice and convenience ; and the question is, whether a case is stated in this bill, entitling the Plaintiffs to sua i.a their \ 4 Myl & Cr. 635. See also 17 Ves. 320, per Lord Sldon. FOSS V. HAEBOTTLE. 511 private characters. [His Honor stated the substance of the act, sec- tions 1, 38, 39, 43, 46, 47, 48, 49, 67, 70, 114, and 129.'] The result of these clauses is, that the directors are made the governing bodj', subject to the superior control of the proprietors assembled in general meetings ; and, as I understand the act, the proprietors so assembled have power, due notice being given of the purposes of the meeting, to originate proceedings for any purpose within the scope of the companj''s powers, as well as to control the directors in any acts which they may have originated. There may possibly be some exceptions to this pro- position, but such is the general effect of the provisions of the statute. Now, that my opinion upon this case may be clearly understood, I will consider separately the two principal grounds of complaint to which I have adverted, with reference to a very marked distinction between them. The first ground of complaint is one which, though it might primS, facie entitle the corporation to rescind the transactions com- plained of, does not absolutely and of necessity fall under the descrip- tion of a void transaction. The corporation might elect to adopt those transactions, and hold the directors bound by them. In other words, the transactions admit of confirmation at the option of the corporation. The second ground of complaint may stand in a different position ; I allude to the mortgaging in a manner not authorized by the powers of the act. This, being beyond the powers of the corporation, maj- admit of no confirmation whilst anj' one dissenting voice is raised against it. This distinction is found in the case of Preston v. The Grand Collier Dock Gonvpany? On the first point, it is only necessary to refer to the clauses of the act to shew, that, whilst the supreme governing body, the proprietors at a special general meeting assembled, retain the power of exercising the functions conferred upon them by the act of incorporation, it cannot be competent to individual corporators to sue in the manner proposed by the Plaintiffs on the present i-ecord. This in effect purports to be a suit by cestui que trusts, complaining of a fraud committed or alleged to have been committed by persons in a fiduciary character. The com- plaint is, that those trustees have sold lands to themselves, ostensibly for the benefit of the cestui que trusts. The proposition I have advanced is, that although the act should prove to be voidable, the cestui que trusts may elect to confirm it. Now, who are the cestui que trusts in this case? The corporation, in a sense, is undoubtedlj^ the cestui que trust ; but the majority of the proprietors at a special general meeting assembled, independently of any general rules of law upon the subject, by the very terms of the incorporation in the present case, has power to bind the whole body, and every individual corporator must be taken to have come into the corporation upon the terms of being liable to be so bound. How then can this Court act in a suit constituted as this is, if it is to be assumed, for the purposes of the argument, that the 1 Supra, p. 464, u., et seq. 2 u g;m. 327, S. C ; 2 Railway Cases, 835. 512 FOSS V. HAEBOTTLE. powers of the body of the proprietors are still in existence, and ma> lawfully be exercised for a purpose like that I have suggested? Whilst I the Court may be declaring the acts complained of to be void at the 1 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 1 decree by lawfully resolving upon the confirmation of the xe\y acts A which are the subject of the suit. The very fact that the governing J bod^- of proprietors assembled at the special general meeting may so bind even a reluctant minority, is decisive to shew that the frame of this suit cannot be sustained whilst that bodj' retains its functions. In order then that this suit may be sustained, it must be shewn 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 : this latter point is nowhere suggested in the bill : there is no suggestion that an attempt has been made hy any proprietor to set the body of proprietors in motion, or to procure a meeting to be convened for the purpose of revoking the acts complained of. The question then is, whether this bill is so framed as of necessity to exclude the supposition that the supreme bod^' of proprietors is now in a condi- tion to confirm the transactions in question ; or, if those transactions are to be impeached in a court of justice, whether the proprietors have not power to set the corporation in motion for the purpose of vindicating its own rights. [The learned judge then controverted the plaintiff's position that, upon the allegations of the bill, it must be regarded as impossible to now legally convene a general meeting of the shareholders. He was of opinion that certain clauses in the act were merelj' director^-, and that a general meeting could be called even if the corporation lacked certain oflicers. He also held, "that the existence of a board of directors dc facto is sufficiently apparent upon the statements in the bill. " In this dis- cussion he said — "I have applied strictly' the rule of making every in- tendment against the pleader in this case, . . . : " also — "... I have felt bound in favor of the defendants to construe this bill with strictness."] The second point which relates to the charges and incumbrances alleged to have been illegally made on the property of the company is open to the reasoning which I have applied to the first point, upon the question whether, in the present case, individual members are at liberty to complain in the form adopted by this bill ; for why should this anomalous form of suit be resorted to, if the powers of the corporation may be called into exercise ? But this part of the case is of greater difficulty upon the merits. I follow, with entire assent, the opinion expressed by the Vice Chancellor in Preston v. The Grand Collier Dock Company, that, if a transaction be void, and not merely voidable, the corporation cannot confirm it, so as to bind a dissenting minority of its members. But that will not dispose of this question. The case made with regard to these mortgages or incumbrances is, that they were exe- cuted in violation of the provisions of the act. The mortgagees are not FOSS V. HAKBOTTLE. 513 defendants to the bill, nor does the bill seek to avoid the security itself, if it could be avoided, on which I give no opinion. The bill praj-s inquiries with a view to proceedings being taken aliunde to set aside these transactions against the mortgagees. The object of this bill against the defendants is to make them individually' and personally- responsible to the extent of the injury alleged to have been received by the corporation from the making of the mortgages. "Whatever the case' might be, if the object of the suit was to rescind these transactions, and the allegations in the bill shewed that justice could not be done to the shareholders without allowing two to sue on behalf of themselves, and others, very different considerations arise in a case like the present, 1 in which the consequences only of the alleged illegal acts are sought tol be visited personallj' upon the directors. The money forming the con- sideration for the mortgages was received, and was expended in, or partly in, the transactions which are the subject of the first ground of complaint. Upon this, one question appears to me to be, whether the company could confirm the former transactions, take the benefit of the\ money that has been raised, and yet, as against the directors personally, complain of the acts which they have done, by means whereof the com- pany obtains that benefit which I suppose to have been admitted and adopted by such confirmation. I think it would not be open to the company to do this ; and my opinion already expressed on the first point is, that the transactions which constitute the first ground of com- plaint may possibly be beneficial to the company, and may be so regarded by the proprietors, and admit of confirmation. I am of opinion that this question, — the question of confirmation or avoidance, — cannot properly be litigated upon this record, regard being had to the existing state and powers of the corporation, and that therefore that part of the bill which seeks to visit the directors personally with the consequences of the impeached mortgages and charges, the benefit of which the company enjoys, is in the same predicament as that which relates to the other subjects of complaint. Both questions stand on the same ground, and, for the reasons which I stated in considering the former point these demurrers must be allowed. 514 BKEWEK V, BOSTON THEATRE. Wells, J., in BEEWER v. BOSTON THEATRE et al. 1870. 104 Massachusetts, 378, pp. 394-397.1 Wells, J. . . . The defendants contend that the corporation cannot be deprived of its right to determine, in all matters not ultra vires, whether to impeach or to ratify transactions supposed to be preju- dicial to its interests. Granting this position, it would result that in no case, as to matters intra vires, could a suit be maintained by indi- ^ vidual stockholders to enforce rights or redress wrongs of the corpo- rate body, except where the delay necessary in order to secure corporate action might defeat or endanger the attainment of appropriate relief. If, when called upon to act, the corporate body should elect to confirm the supposed wrongful transactions, or should do so indirectly by re- fusal to act, they would no longer be open to impeachment. If, on the other hand, it should determine to take action, it would do so in its own name and behalf ; and there would be no ground of necessity for proceedings in the name of the individual corporator. We are not prepared to say that this would not' be the case in all matters to which the only objection is that they are prejudicial, or supposed to be so, to the corporate interests merely, but not illegal in themselves, and affecting all the corporators alike. Perhaps it would be so whenever the surrender of property or the release of rights, acquired by the corporation through the transactions sought to be impeached, is necessary in order to reach the proper remedy. Great Luxembourg Railway Co. v. Magnay, 25 Beav. 586. The corporation might be entitled to determine for itself exclusively whether it would retain or release property or rights thus acquired, although it thereby precluded, or rendered ineffectual, all proceedings against parties who may have made illegal or fraudulent gains out of the transactions. These questions, however, we need not at present decide. The cases now before us involve no release of property or rights by the corporation. The alleged wrongs are not merely prejudicial to the \ interests of the corporation ; but are such as tend to deprive one part ' of the corporators of their rightful share in the fruits of the common property and business, for the advantage of others of the corporators. This inequality and injustice is accomplished by means of the control over the corporate organization and management, which has been secured by the parties so benefited. By the amendments to the several bills it is alleged that such control has been exercised since the yea;r I This -was a bill in equity, brought by minority stockholders, against the corporation and against certain directors and other individuals, for fraudulently conspiring to lease the corporate property on a rent much below the market value and share in the profits of the lessees. The bill (as amended) alleged that individual defendants own or control a majority of the stock and control the proceedings at stockholders' meetings ; also that a majority of the directors are fraudulently colluding with these defendants to continue to them the con- trol of the corporation and its property. A demurrer was overruled. — Ed. EEEWEE V. BOSTON THEATEE. 51d 1866, inclusive, by Tompkins and Thayer, with the aid of the other \ defendants. That which is important is the fact of such control and I its exercise for such purpose, rather than the means by which it has been obtained. A majority of the corporators have no right to exer- cise the control over the corporate management, which legitimately belongs to them, for the purpose of appropriating the corporate pro- perty or its avails or income to themselves or to any of the share- holders, to the exclusion or prejudice of the others. And if any have obtained such unfair advantage by fraud or abuse of the trust con- fided to them as ofRcers or agents of the corporation, it is not in the power of a majority to ratify or condone the fraud and breach of trust, so far as it affects the rights of the others, without reasonable restitu- ' tion. This proposition, if stated in reference to formal transactions, such as assessments of capital or dividends of income, would not be questioned. Preston v. Grand Collier Dock Co., 11 Sim. 327. Hodg- kinson v. National Live Stock Insurance Co., 26 Beav. 473. But the ) indirect appropriation of the common property, profits or means of profit, to their own benefit, by any portion of the corporators, in fraud \ of their associates, is equally incapable of being authorized or ratified / by the vote of a majority of the corporators, or by any act or omission of the corporate body. Gregory v. Patchett, 33 Beav, 595. Atwool v. Merryweather, Law Eep. 5 Eq. 464, note. If it were otherwise, ther'^, minority would be without means of protection or redress against-- inequality and injustice. They would be equally so if they could obtain redress only in the name and through the action of the corpo- ration itself. Such acts are wrongs done primarily to the corporation ; i and therefore the restitution or redress is to be secured to the corpo- J ration. But in their effect and essential character they are wrongs to the individual shareholder, inflicted upon his corporate interests by means of the control over those interests secured through the cor- porate organiziition and management. He can seek his redress only v through the corporation ; but that does not give the corporation the 1 right to deprive him of all redress. Any attempt to do so, whether J regarded as the action of the corporation or of a majority of share- holders, would have the same voidable character as the original wrong. Officers of a corporation, dealing with it in matters of their own indi- vidual interest, stand very differently in this respect from strangers, who have no occasion to regard any other than the corporate body. If by means of their relations to the corporate management they secure to themselves undue advantage over their associates, they cannot retain it. Such transactions are voidable, not merely for want of \ authority in the officers by whom they are done, but because neither the officers nor the corporation itself, by whatever majority of votes / it may act, can do, assent to, or confirm them. The wrong to the indi-> vidual shareholder is the same, whether committed with the concur- rence or subsequent approval and adoption of his associates controlling I the corporation, or without it. 616 ATWOOL V. MEKEYWEATHEK. In our opinion, the facts of these cases, as set forth in the several amended bills, show such abuse of antbority a.nd breaches of trust bytiiedefendantejjn^^i^a£^^ corporate prop erty to jbhe benefit of _themselges_or,of _so me of them^ _asjiannQiL- gelitified oTremitted by the corporation ; and also such incapacity of tile plaintiffs to move the corporation to take action for their re- dress, as entitles them, from necessity, to seek it in the form of these proceedings. In the first and second of the bills a majority of the present direct- ors are not joined as parties; but the necessity for the mode of proceeding adopted is shown by the allegations that Tompkins and Thayer own or control a majority of the stock and control all meetings of the corporation, and that a majority of the present directors are knowingly, wilfully, and fraudulently endeavoring to continue and secure such control to them. In support of these conclusions we may cite Atwool v. Merryweather, Law Eep. 6 Eq. 464, note ; Hiohens v. Cosgreve, 4 Euss. 562 ; Gregory V. Patchett, 33 Beav. 595 ; Hodges v. New England Screw Co., 1 E. I. 312; Allen v. Curtis, 26 Conn. 456; Hersey v. Veazie, 24 Maine, 9; March v. Eastern Railroad Co., 40 N. H. 648, 567 ; Robinson v. Smith, 3 Paige, 222, 233 ; Peabody v. Flint, 6 Allen, 52. We do not think the authorities cited in support of the demurrers are in conflict with these positions. The leading case relied on, Foss V. Harbottle, 2 Hare, 461, was a bill to set aside a sale of property to the corporation. It was dismissed because it did not exclude the sup- position that the proprietors might lawfully confirm the transaction ; nor show that all means had been resorted to and found ineffectual to set the corporate body in motion or that such efforts would have been useless. It involved, of course, a surrender of the property by the corporation. ATWOOL V. MERRYWEATHER. 1867. L. R. 5 Eq. Cases, 464, note. This was a bill by the Plaintifif, on behalf of himself and all other the shareholders in the £!ast Pant Du United Lead Mining Company, ^Limited, except the persons who were Defendants thereto, against Samuel Merryweather, Henry Whitioorth, and the East Pant Du Company, Limited, for the purpose of setting aside a contract for the sale and purchase of certain mines (for the purpose of purchasing and working which the company was formed), and compelling repayment ATWOOL V. MEEKYWEATHEE. 517 from Merryweather and Wliitworth of the sum of £3940, or such por- tions as had been received by them, and a return of the 600 shares allotted to Merryweather. The bill stated the incorporation, in 1863, of the companj^ under the promotion of Defendants Merryweather and Whitworth, who published a prospectus stating that the company was formed " for the purpose of purchasing and working the extensive and valuable mining sets known as the East Pant Du and Colomendy Lead Mines," and containing verj' favourable representations of the value of the mines, for the pur- chase of which the company was stated to have arranged for £7000 — £4000 to be paid in cash, and £3000 in shares of the company. The capital was fixed at £30,000, divided into 6000 shares of £5 each ; but only 2000 shares had been taken altogether, on which £3940 had been received. This money was paid to Merryweather, and 600 shares were registered in his name as paid up, in part payment of the £7000, the alleged price of the mines. Upon inquiries, the following circumstances were discovered in refer- ence to the formation of the company : Merryweather applied to Whitworth to assist him in disposing of the mines in question, which he held under an agreement for a lease for twentj'-one years, and had then discovered to be of no value. Merryweather proposed to dispose of his interest for £4000, and the scheme concocted between himself and Whitworth was, that a company should be formed for the purpose of purchasing and working the mines, which were to be sold to such company for £7000. Of this money Merryweather was to get £4000, while the remaining £3000 was to be paid to Whitworth for his assistance in getting up the companj'. This agreement was concealed from the other directors, who were induced to believe that £7000 was bond, fide to be paid as the purchase-money. A committee appointed at a meeting of the 1st of June, 1864, recom- mended by their report that the undertaking should be abandoned, steps taken to relieve the company from any liability on the contract, and to recover back the money already paid by the shareholders. At an extraordinary general meeting held on the 16th of June, 1864, a resolution was passed for receiving the report by a majority of the shareholders, and on the 30th of June, 1864, a bill was filed in the name of the company, alleging that the contract for the purchase of the mine had been fraudulently obtained by the Defendant Merryweather, and was void, and that he was not entitled to the 600 shares allotted to him in respect of it, and praying that the purchase of the mine might be set aside, and the money paid returned to the shareholders/ who had advanced it. On the 6th of July Merryweather and Whitworth caused notices to be issued for a meeting of the board of directors " to consider the course to be taken in reference to the Chancery proceedings which have been instituted in the name of the company." At the meeting \ 518 ATWOOL V. MEEKYWEATHEK. held on the 9th of July Merry weather, Whitworth and Ashworth (the three out of the six directors present at the meeting) passed a resolution that proceedings should be taken to get the bill taken off the file. On the 1st of August, 1864, the Court was moved to take the bill off the file, but the motion was ordered to stand over until the next term ill order to give an opportunity to call a general meeting of the share- holders of the company to take the matter into consideration. A meeting was accordingly held on the 12th of OctoTjer, " for the purpose of taking the said bill into consideration, and adopting such resolutions in reference thereto as the meeting may determine upon." A resolution was proposed for adopting and continuing the Chancery proceedings, whereupon an amendment was proposed by Whitworth for referring all matters in difference between the shareholders and Merryweather to arbitration, and for staying all legal proceedings. This amendment was lost by 11 votes to 4 upon a show of hands, and the original resolution was carried by 10 to 4. A poll having been demanded upon the amendment, proxies were produced, and 14 per- sons, holding altogether 1070 shares and 324 votes, voted against the amendment, and 12 persons, holding 1490 shares and having 344 votes, voted for the amendment. But excluding the votes of the Defendants Merryweather and Whitworth, there was a majority of 86 votes against the amendment, and excluding only the votes of Merry- weather there was a majority against it of 58 votes. The motion to take the bill off the file was renewed, and on the 5th of December, 1864, the Vice-Chancellor Sir W. P. Wood directed the bill to be taken ofi" the file, but made no order as to the costs of the motion. (See 2 H. & M. 254.) The present bill, which was filed on the 14th of December, 1864, by a holder of 100 shares in the company (purchased on the faith of the statements contained in the prospectus), suing on behalf of himself and all other the shareholders in the ^ast Pant Du Company, except the Defendants, against Merryweather, Whitioorth, and the company as Defendants, alleged that none of the shareholders in the company other than the Defendants were desirous that the contract with Merry- weather should be carried into effect, or that the relief prayed should not be granted ; that the Defendants had altogether 106 votes as share- holders in the company, and obtained the proxies of the other share- holders who voted for the amendment by entering into engagements to indemnify them against loss ; " and such votes, together with the afore- said 106 votes of the said Defendants, constitute a majority of the shareholders' votes in the company." The bill also alleged, that even without such proxies the 106 votes held by the Defendants made it impossible to obtain a fair decision at a general meeting. The bill further charged, that the contract was obtained by misrep- sesentations as to the value, with full knowledge by the Defendants ATWOOL V. MEEKYWEATHEE. 519 that the mines were worthless, that £4000 was an exorbitant price for them, and that no other portion of the £7000 was ever intended to be treated as purchase-money of the mines, but was intended to be paid to Whitworth, the Defendants having become promoters of the company solely for the purpose of raising the £7000 for their own pri- vate benefit; that these facts were fraudulently concealed from the other directors and shareholders, and that if they had been disclosed the company never would have contracted to purchase the mines. The bill prayed that the contract for the purchase of the mine might be set aside, and a return of the money and shares received by Whitworth and Merryweather; and an injunction to restrain any proceeding to recover the balance of the purchase-monej' ; compensation for all damage and loss occasioned to the company, and, if necessary, that the company might be dissolved and wound up under the direction of the Court. Mr. Kay, Q. C, and Mr. Fry, for the Plaintiff : — A suflScient case of fraud, collusion, and suppression has been shewn to enable the Court to set aside the contract, and it is competent for an individual shareholder to maintain a suit for setting aside the con- tract, even if such suit were opposed by a majority of the shareholders. But that is not the case here, as, by excluding the votes of Merry- weather, there is a majority in favour of setting aside the purchase and winding up the company : Bromley v. Smith (1 Sim. 8) ; Preston v. ' Grand Collier Dock Company (11 Sim. 327) ; IRchens v. Congreve (4 Euss. 562) ; Beck v. Kantorowicz (3 K. & J. 230) ; Lovell v. nicks (2 Y. & C. Ex. 46, 481). Mr. Druce, Q. C, and Mr. A. E. Miller, for Merryweather" s assig- nee: — Upon the frame of the suit, the contract is not void, but merely voidable, and the majority of the shareholders maj' confirm it, and bind the whole body for that purpose. The suit, therefore, in its pres- ent form, is improperly framed : Foss v. Sarbottle (2 Hare, 461, 494) ; and the proper course would have been for the Plaintifl' to have filed a bill for leave to use the name of the company against the parties to the\ contract. Assuming the price paid for the mine to have been excess- \ ive, the Plaintiff may have a case for making the directors account, but 1 that affords him no locus standi as against the vendors for setting ) aside the contract : Pulsford v. Richards (17 Beav. 87) ; Fraser v. | Whalley (2 H. & M. 10). Mr. Horsey, for Whitworth's assignee. Mr. Charles Sail, for the company. Sir W. Page Wood, V. C. : — I think that, upon principle, a contract of this kind cannot stand, and that there is not such a defect in the constitution of the suit as would be fatal according to the authority of Foss v. Harbottle (2 Hare, 461). Looking at the facts as they come out, I am clearly of opinion that this arrangement, by which Merryweather was to have £4000 and 520 ATWOOL V. MEEBYWEATHER. Whitworth £3000, was concealed from everybody, and that Merry- weather assisted in that concealment by allowing his name to appear aa the sole vendor, and taking the purchase-money. Upon such a transaction the Court will hold that the whole contract is a complete fraud. I do not in the least say that where persons with their eyes open know that the agent who secures them the bargain is going to take money for it, that would not be all right enough. If the company knew this gentleman was to have this amount as promotion- money, well and good. There might have been some difficulty, Mr. Whitworth being a director, if it had been a sale by Merryweather and Whitworth eo nomine, both of them together. If that had been the case more might have been said about the frame of the suit. But here it is a simple fraud, and nothing else. Merryweather knowing Whit- worth's position with regard to the companj', and that as an honest man Whitworth was bound to tell the company what price he bought the mines for, agreed that the mine should be sold to the company for £7000, and that the real price, £4000, should not be disclosed to the company. With regard to the frame of the suit, a question of some nicety arises/ how far such relief can be given at the instance of a shareholder on I behalf of himself and other shareholders on the ground that the trans- \ action might be confirmed by the whole body if they thought fit, and that the case would fall within Foss v. Harhottle, according to which the suit must be by the whole company. On the previous occasion, when it was desired to take proceedings to set aside this transaction, a gentleman took upon himself to file a bill in the name of the company. A motion was made to take that bill off the file, as the person filing the bill was not the solicitor of the company, and was not authorized to file the bill, and I ordered the bill to be taken off the file. There was a majority against setting aside this transaction. The number of votes for rescinding the transaction was 324, and 344 the other way. But Merryweather, in respect of the shares obtained bj' this sale, which I have held cannot stand, had 78 votes, and Whitworth 28, mak- ing altogether 106 out of the 344. If I were to hold that no bill could be filed by shareholders to get rid of the transaction on the ground of the doctrine of Foss v. Harhottle, it would be simply im- possible to set aside a fraud committed by a director under such cir- cumstances, as the director obtaining so many shares by fraud would always be able to outvote everybody else. I held on a former occasion, and I adhere to that decision, that the Court must first be satisfied that the Plaintiffs were authorized to call themselves the company, the solicitor who put the bill upon the file having no retainer under the corporate seal. This bill being filed by the Plaintiff on behalf of himself and the other shareholders^ it is suggested that the proper course would be to file a bill on behalf of himself and the other shareholders for leave to use the name of the con^pany, in order to set aside that contract. I do not FITZWATEE V. NATIONAL BANK OF SENECA. 521 think that circuitous course is necessary under any circumstances. It is quite clear that it is not necessary here, because in this case the pur- chase of the mines is the only thing for which this company was incor- porated. It appears to me that it would not be competent for a major- ity of the shareholders against a minority to say that they insist upon a matter of that kind where the whole inception of the company is simply a motion by a fraudulent agent, qudt, director, to confirm a pur- chase as made for £7000, which was made for £4000. The whole i thing was obtained by fraud, and the persons who may possibly form a / majority of the shareholders, could not in any way sanction a transac-/ tion of that kind. I think in this particular case it is hardly necessary to rely upon that, because, having it plainly before me that I have a majority of the shareholders, independent of those implicated in the fraud, supporting the bill, it would be idle to go through the circuitous course of saying that leave must be obtained to file a bill for the company, and pro forma have a totally different litigation. The only course now to take is to set aside the contract for sale and purchase of the mines, and cancel the agreement for such sale. The purchase-money must be re- / paid with interest, and the share certificates given to Merryweather, delivered up. The profits made by the company to be set off, and the company to have a lien for the balance. I shall also declare that the company ought to be wound up. riTZWATEH V. NATIONAL BANK OF SENECA et al. 1900. Supreme Court of Kansas, 61 Pacific Reporter, 684.1 The National Bank of Seneca brought an action against the State Bank of Seneca, to recover for money loaned. The State Bank made default in the suit. Thereupon certain of its stockholders (a minority) filed a motion to be allowed to defend in the place of the corporation, alleging the lack of power of the corporation officers to incur the obli- gations sued upon ; also that such obligations were given without con- sideration and in fraud of the corporation and its stockholders ; and that the officers of the defendant corporation, being the same as those of the plaintiff corporation and being the ones guilty of the wrongful acts charged, had neglected to defend as they should have done. In connection with the motion to be allowed to intervene, the stockhold- ers tendered a verified answer,' setting up all the matters herein briefly mentioned ; and asked that they be allowed to file it, and under it be allowed to defend for their corporation. The case was heard upon the motion for leave to intervene and to 1 statement condensed from opinion. — Ed. 522 FITZWATER V. NATIONAL BANK OF SENECA. file tlie answer. Considerable evidence was taken, much of which tended quite strongly to support the contention of the stockholders. The court below overruled the motion, and the stockholders brought error. DOSTBK, C. J. . . . . . . the trial that was had was not a final trial, but only a trial of the motion for leave to intervene and have a trial. In other words, the trial that was had was not the trial proper, but was a trial of the preliminary question as to whether a trial should be had. There can be no question but that stockholders are entitled to de- 1 fend legal proceedings in behalf of their corporation in case its direct- 1 ors or managing agents are wilfully or fraudulently neglectful of its \ interests. Mining Co. v. McKibhen, 60 Kan. 387, 56 Pac. 756. In that case it was said : " If the directors be derelict in their duties, and through wilful neglect, or for a fraudulent purpose, fail to protect the corporate interests, the stockholders may do so in their stead ; but, to entitle them to do so, it must be made to appear that the corporate officers who are primarily charged with the duty are wilfully or fraud- ulently neglectful of it." A proper practice in such cases is for the stockholders to move the court for leave to intervene in the suit they wish to defend, and to allege and show that the authorized and man- aging agents of the company are derelict in their duties. Before allow- ing this privilege to the stockholders, the court should require of them & prima facie showing, at least; but that showing need not be more than a prima facie one, — enough to enable the court to conclude that there are reasonable grounds to believe that the corporation defendantX has a meritorious defence to the action against it, and that its ofiGlcers | are fraudulently or improvidently neglectful of its interests. This / showing was made in the case we are considering. Irrespective of the matters of fraud charged in the motion and answer, and to sup- port which there was some showing of testimony, it would seem that, if the National Bank of Seneca was the State Bank of Seneca reor- ganized, such last-named bank had no authority to contract the obliga- tions sued upon. Eather, it had no existence, and, having no exist- ence, the contracting of a debt cannot be predicated of it. Smith, Dig. Nat. Bank Dec. 215. However, we do not wish to be understood as making such decisions at this time. We only remark, as we did before, that such seems to be the rule of the cases upon the subject. If such be the law, there can be no question, unless some exceptional facts exist, that the old corporation had no power to contract the obli- gations sued upon, and the stockholders, therefore, would be justified in asking leave to defend. Hence we are of the opinion, upon the showing made, that the court should have sustained the motion of intervention, should have allowed the filing of the answer and the making of an issue thereon, and should have allowed a full trial of the case. To enable such to be done, the judgment of the court below is therefore reversed. All the justices concurring. DAVENFOKT V. DOWS. 523 DAVENPORT v. DOWS. 1873. 18 Wallace {U. S.), 626. Appeal from the Circuit Court for the District of Iowa. Dows, a citizen of New York, in belialf of himself and all other non- resident citizens of Iowa, who were stockholders in the Chicago, Rock Island, and Pacific Railroad Companj', filed a bill in the court below against the city of Davenport, and its marshal, to arrest the collection of a tax, alleged to be illegal, levied bj' the said city for general revenue purposes, on the property of the company within its limits. The bill ^ assigned as a reason for its being filed by Dows, a stockholder in the 1 company, instead of by the company itself, that the company neglected I and refused to take action on the subject. A demurrer was interposed to the bill, which was overruled, and on the defendants refusing to answer over, the Circuit Court ordered that the collection of the tax be perpetual!}' enjoined. From this, its action, the defendants appealed, insisting that the Circuit Court erred in overruling the demurrer, for three reasons : . First. Because the railroad company was not made a party to / the bill. . . Second. Because the complainant had a complete remedy at / law ; and, Third. Because the tax in question was a proper charge against ' the property of the corporation. Mr. J. N. Hogers for the appellants; Mr. T. F. Wifherotc, contra. Mr. Justice DAVIS delivered the opinion of the court. It is unnecessary to notice the last two reasons assigned, why the demurrer should not have been overruled, as the first is well taken. Indeed, it would be improper to pass on the merits of the controversy until the proper parties to be affected by the decision are before the court. That a stockholder may bring a suit when a corporation refuses is j settled in Dodge v. Wbolsey,^ but such a suit can only be maintained / on the ground that the rights of the corporation are involved. These rights the individual shareholder is allowed to assert in behalf of himself and associates, because the directors of the corporation decline to take ) the proper steps to assert them. Manifestly the proceedings for this purpose should be so conducted that any decree which shall be made on the merits shall conclude the corporation. This can only be done by making the corporation a party defendant. The relief asked is on \ behalf of the corporation, not the individual shareholder, and if it be I granted the complainant derives only an incidental benefit from it. It f would be wrong, in case the shareholder were unsuccessful, to allow 1 18 Howard, 340. 524 HAWES V. OAKLAND. the corporation to renew the litigation in another suit, involving pre- cisely the same subject-matter. To avoid such a result, a court of equity will not take cognizance of a bill brought to settle a question in which the corporation is the essential party in interest, unless it is made a party to the litigation .1 In this case the tax sought to be avoided was assessed against the Chicago, Rock Island, and Pacific Railroad Company, and the decree rendered discharges the company from the payment of this tax. The corporation, therefore, should have been made a party to the suit, and as it was not, the demurrer should have been sustained. Deckee eeveesed, and the cause remanded for further proceedings, In conformity with this opinion. HAWES V. OAKLAND. 1881. 104 U. S. 450.2 Appeal from the Circuit Court of the United States for the District of California. The facts are stated in the opinion of the court. Mr. Charles IT. Fox for the appellant. Mr. Henry Vrooman for the appellees. Mr. Justice Miller delivered the opinion of the court. This is an appeal from a decree in chancery dismissing the com- plainant's bill, wherein he, a citizen of New York, alleges that he is a stockholder in the Contra Costa Water-works Company, a California corporation, and that he flies it on behalf of himself and all other stockholders who may choose to come in and contribute to the costs and expenses of the suit. The defendants are the city of Oakland, the Contra Costa Water- works Company, and Anthony Chabot, Henry Pierce, Andrew J. Pope, Charles Holbrook, and John W. Coleman, trustees and directors of the company. The foundation of the complaint is that the city of Oakland claims at the hands of the company water, without compensation, for all municipal purposes whatever, including watering the streets, public squares and parks, flushing sewers, and the like, whereas it is only 1 Kobinson v. Smith, 3 Paige, 222, 233 ; Cunningham v. Pell, 5 Id. 607; Hersey v. Veazie, 84 Maine, 1; Charleston Insurance and Trust Co.. v. Sebring, 5 Richardson, Equity, 342; Western Railroad Co. v. Nolan, 48 New York, 573; Bagshaw v. Eastern Union Railroad Co., r Hare, 114-131. 3 Portions of opinion omitted. — Edl HAWE3 V. OAKLAND. _ 525 entitled to receive water free of charge in cases of Are or other great necessity ; that the company comply with this demand, to the great loss and injury of the company, to the diminution of the dividends which should come to him and other stockholders, and to the decrease in the value of their stock. The allegation of his attempt to get the directors to correct this evil will be given in the language of the bill. He says that ," on the tenth day of July, 1878, he applied to the president and board of directors or trustees of said water company, and requested them to desist from their illegal and improper practices aforesaid, and to limit the supply of water free of charge to said city to cases of fire or other great necessit}', and that said board should take immediate proceedings to prevent said city from taking water from the works of said company for any other purpose without com- pensation ; but said board of directors and trustees have wholly declined to take any proceedings whatever in the premises, and threaten to go on and furnish water to the extent of said company's means to said city of Oakland free of charge, for all municipal purposes, as has here- tofore been done, and in cases other than cases of fire or other great necessity, except as for family uses hereinbefore referred to ; and your orator avers that by reason of the premises said water company' and your orator and the other stockholders thereof have suffered, and will, by a continuance of said acts, hereafter suffer, great loss and damage." To this bill the water-works company and the directors failed to make answer; and the city of Oakland filed a demurrer, which was sustained by the court and the bill dismissed. The complainant ap- pealed. Two grounds of demurrer were set out and relied on in the court below, and are urged upon us on this appeal. They are : — 1. That appellant has shown no capacitj' in himself to maintain this suit, the injury, if any exists, being to the interests of the corporation, and the right to sue belonging solely to that body. 2. That by a sound construction of the law under which the company is organized the city of Oakland is entitled to receive, free of compen- sation, all the water which the bill charges it with so using. The first of these causes of demurrer presents a matter of very great interest, and of growing importance in the courts of the United States. Since the decision of this court in Dodge v. Woolsey (18 How. 331), the principles of which have received more than once the approval of this court, the frequency with which the most ordinary and usual chancery remedies are sought in the Federal courts by a single stock- holder of a corporation who possesses the requisite citizenship, in cases where the corporation whose rights are to be enforced cannot sue in those courts, seems to justify a consideration of the grounds on_ which that case was decided, and of the just limitations of the exercise of those principles. This practice has grown until the corporations created by the laws 626 HAWES V. OAKLAND. of the States bring a large part of their controversies with their neigh- bors and fellow-citizens into the courts of the United States for adjudi- cation, instead of resorting to the State courts, which are their natural, their lawful, and their appropriate forum. It is not difficult to see how this has come to pass. A corporation having such a controversj', which it is foreseen must end in litigation, and preferring for any reason whatever that this litigation shall take place in a Federal court, in which it can neither sue its real antagonist nor be sued b^' it, has recourse to a holder of one of its shares, who is a citizen of another State. This stockholder is called into consultation, and is told that his corporation has rights which the directors refuse to enforce or to protect. He instantly demands of then) to do their dut^- in this regard, which of course they fail or refuse to do, and thereupon he discovers that he has two causes of action entitling him to equitable relief in a court of chancerj"^ ; namely, one against his own company, of which he is a corporator, for refusing to do what he has requested them to do ; and the other against the party which contests the matter in contro- versy with that corporation. These two causes of action he combines in an equity suit in the Circuit Court of the United States, because he is a citizen of a different State, though the real parties to the contro- versy could have no standing in that court. If no non-resident stock- holder exists, a transfer of a few shares is made to some citizen of another State, who then brings the suit. The real defendant in this action maj' be quite as willing to have the case tried in the Federal court as the corporation and its stockholder. If so, he makes no objection, and the case proceeds to a hearing. Or he may file his answer denying the special grounds set up in the bill as a reason for the stockholder's interference, at the same time that he answers to the merits. In either event the whole case is prepared for hearing on the merits, the right of the stockholder to a standing in equity receives but little attention, and the overburdened courts of the United States have this additional important litigation imposed upon them by a simu- lated and conventional arrangement, unauthorized bj- the facts of the case or by the sound principles of equity jurisdiction. That the vast and increasing proportion of the active business of modern hfe which is done by corporations should call into exercise the beneficent powers and flexible methods of courts of equity, is neither to be wondered at nor regretted ; and this is especially true of con- troversies growing out of the relations between the stockholder and the corporation of which he is a member. The exercise of this power in protecting the stockholder against the frauds of the governing body of directors or trustees, and in preventing their exercise, in the name of the corporation, of powers which are outside of tlieir charters or articles of association, has been frequent, and is most beneficial, and is undisputed. These are real contests, however, between the stock- holder and the corporation of which he is a member. The case before us goes beyond this. HAWES V. OAKLAND. 527 This corporation, like others, is created a body politic and corporate, that it maj' in its corporate name transact all the business which its charter or other organic act authorizes it to do. Such corporations maj- be common carriers, bankers, insurers, mer- chants, and may make contracts, commit torts, and incur liabilities, and may sue or be sued in their corporate name in regard to all of these transactions. The parties who deal with them understand this, and that they are dealing with a body which has these rights and is subject to these obligations, and they do not deal with or count upon a liability to the stockholder whom they do not know and with whom they have no privity of contract or other relation. The principle involved in the case of Dodge v. Woolsey permits the stockholder in one of these corporations to step in between that cor- poration and the party with whom it has been dealing and institute and control a suit in which the rights involved are those of the corporation, and the controversy is one really between that corporation and the other party, each being entirelj' capable of asserting its own rights. This is a very different affair from a controversy between the share- holder of a corporation and that corporation itself, or its managing directors or trustees, or the other shareholders, who ma^' be violating his rights or destroying the property in which he has an interest. Into such a contest the outsider,' dealing with the corporation through its managing agents in a matter within their authority, cannot be dragged, except where it is necessary to prevent an absolute failure of justice in cases which have been recognized as exceptional in their character and calling for the extraordinary powers of a court of equity. It is, therefore, always a question of equitable jurisprudence, and as such has, within the last forty j-ears, received the repeated consideration of the highest courts of England and of this country. [The learned judge here cited, and commented on, various cases ; especially Foss v. Harbottle, 2 Hare, 461 ; Gray v. Lewis, L. E. 8 Chan. Ap. 1035 ; MacDougaU v. Gardiner, L. R. 1 Chan. Div. 13 ; and Dodge Y. Woolsey, 18 Howard, 331. The opinion then proceeds as follows :] This examination of Dodge v. Woolsey satisfies us that it does not -establish, nor was it intended to establish, a doctrine on this subject different in any material respect from that found in the cases in the English and in other American courts, and that the recent legislation of Congress refen-ed to leaves no reason for any expansion of the rule in that case beyond its fair interpretation. We understand that doctrine to be that to enable a stockholder in a corporation to sustain in a court of equity in his own name, a suit founded on a right of action existing in the corporation itself, and in which the corporation itself is the appropriate plaintiff, there must exist as the foundation of the suit — Some action or threatened action of the managing board of directors *r trustees of the corporation which is beyond the authority conferred on them by their charter or other source of organization ; 528 HAWES V. OAKLAND. Or such a fraudulent transaction completed or contemplated by the acting managers, in connection with some other part}', or among them- selves, or with other shareholders as will result in serious injury to the corporation, or to the interests of the other shareholders ; Or where the board of directors, or a majoritj' of them, are acting for their own interest, in a manner destructive of the corporation itself, or of the rights of the other shareholders ; Or where the majority of shareholders themselves are oppressively and illegally pursuing a course in the name of the corporation, which is in violation of the rights of the other shareholders, and which can only be restrained by the aid of a court of equity. Possibly other cases may arise in which, to prevent irremediable injury, or a total failure of justice, the court would be justified in exercising its powers, but the foregoing may be regarded as an outline of the principles which govern this class of cases. But, in addition to the existence of grievances which caU 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, if this is not done, where it could not be done, or it was not reasonable to require it. The efforts to induce such action as complainant desires on the part of the directors, and of the shareholders when that is necessarj-, and the cause of failure in these efforts should be stated with particularity, and an allegation that complainant was a shareholder at the time of the transactions of which he complains, or that his shares have devolved on him since by operation of law, and that the suit is not a collusive one to confer on a court of the United States jurisdiction in a case of which it could otherwise have no cognizance, should be in the biU, which should be verified by afSdavit. It is needless to say that appellant's bill presents no such case as we liave here supposed to be necessary to the jurisdiction of the court. He merely avers that he requested the president and directors to desist from furnishing water free of expense to the city, except in case of fire or other great necessity, and that they declined to do as he requested. No correspondence on the subject is given. No reason for declining. We have here no allegation of a meeting of the direc- tors, in which the matter was formally laid before them for action. No attempt to consult the other shareholders to ascertain their opinions, or DUNPHY V. TEAVELLEE NEWSPAPER ASSOCIATION. 529 obtain their action. But within five daj-s after his application to the directors this bill is filed. There is no allegation of fraud or of acts ultra vires, or of destruction of property, or of irremediable injury of any kind. Conceding appellant's construction of the company's charter to be correct, there is nothing which forbids the corporation from dealing with the city in the manner it has done. That city conferred on the company valuable rights by special ordinance ; namely, the use of the streets for laying its pipes, and the privilege of furnishing water to the whole population. It may be the exercise of the highest wisdom to let the city use the water in the manner complained of. The direc- tors are better able to act understandingly on this subject than a stock- holder residing in New York. The great body of the stockholders residing in Oakland or other places in California -may take this view of it, and be content to abide by the action of their directors. If this be so, is a bitter litigation with the city to be conducted by one stockholder for the corporation and all other stockholders, because the amount of his dividends is diminished ? This'question answers itself, and without considering the other point raised by the demurrer, we are of opinion that it was properly sustained, and the bill dismissed, because the appellant shows no standing in a court of equity — no right in himself to prosecute this suit. Decree affirmed. ' Knowlton, J., IN DUNPHY v. TEAVELLEE NEWSPAPEE ASSOCIATION. 1888. 146 Matsaclimetts, 495, p. 498. KNOWLTOif, J. . . . The only exception to the rule that a stock- holder must apply to the directors, and also if need be to the corpora- tion, for redress of a wrong done it, before he can sue in a court of equity, for himself and in behalf of other stockholders, is when it appears that such application would be unavailing to protect his rights. 1 The following " Additional Enle of Practice in Equity," No. 94, was promul- gated by the U. S. Supreme Court, Jan. 23, 1882, and is printed in vol. 104 U. S. Preface, ix. : — " Every bill brought by one or more stockholders in a corporation, against the cor- poration and other parties, founded on rights which may properly 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 confer on a court of the United States jurisdiction of a case of which it would not otherwise have cognizance. It must also set fort h with'p a.rtipji]a ^ i ty the effo rts of t he plaintiff to secure such action as he desires on the part of 'fE^mana ging diiectois p r trustee s, and, if necessary, of the shareholders, and the causes oi ms "failure to oBtain such action." " ' ' ■ ' 630 ZIEGLEK V. LAKE STREET EL. E. CO. Brewer v. Boston Theatre, 104 Mass. 378. Allen Wilson, 28 Fed. Eep. 667. Hawes v. Oakland, 104 U. S. 460. Detroit v. Dean, 106 U. S. 637. Dimffelly. Ohio & Mississippi Eailwai/, 110 U. S. 209. Foss V. Harhottle, 2 Hare, 461. That may happen when the directors themselves are the -wrongdoers, or are in fraudulent combination with them, or when the corporation is controlled by them, or when it is necessary that action should be taken too speedily tp leave time fo^ a corporate meeting of stockholders. In the case at bar there is an averment that Eoland Worthington, the alleged wrongdoer, has for a long time controlled a majority of the stock, and has elected such persons directors as he chose. That states a sufficient reason for not applying to the corporation, at a meeting of its members, for action to redress its wrongs. But it is not alleged that the plaintiff ever attempted to move the directors in the interest of the corporation in the matters complained of, or that any good reason existed for his failure so to do. It does not even appear who or how many the directors are. It is said that the de- fendants Eoland Worthington and Roland Worthington the younger are directors, but no others are named. The law provides th^t there shall be at least three, and it is to be presumed that there are others besides these defendants. Eev. Sts. c. 38, § 3. Pub. Sts. c. "106, § 25. There is no allegation of fraud, or of wrongful combination with Eoland Worthington, or of other misconduct, on the part of any of them. And it cannot be presumed, in the absence of such averments, that they would refuse to do their duty if their attention were called to it. In Brewer v. Boston Theatre, uhi supra, — a much stronger case for the plaintiff than this, — an allegation was in these words : " A ma- ■jority of the present board of directors of said defendant corporation are acting in the interest of, and are under the control of, Tompkins and Thayer," the authors of the alleged frauds ; and it was held that this allegation did not set forth a sufficient reason for bringing a suit without first requesting the directors to do it. Woods, J., ZIEGLER v. LAKE STREET EL. E. CO. 1896. 76 Federal Reporter, 662, p. 663. Woods, J. . . . We desire to emphasize here the necessity, in suits like this, for a full and unequivocal compliance with the requirements of equity rule 94. As we had occasion to say in Watson v. United States Sugar Refinery, 34 U. S. App. 81, 88, 15 C. G. A. 662, 666, and 68 Eed. 769, 772 : MENIEE V. HOOPER'S TELEGRAPH WORKS. 531 " The rule is well settled that a stockholder cannot maintain a suit I for a wrong to the corporate body without showing either an effort to] set the corporation in motion to redress the wrong, an application' made to the board of directors to that end, or that such effort or applica-J tion would be useless; and this requirement is not satisfied by an allegation that thfi.dirfifitors, oramadoritsLof the m, are actin g; in t.hp intMest_or und er the control of others, who are charp -f-rl wit.'h fkp fraud. Breiver v. Proprietors, 104 Mass. 378 ; Dod^e v. Woolsetj, 18 How. 331." A failure to seek action on the part of the corporation itself cannot be excnafid by vacrng ^^^A frpiiaj--al gvPTTnonf;fi gf complicity On the pa rt ofth e directors in the wrong s^gainst whichjeUef is^sought., i_^A^ MENIER V. HOOPER'S TELEGEAPH WORKS. 1874. L. R. 9 Chan. Ap. 350. The bill in this case was filed by M J. Menier, on behalf of him- self and all other the shareholders of the European and South Ameri- can Telegraph Company (except such of them as were Defendants), against a company called JSooper's Telegraph Works, W. Hooper, H. W. Grace, and the European and South American Telegraph Com- pany, and stated (amongst other things) as follows : — That the Euro- pean Company was incorporated in 1871 with the object of carrying out an agreement between the Plaintiff, Menier, and one Bradford, and others, for constructing a submarine telegraph from Europe to South America, under certain conventions and decrees of foreign gov- ernments. The capital of the company was to be £1,250,000, in 62,500 £20 shares, and by the articles of association provisions were made for holding meetings of the company, at which every member was to have one vote for every share held by him. That So&per's Company were to make and lay down for the European Company telegraph cables from Portugal to Brazil. That a prospectus was issued and many shares were applied for, but in consequence of objec- tions raised the directors determined not to proceed with the allotment to the public, and the only shares allotted were 3000 to Hooper's Com- pany, 2000 to the Plaintiff, and 325 to thirteen persons, ten of whom were the directors. That £3 was paid on each of the shares so allotted. That one of the concessions for making the telegraph had been granted to the Baron de Maua, who was at one time chairman of the European Company, and this concession was claimed by the European Gom- •pany. That a bill was filed in this Court by the European Company against the Baron de Maua and another company, praying a declara- tion that the Baron de Maua was a trustee of the concession for the 632 MENIEB V. HOOrBR'S TELEGEAPH WORKS. European Company, and that he might be restrained from trausfer- ring it to any one else. That a motion was made for an interlocutory injunction, and was refused by the Vice-Chancellor Malins, but on the balance of convenience only. That the European Company, and also Hooper's Company, at first intended to appeal against the order of the Vice-Chancellor Malins. That Hooper^s Company afterwards deter- mined not to appeal, and then the directors of the European Company determined not to appeal, but to take steps for winding up the European Company. That the Plaintiflf was resident in Paris and ignorant of English law, and believed that any arrangements adopted by the direc- tors would be for the benefit of the European Company, and not ex- clusively in the interests of Hooper's Company. That the Plaintiff wished the appeal to proceed, and offered to bear the costs. That on the 12th of February, 1873, an extraordinary meeting of the European Company was held, at which a resolution was passed that the companj' be wound up voluntarily, and that the Defendant Crace be the liquida- tor. That the resolution was proposed by one Kennedy, a director of Hooper's Company, and that Crace was secretary of Hooper's Com- pany. That this resolution was confirmed at another extraordinary meeting, at which five persons onl}- were present, of whom three were directors nominated by Hooper's Company, and one was Crace, the secretarj'. That the Plaintiff protested against these proceedings. That the Plaintiff was then ignorant, but had since discovered, that these proceedings took place through the influence of Hooper's Com- pany. The bill then stated the circumstances of an arrangement be- tween Hooper's Company and the Telegraph Construction and Main- tenance Company and the Baron de Maua, under which it would be to the advantage of Hooper's Company that the agreement between them and the European Company should be put an end to, in order to benefit Baron de Maua's Company, and in order that Hooper's Co%i pany might sell to another company the cable they were making for the European Company. That these arrangements were concealed from the Plaintiff and the other shareholders in the European Com- pany. I That Hooper's Company procured the abandonment of the suit against the Baron de Maua, and the winding-up of the European, Company, through the influence which they had as holders of 3000 shares in the European Company, and through the influence of the directors nominated by themj And the bill prayed that^Hbqper's Company might be declared not entitled to the benefit of the profits derived from the abandonment of the suit and other arrangements aforesaid, and might be declared a trustee of those profits for the Plaintiff and the other shareholders in the European Company ; and that the European Company and the De- fendants might be restrained from repaying to Hooper's Company any of the money paid on the allotment of shares in the European Company, and from disposing of the property of the European Company. MENIEE V. hooper's TELEGEAPH WORKS. 533 To this bill the Defendants Mocker's Company and W. Hooper demurred for want of eqnitj' ; and the Defendants Crace and the Euro- pean Company also demurred, and for cause of demurrer shewed that the Plaintiff had not made out such a case as entitled him to dis- covery or I'elicf. The Vice-Chancellor Bacon, on the 12th of January, 1874, overruled both demurrers ; and the Defendants appealed. Mr. Fry, Q. C, and Mr. Millar, for Hooper's Company: — A shareholder has a right to vote as he pleases, and to suit his own interests. If not, the Court in every case might have to interfere wherever there was a small majority, and consider what were the motives of each shareholder. If there was a suit by the company against any individual shareholder, he would not be disabled from voting. He is not a trustee for any one, and he may vote against the interests of the company or of any of the other shareholders. No constructive trust can be raised: Gray v. Lewis} In Atwool v. Merry weather''' the vote was impeached. If such a suit can be maintained, one shareholder may file a bill to have a certain contract set aside, and another to have it carried on. Such a suit can only be maintained by the com- pany against the directors. At all events, the proceedings ought to be in the liquidation, and not by bill. Mr. Kay, Q. C, Mr. Jackson, Q. C, and Mr. Everitt, for the Plain- tiff, were not called upon. Sir W. M. James, L. J. : — I am of opinion that the order of the Vice-Chancellor in this case is quite right. The case made by the bill is very shortly this : The Defendants, who have a majority oT shares in the company, have made an arrangement by which they have dealt with matters affecting the whole company, the interest in which belongs to the minority' as well as to the majority-. They have dealt with them in consideration of their obtaining for them- selves certain advantages. Hooper's Company have obtained certain advantages by dealing with something which was the property of the whole company. The minority of the shareholders say in effect that the majority has divided the assets of the company, more o r less, be- tween themselves, to the exclusion of the miribi'ity. I^thmk^it, would be a shocking thing if that could be Sone,^ because^ifso the majority m ight divi de the whQle_ ass ets of jthe company, and pass a resolution tha#ILL0UGHBY V. CHICAGO JUNCTION, &o. CO. WILLOUGHBY v. CHICAGO JUNCTION, &c. CO. 1892. 50 New Jersey Equity (5 Dickinson), 656.1 On rule to show cause why an injunction should not issue. Heard on bill, supplemental bill, answers and affidavits, and on subsequent stipulation that the cause should be disposed of as having been heard on final hearing. The original bill was filed Dec. 17, 1891, by Willoughby, on behalf of himself, as a stockholder in the Chicago Junction &c. corporation (called by the court the New Jersey Co.), and all other stockholders therein, who should come in and contribute to the expense of the suit. Three other stockholders were afterwards, by an order of court, ad- mitted as parties complainant. The aforesaid corporation and certain other parties were made defendants. The object of the original bill was to restrain defendants from canying into execution an agreement between the New Jersey Co. and certain other defendants, dated July 27, 1891. Before a hearing on this bill, another agreement was entered into between the New Jersey Co. and the same parties, dated Jan. 15, 1892, which, while it contained many of the provisions of the former agreement, yet by its fourteenth paragraph expressly annulled such former agreement. Thereupon Willoughbj' and his three co-plaintiflFs, by leave of the court, filed a supplemental bill against the same defend- ants, setting out the fact of the original suit, and, as far as proper, incorporating the original bill, and seeking to restrain the carrying into effect both the agreement of Jan. 15, 1892, and that of July 27, 1891. EUerman, another stockholder of the New Jersey Co., on Aug. 19, 1891, filed a bill in this court, on behalf of himself, and of all other stockholders who should come in and contribute to the expense of the suit, for the purpose of preventing the consummation of the same agreement of July 27, 1891. EUerman's suit was heard before a vice- company from building a belt line of railroad under a charter amendment, wUich had recently been granted by the Secretary of State upon the application of a majority of the stockholders. After the court had decided that the amendment was invalid in the absence of the unanimous assent of the stockholders and that the injunction should be granted, the plaintifis claimed that the company should be compelled to paj' the fees of the plaintiffs' coun- sel. This claim was disallowed. The court said that the plaintiffs had not sued in the right of the corporation, but in their own right as stockholders. They were not compelled to ask the corporation to sue or to show a reason for not so asking. The gist of their complaint was that the building of the belt line would violate the rights which inhered in the owner- ship of their stock. The suit of a stockholder in such a case is based upon the contract which the law implies as existing between the corporation, the other stockholders, and himself. It is unlike the case where the stockholder is permitted to sue in the right of the corporation to undo a wrong done to the corporation. In the latter case his suit is not based on the theory tliat his rights have been directly violated. The corporation itself would be the proper plaintiff; and it is onlj' when the corporation virtually refuses to sue that tli« stockholder is permitted to sue in its behalf. — Ed. I Statement abridged. Portions of opinion omitted. — Ed. WILLOUGHBY V. CHICAGO JUNCTION, &c. CO. 543 ebancellor on bill and answers ; an opinion was filed Dec. 18, 1891 (49 N. J. Eq. 217), holding that said agreement was not ultra vires the corporation and not illegal ; and a decree was entered dismissing the bill on that ground. Aaron P. Whitehead, Frederic W. Stevens, and Thos. N. McCarter, for plaintiffs. B. Wayne Parker, Cortlandt Parker, Joseph H. Choate, Wm. D. Guthrie, and Barker Gummere, for various defendants. Green, V. C. [After stating the case.] Assuming that such decree is not impeacliable for fraud, collusion or ot her TJce,lojBat.jesteat^ii- at ^alLia-tlie deylsioTrntjjiiiestinTis in thp F.llprmgn suit Conclusive in this action? Mr. Black, in his work on -Judgments, thus states the general rule (§ 504): " A point which was actually and directl3'^ in issue in a former suit, and was there judicially passed upon and determined bj' a domestic court of competent jurisdiction, cannot be again drawn in question in any future action between the same parties or their privies, whether the causes of action in the two suits be identical or different." As the rule in question is generally stated, the former judgment is binding only on parties and their privies, but the course of decision has been such as to embrace others who do not stand in a relation, strictly speaking, of privity with the original party, as a sheriff and his deputy. King v. Chase, 15 N. H. 9 (41 Am. Dec. 657) ; master and servant, in an action of trespass, Emery v. Fowler, 39 Me. 326 (63 Am. Dec. 627) ; the joint and several makers of a promissory note, Spencer v. Dearth, 43 Yt. 98 ; the true owner, and the bailee of com- plainant. Bates V. Stanton, 1 Duer. 79 ; a chattel mortgagee and the vendee of the mortgaged goods, Atkinson v. White, 60 Me. 396 ; a town and parties alleged to have caused an obstruction to the highway, in an action for negligence, HiU v. Bain, Town Treas., 15 B. I. 75 (23 Am. Rep. 44) ; see, also, Durham v. Giles, 52 Me. 206 ; Freer v. Stotenbur, 2 Abb. Ct. of App. Dec. 189. Chief Justice Durfee, in Hill v. Bain, referring to some of the cases, saj's (at p. 77) : "In these cases the defendants were permitted to avail themselves, by way of estoppel, of judgments to which they were neither parties nor privies. The ground on which this was permitted seems to have been that the defendants, though not parties to the judgments, were so connected in interest or liability with the parties that the judgments, when recovered, could be regarded as virtually recovered for them, for the purposes of estoppel, as well as by and for the parties of record." Black on Judgments (§ 537) thus states the rule as to the parties aflfected : "It is not always necessary that the parties to the two suits should be nominally the same in order that one recovery may bar another. 544 -WILLOUGHBY V. CHICAGO JUNCTION, &c. OQ It is in general sufficient if they are really and substantially in interest the same." And Mr. Freeman, in his work on Judgments, thus {§ 154) : " Persons who were parties to the suit, or in privity with such party, or in such a position that they were the real parties in interest in the litigation conducted for their benefit in the name of another, undei such circumstances as to make them answerable for the result of the litigation by virtue of the principles to be hereinafter stated." The practice has long been recognized of permitting suit to be brought by a few as the representatives of a numerous class, on behalf of themselves and all others of the class, when there is a common interest or a common right which the suit seeks to protect, and against a few as representing a numerous class subject to a common liability which the suit seeks to enforce. Story Eq. PI. § 97. " In most, if not in all, cases of this sort, the decree obtained upon such a bill will ordinarily be held binding upon all other persons stand- ing in the same predicament, the court taking care that sufficient per- sons are before it, honestlj', fairly and fully to ascertain and trj- the general right in contest." Story Eq. PI. § 120. [The learned Judge then stated the cases of Harmon v. Auditor, 123 111. 122; OasTcell v. Dudley, 6 Metcalf, 546; and Bavey \. St. Allans Trust Co., 60 Vt. 1.] None of these cases, it is true, is exactly in point, but they show clearly how elastic is the rule limiting the conclusive character of judgments to parties and their privies. How does the question stand on principle? Actions of the class to which the EUerman and Willoughby suits belong are sui generis, in this, that the complainant does not prosecute in his own right — a stockholder, as such, does not have a legal or equitable estate in the corporate property ; his only right of property is to a proportionate share of the profits of the business while the com- pany is in operation, and to a proportionate share of the net assets on its dissolution. Unauthorized dealing with the franchises or funds of the corporation directly injure it as a legal entity ; it is the franchises of the corporation which are to be misused, the funds of the corporation which are to be misappropriated, and the corporation is, therefore, the party to be injured and should itself seek redress. This class of cases must not be confounded with the preventive remedy of every stockholder to restrain acts ultra vires the corporation. While " the directors are quasi or sub-modo trustees for the corporation with respect to the corporate property, they are also quasi or sub-modo trustees for the stockholders with respect to their shares of the stock." 3 Pom. Eq. Jur. § 1090. Each stockholder has invested his money in the very enterprise contemplated by the charter, and has, in his own right, an equitable remedy to prevent his g'wast-trustees, as directors, from misuse of the corporate franchises, and from diversion of coi-porate funds, to a pur- WILLOUGHBT V. CHICAGO JUNCTION, &o. CO. 545 pose foreign to that of the charter, and for which he has invested his monej-, and this although every other stockholder favors the proposed action, and it is plainly advantageous to the financial interests of the company. The EUerman and Willoughby suits belong not to this, but to that class of cases in which the corporation itself is directlj' injured and is primarily interested, and should itself institute and maintain an action for i-elief; in which the remedj' to be obtained, whether pecuniary or otherwise, is for its benefit and belongs to it alone ; the stockholder in such case has no standing in the court, as a partj', except on the refusal, either express or implied, of the corporation itself to prosecute. Where, as in this case, an appeal to the directors to bring suit would apparentlj' be unavailing, refusal to prosecute is implied, and a stock- holder is permitted to commence the action in his own name ; but otherwise the suit is treated in every respect as one brought by and for the corporation ; although the stockholder is the nominal, the corpora- tion is the real party complainant, represented not by its accustomed officials, but by one or more of its stockholders. Professor Pomeroy (3 JEJg. Jur. § 1095) says, with reference to such a suit : " Wherever a cause of action exists primarilj- in behalf of the cor- poration against directors, oflficers and others, for wrongful dealing with corporate propertj-, or wrongful exercise of corporate franchises, so that the remedy should regularly be obtained through a suit by and in the name of the corporation, and the corporation either actually or virtually refuses to institute or prosecute such a suit, then, in order to prevent a failure of justice, an action may be brought and maintained by a stockholder or stockholders, either individually or suing on behalf of themselves and all others similarly situated, against the wrong-doing directors, officers and other persons ; but it is absolutely indispensable that the corporation itself should be joined as a party — usually as a co-defendant. The rationale of this rule should not be misapprehended. The stockholder does not bring such a suit because his rights have been directly violated, or because the cause of action is his, or because he is entitled to the relief sought ; he is permitted to sue in this manner simply in order to set in motion the judicial machinerj' of the court. The stockholder, either individually or as a representative of the class, may commence the suit, and may prosecute it to judgment ; but in every other respect the action is the ordinary one brought by the corporation ; it is maintained directly for the benefit of the corporation, and the final relief, when obtained, belongs to the corporation and not to the stockholder-plaintiff. The corporation is, therefore, an indis- pensably necessary party, not simply on the general principles of equity pleading, in order that it may be bound by the decree, but in order that the relief, when granted, may be awarded to it, as a party to the record, by the decree. This view completely answers the objections which are sometimes raised in suits of this class, that the plaintiff has 516 "WILLOUGHBY V. CHICAGO JUNCTION, &o. CO. no interest in the subject-matter of the controversy, nor in the relief. In fact, the plaintiff has no such direct interest ; the defendant cor- poration alone has any direct interest ; the plaintiff is permitted, not- withstanding his want of interest, to maintain the action solely to prevent an otherwise complete failure of justice." Cook on Stockholders (1st ed.) § 692, says: "The rule that the corporation itself is an indispensable party de- fendant to such suit, is due to the fact that all other possible future suits by the corporation are thereby prevented, the rights of the cor- poration are duly ascertained, and the remedy made effectual against the corporation as well as others." Neither this suit nor the EUerman suit was in the right of the respective complainants ; they were the nominal, but not the real, parties complainant. They were suing merely as representing the companj', to establish and enforce its rights ; the relief to be obtained was not and is not for their individual benefit, but for the benefit of the corporation as such. In these cases the corporation itself is a necessarj' and was and is actually a party defendant ; in these it was and is represented by counsel, answered the bills and has taken part by counsel, in the discussion of the case. The decree in the Ellerman suit certainly binds the company. In the face of that decree, neither the old nor a new board of directors could attack it except by an appeal. The former decree could be successfully pleaded as a bar to an action instituted in the name of the company bj' authorized agents who might desire to relitigate the questions decided. If the companj' and its authorized representatives are then concluded by such a decree, how can a stockholder, suing in behalf of the company, be permitted to relitigate questions which are conclusive upon the corporation? A stockholder has no standing in the court to prosecute such an action except on the refusal of the directors, either actual or presumptive, to prosecute. But such refusal of the directors to prosecute must be an unjustifiable refusal. If their reason for not doing so is a valid one, the individual stockholder cannot, from such refusal derive a right to prosecute in his own name. It would not be unreasonable or unjusti- fiable for a board of directors to refuse to prosecute, on the application of a stockholder, when there had been an adjudication on the point which he seeks to have passed upon, which is conclusive upon the companj'. And if the stockholder in the face of a refusal by the directors on that ground should persist and commence the action, an answer by the directors in his suit, that they had refused to bring the action solely on the ground that the question had been before adjudi- cated, would necessarily be followed by a dismissal of his bill. This argument goes to the root of this question, and demonstrates that the decision of questions litigated in this court in the suit brought by Ellerman, a stockholder, in his own behalf and that of other stock- holders, in which the company was made a defendant and appeared, "WILLOUGHBY V. CHICAGO JUNCTION, &c. CO. 547 Is conclusive in another suit Tbrought by another stockholder for the purpose of relitigating the questions which have been determined. If not so there can be no end of litigation, for the court is then open to suit by every stocljholder, seriatim, presenting the questions over and over for consideration and decision. In Baunmeyer v. Coleman, 11 Fed. Rep. 97, Sawyer, C. J., says: " By reference to Burhe v. Flood, supra, it will be seen that a similar suit -for these same grievances was brought by a single stockholder, Burke, on behal f of himself and a l l other sto ckholdecs_:::^-aiid-it-ia- a notorious, biatorical fact, of w hich the^aily newspapers_have been full, t hat these are not th e^nly j^uits brought in the same wa y for the same grievances. Is _eacluJiolder'of one of li&ese five hunHred and^ forty thousand shares of stofck entitledTo bFing^^siiit in equity on behalf of himself and all otEeFstockholde rs for an account o^ theii-transactions ? Or, where such a suit has been brought 6y one stockholder, must the others come in and seek their relief in that suit ? If each stockholder is entitled to bring such a suit, then there is something wrong in the law, and the sooner the supreme court bj* rule, or congress b}' statute, regulates the matter the better it will be for the due administration of justice." It is urged that no party should be concluded without an opportunity to be heard ; but this complaint does not lie in the mouth of Mr. Willoughby. He had an opportunity to be heard in the Ellerman suit. It was expressly for the benefit of all stockholders who might come in and contribute to its expense. He could, at anj- time before decree, have been made a party to the Ellerman suit, and have then advised the court of anything not before brought to its attention. "^ He had ample time to so apply after he actually knew of the pendency of the suit, and his solicitor was thoroughly informed of all proceedings in the Ellerman case in time to Lave intervened. Counsel admitted, upon the argument, that the question whether thej"^ should intervene in the Ellerman suit, or resort to an independent action, was considered and discussed before bringing the present suit was determined upon. Besides, from the very form and nature of these suits, each stock- holder must be considered as represented, for if he is in sympathy with the complainant he may become a party complainant by appli- cation to the court ; if he is in sj'mpathy with the threatened action of the company, he is represented bj* and in the corporation which is a necessaiy party to the suit. March v. Eastern R. R. Co., 40 N. H. 548. Not only this, but the court maj', if satisfied that the interests of the corporation are not being properlj' presented or protected, admit a stockholder to be made a party defendant. Bronson et al. v. La Crosse & M. R. R. Co., 2 Wall. 283. [The learned judge then held, that the charge that the Ellerman suit was collusive was not sustained ; and said : " The Ellerman suit, not being collusive, must be held to be conclusive in this, upon all Questions 548 TOMKINSON V. SOUTH-EASTEEN RAILWAY CO. which were therein decided, . . ." He then proceeded to consider the matters which arise under the contract of Jan. 15, 1892, not passed on In the former suit, and which are the subject matter of the supplemental bill.] Bill and supplemental bill dismissed. Van Fleet, V. C, concurred. TOMKINSON V. SOUTH-EASTERN EAILWAY CO. 1887. L. E. 35 Chan. Div. 675.1 This was a motion by the Plaintiff, a holder of £500 deferred ordinary stock of the South^Eastern Railway Company, for an in- junction to restrain the company and its directors, oflScers, servants, and agents, until the trial of the action or further order, from sub- scribing, advancing or paying, out of the monej's of the company, the sum of £1000, or any other sum, by way of donation, or otherwise, to or for the purposes of tlie Imperial Institute, or to any person or per- sons on behalf of the Institute. At a meeting of the stockholders or " proprietors " "of the South- Eastern Railway, held on the 5th of March, 1887, to consider a circular issued by the executive council of the Imperial Institute to the SouthrEastern and other railway companies, inviting them to sub- scribe to the funds of the Institute, the following resolution was passed, on the motion of the chairman of the companj- : " That the directors be authorized, eitlier by way of donation from the company or by an appeal to the proprietors, as they may be advised, to subscribe the sum of £1000 to \h& Imperial Institute : provided, that any shareholder who declines to be a party to any such donation shall have his propor- tion returned to him with his next dividend warrant." The resolution was carried by 10,229 votes, representing £1,209,035 ordinary stock of the company, against 175 votes, representing stock to the amount of £13,500. The Plaintiff was not himself present at the meeting, but, having read a report of the proceedings, he, on the 11th of March, wrote to the secretary of the company protesting against the proposed applica- tion of any of the company's funds towards the Imperial Institute, and threatening legal proceedings. In his reply the secretary pointed out that the directors were accustomed to act in obedience to the orders of their shareholders, and not otherwise, and that, having regard to the amount of the Plaintiff's holding, his interest in the contribution of £1000 would be represented by about 13(?. ^ Fart of opinioQ omitted. — Eo. TOMKINSON V. SOUTH-EASTERN EAILWAT CO. 549 After some further correspondence the Plaintiff commenced this action, and now moved as above stated. In an affidavit in opposition to the motion, the company's general manager stated that, in recommending the proprietors to contribute to the funds of the Institute, the directors desired to further its estab- lishment in the belief that a great number of visitors would thereby be drawn from the districts served by their railway and their traffic largely increased ; and that, inasmuch as the previous exhibitions at South Kensington had, by the issue of through tickets from their system of railways, increased the traffic revenue of the companj' by several thousands of pounds, the directors believed that the establish- ment of the Institute at South Kensington would lead to a similar result. The affidavit further stated that railway companies in general had been accustomed to contribute to the funds of objects likely to encourage traffic upon their lines, such as race-meetings and regattas, and also to hospitals and other public institutions which might benefit their employes. A. Young, for the Plaintiff : — The proposed subscription is clearly ultrdt vires, it not being one of the objects for which the company was incorporated to promote, or support popular exhibitions. Sir B. Webster, A. G., C. T. Mitchell, and Worsley Taylor, for the Defendants : — It is not ultrd, vires of a company to expend its funds for the advantage of its undertaking. A company has inherent power to do whatever may be conducive to its popularity or to the objects of its undertaking : Taunton v. Royal Insurance Company ; ^ Sampson V. Price's Patent Candle Company ; ^ Button v. West Cork Rail- loay Company f'^ Pickering v. Stephenson.* As the company are not, we submit, acting ultrd, vires, the Court will not interfere in their internal affairs : Foss v. Harhottle ; ° Pickering v. Stephenson.^ Even if the proposed subscription is ultrct vires, the damage to the Plaintifl is so infinitesimal that the case is not one for an injunction. KAr, J. : — I have no doubt that it is the duty of the Court to grant an injunc- tion in this case. The question, as the Attorney-General said, is whether the act pro- posed to be done is within the powers of the railway company, or out- side its powers. If it is outside its powers, it is now perfectly settled that any one shareholder may come to this Court and say, " This com- pany is going to do an act which is beyond its powers : stop it ; " and the Court thereupon has no discretion in the matter. Now, what is proposed to be done here is this : the chairman of the 1 2 H. & M. 135. ^ 45 L. J. (Ch.) 437. 8 23 Ch. D. 654. * Law Rep. 14 Eq. 322. 6 2 Hare, 461. ' Law Eep. 14 Eq. 339. 550 TOMKINSON V. SOUTH-EASTERN RAILWAY CO. railway company, at a meeting of the company, proposed this resola- tion : " That the directors be authorized, either by way of donation from the company or by an appeal to the proprietors, as they may be advised" — the resolution thus proposing two alternative modes — "to subscribe the sum of £1000 to the Imperial Institute.'' I pause there. The Imperial Institute has no more connection with this railway com- pany than the present exhibition of pictures at Burlington House, or the Grosvenor Gallery, or Madame Tussaud's, or any other institu- tion in London that can be mentioned. The only ground for the sug- gestion that this companj' has the right to apply its funds, which it has been allowed to raise for specific purposes, to this purpose, is, that the Imperial Institute, if it succeeds, will very probably greatlj' increase the traffic of this company. If that is a good reason, then, as I pointed out during the argument, any possible kind of exhibition which, by being established in London, would probably increase the traffic of a railway company by inducing people to come up to see it, would be an object to which a railway company might subscribe part of its funds. I never heard of such a rule, and, as far as T understand the law, that clearl}- would not be a proper application of the monej's of a railway compan}-. I cannot distinguish this case from that at all, though, of course, I do not mean to disparage the enormous importance of the Imperial Institute. It may be established for the highest possible objects of interest to this country ; but still, the only reason given to me whj' this railway company thinks it right to spend part of its funds in subscribing to it is this, that it will probably greatly increase the traffic of the compan}' by inducing many people to travel up to visit this Institute. I cannot accept that as a reason for a moment. There- fore, as at present advised, it seems to me that this is ultrh, vires. Before I go further I will read the rest of the resolution : " Provided,! that any shareholder who declines to be a party to any such donationl shall have his proportion returned to him with his next dividend warJ rant." That means this : " We, the directors, propose to spend money which ought to be divided among j-ou, the shareholders, in paj'ing a subscription to this Institute : if j-ou do not like it, we admit you have a right to object, and your proportion will be returned to you with your next dividend warrant." This shareholder says, " I do not want my money spent in that way ; " and he is right, if it is beyond the powers of the company, in saying that the money shall not be spent in that way. Moreover, his objection is not confined to his own share. It is said that his share of the subscription would be comparatively trivial ; but, if the subscription is idtrd, vires, the company ought not to spend a farthing of their funds on the Institute. His objection is to the whole expenditure. Now the cases which have been cited really seem to me to be author- ities directly against this proposed application of the company's funds. [The learned Judge then cited and commented on Taunton v. Boyal Ins. Uo., 2 H. & M. 135 ; Sampson \. Price's Patent Candle Co.» TOMKINSON V. SOUTH-EASTERN RAILWAY CO. 551 45 L. J. (Chan.) 437; and Button v. West Cork R. Co., L. E. 23 Chan. Div. 654 ; and then continued as follows :] I do not think I need refer particularly to Pickering v. Stephenson} There what was done was decided to be ultrh vires, but seeing that the amount which the plaintiff would be entitled to recover was exceedingly minute, the Court would not malce an order for paj'ment back to him of the moneys improperly expended. Does any one of those cases touch the present? Certainly, I should be the last Judge on the bench to extend the meaning of those cases. It is absolutely necessary to keep incorporated or joint stock companies within the limits of their powers. That is a rule which has been recog- nised over and over again. To sa}' that, because the authorities which have been referred to have held that the acts there done were within the limits of the powers of the company in each case, therefore it follows that any expenditure which may indirectly conduce to the benefit of the company is intra vires, seems to me extravagant. I know of no authoritj' whatever for saying that the payment of £1000 out of the funds of this company as a subscription to the Imperial, Institute would be within the powers of a railwaj- companj-. I might stop there, because, tliis being an application for an inter- locutory injunction, I am bound, if I felt difficulty upon the question, to restrain the matter until the trial of the action ; but my present opinion is entirely against the validity of this act. Therefore, it seems to me I am clearly bound to restrain, until the trial of this action, the expenditure of this money out of the company's funds. An alternative is suggested, as I pointed out, in the resolution invit- ing the individual proprietors to sanction this payment out of their funds, because it says " either by way of donation from the company or by an appeal to the proprietors, as they may be advised." An appeal to the proprietors means an appeal to subscribe £1000, which they are Invited to give to the Imperial Institute. To that no kind of objection could be made ; but this ease has been argued on the footing that the alternative adopted by the directors has been, not to take that step, but to apply the moneys of the company. That, it seems to me, the Court is bound to restrain them from doing, and I therefore grant an injunction in the terms of the notice of motion, the Plaintifl giving the usual undertaking in damages. 1 Law Eep. 14 Eq. 322. 552 FOEEEST V. MANCHESTEE, &o. EAILWAY CO. FORREST V. MANCHESTER, &c. RAILWAY CO. 1861. 4 De Gex, Fisher (r Jones, 125.1 This was the appeal of the plaintiff from the dismissal of his bill by the Master of the Rolls. The plaintiff was a shareholder in the Manchester &c. Railway Co. ; and sued, on behalf of himself and I tlie other shareholders of the company, for an injunction to restrain | the defendants from conveying in vessels or boats passengers, cattle, or goods from Hull or Grimsby to Spurn Point. The bill alleged that the traffic sought to be restrained was beyond the powers of the company under their Act, and was also prejudiciaHo another company called The " fra inabofongh TTnite dSteam Pankpt Company, Limited," in which the plaintiff was a large shariEolder. The answer stated, inter alia, that the suit was not for the benefit of the other shareholders of the company on whose behalf the plaintiff held himself ogt a&^ uing, but wa s instit uted solely to promote~an d serve the interests^of the Gainsborough Jloited-Stea m. Packet Co mpany Limited, andHiat all the other shareholders of the defendants' company were opposed to the suit. Evidence was gone into, and the plaintiff on his cross-examination admitted, that he held onl y 82J. stock in th e railway company, but was the holder of twelve 3 0?. shares in , the packet company, which was paying a dividend of lOJ. per cent ; and that the excursion traffic had been continued for eigh^~^r;len_jreara.__ He also admitted that the directors of the packet companjE_ had directed the insti tution o f the suit, and indemnifie d him against costS; The Master of the Rolls dismissed the bill on the ground that the Act sought to be restrained was not ultra vires. Selwyn, and E. K. KarslaJse, for appellant. [Citations omitted.] The Solicitor General (Sir H. Palmer) and Fischer, for respond- ents, were not called upon. The Lord Chancellok [Westbuet]. In this case I am asked to reverse the order of the Master of the Rolls dismissing this bill with costs. I desire it to be distinctly understood that my decision does not proceed upon the grounds stated by the Master of the Rolls. It is unnecessary for me to express any opinion upon the grounds stated by his Honor which, if they are correct, would be confined entirely to this particular case, because they have reference to the peculiar constitution of the present company. But the ground upon which I proceed is en- tirely that of personal exception to the character of the plaintiff, and the foundation of my decision is contained in this passage of the plain- tiff's own examination not attempted to be qualified or questioned. He says in that examination "The directors of the packet company 1 Statement abridged. — Ed. FOEEEST V. MANCHESTEE, &0. EAILWAY CO. 553 directed the institution of this suit a nd^ indemnify me against costs." It is not that thej' persuaded him to institut e the suit, noFthat they insti^ited^ the suit , but that~the directors ofthe o ther company have "directed the suit," ._and- a re to inde mnify the plaintiff against the costs of it. To use a familiar expression, TBe^jfaiti tiff is the pup pet-of that_jioffipan3'. It has been a very wholesome doctrine of this Court that one shareholder having in view the legitimate purposes ofthe com- pany may be permitted in this Coui-t to maintain a suit on behalf of himself and the other shareholders of the company, but the principle upon which ihat constr uctive representation of the shareholders j sjjer- mi£ ted indisputably requires that the suit shall be a b on d fide on e, faithfullv.jj mthfully, sincerely directed to the benefit^ andjhe interests of those sh a,reholdpra whom tlip p lBintiff cl aims a right to represe nt. But can I permit a man who is the puppet of another company to represent the shareholders of the cnnrip a ny against whom he desires to establishj the interests .aBd _ benefits of a rival scheme ? That would be entirelj' contrary to the principle upon which this constructive repre- sentation has been permitted to be founded. "When the plaintiff sues in that capacity any personal exception to the plaintiff remains, and it would be in direct contradiction of everj- principle of truth and justice if I permitted a man Jo come here clothed in the ^ rb of a shareliolder of companvA^jJbgt . whoi s in realit y a-Sl iareholder in company B .^ and has no s ympathy w liatever with^;^o^rea.lj)urp ose of promot ing ihe interests of the other company. Such a thing would be so much at variance wTtlPthe principles of a Court orTEquTty that it would be impossible for it to entertain a suit of that description which is a mere mockerj', a mere illusorj' proceeding. It is, however, said that this objection was considered some j-ears ago in the well-known case of Colman v. The Eastern Counties Rail- way Company,'^ and was overruled by the late Master of the Eolls, Lord Langdale. All I mean to say about that case is that the objec- tion there proceeded upon a different ground. The proposition of Lord Langdale is that it is no ground of personal exception to a plaintiff that he has been instigated to institute his suit by another company. If the proposition be limited to the extent of the words in which it is expressed, possibly there may be no exception to that proposition, but undoubtedly I would not assent to it if carried one jot beyond those limits. I desire, however, to point out again the wide difference which exists between a suit " directed" to be instituted by the directors of another company, and a suit which is bond fide instituted by the plain- tiff, persuaded only to the institution of it by the arguments of another company. In the one case the suit is the suit of the plaintiff, and is for ought that appears instituted at the peril of the plaintiff. In the other case, the whole origin of the suit and the direction and conduct of it emanate altogether from the other company, and the suit would 1 4 i » 10 Bear. \. 554 FOREEST V. MANCHESTER, &u. RAILWAY CO. have no existence whatever but for the order of the other company. I consider, therefore, that the language in which the Master of the Rolls expresses himself upon the proposition then submitted to him does not in the smallest degree interfere with or weaken the ground that I have taken. I have nothing to do with the motives of plaintiffs suing in this Court. If they come Jjereia a bond_fide charac ter, the r ppg"" f"'' the^t■ coming hjirg-'" " "^gt^pr J^tej:ond_Jj]e_proyince_of_ a Court of Justice to inquire into.^ But if a man comes here representin g to me that he is a bond fide sha reholder in a co mpany, andtb at it is the bond fide suit of that company, and it turnsouTnotTo be thjjuitlofjthaF^Jompany, biit in reality to be in its origin^and its very birth and creation the suit of another companj', then I repeat that this is an illusory proceeding, and ought not to be attended to by the Court. The well-known words, — the trite quotation, — will occur to the minds of those who hear me. " Fabula non est judicium in scenS, non in foro res agitur." If this gentleman be permitted to come and assume merely for the purpose of coming into this Court the garb of a shareholder, but at the same time explicitly announces, "This suit is not directed to the purposes of that company ; I have nothing in common with the shareholders of that company ; it has not emanated from the wish of the sharehold- ers ; it does not emanate from me as a shareholder ; it is not my act : I am directed to do it by another party, and another body of men," then in point of fact the suit is not the expression of his own will, nor is it the legitimate prosecution of his own interests or his own objects, but it is the prosecution of the interests and objects of persons who have no right whatever to invoke the interference of this Court. I treat this suit as a n impositi on an the— G«nrt. By these words I mean no reflection upon th e plaintiff hima elf,-Jie^jise he has told the truth, and doesn ot appear at an vJima to have desired to con^al it. Buta8Jia4!omesJierejnJJifi_diaj2£tet,o^ in the companj', andtells me franklv that the ins titution o£J;£eIauirt5^;BotTiIs]own act, but an^act that lieh as been directed to do_b.yJJia_other company, then, using the words without offence, I denominate that suit"an imposition on the Court, and I dismiss it accordinglj', and affirm, though on a dif" ferent ground, the order that has been made. I refuse this application with costs. > See Kerr Inj. 549. SEATON V. GRANT. 555 SEATON w. GRANT. 1867. L. R. 2 Chan. Ap. 459.1 This was an appeal from an order made on the 12th of February, 1867, by Vice-Chancellor Malins, refusing an application of the Defendants that the bill might be taken off the file, or that all further proceedings might be stayed. The bill was filed by Charles Seaton, on behalf of himself and all other shareholders in the Credit Fonder and Mobilier of England, Limited, except the Defendant, Albert Grant, against Albert Grant, George Edward Seymour, and the above-named company, under the following circumstances : — The Defendant, Albert Grant, was the managing director of the above-named company. The Defendant, George Edward Seymour, was the chairman of a company called the City of Milan Improvements Company. The Plaintiff alleged that the two last-named Defendants had, in the j'ear 1865, formed what is called a " syndicate" on the Stock Exchange ; that is, a combination for the purpose of raising the value of the shares of the Milan Company to a fictitious premium ; and that, with this end, Grant had purchased 12,129 shares in the Milan Company, and paid for them out of the funds of the Credit Fonder, by which the latter company had sustained a great loss, the shares of the Milan Company having fallen very much in value. He also alleged tjiat the Defendants were taking measures to re- constitute the Credit Fonder, by dissolving the company, and trans- ferring its assets and liabilities to a new company. The bill prayed that the Defendants, Grant and Seymour, might repav to the Credit Fonder the monej' expended in the purchase of the shares in the Milan Company, and that the Credit Fonder might be restrained from handing over their assets to anj' other company, until all their debts and liabilities had been paid and satisfied. The bill was filed on the 19th of July, 1866, and immediately after- wards the Plaintiff moved for an injunction, in terms of the prayer, before Vice-Chancellor Kindersley, who refused the motion with costs. On the occasion of the motion, the Plaintiff was cross-examined in Court, when it appeared that he held only five shares of £20 each in the Credit Fonder, which he acquired solely for the purpose of filing this bill ; and that his reason for filing the bill was that he and several of his friends had lost money by speculating in shares of the Credit Fonder, and that he was advised that if he bought shares, and then filed a bill to impeach certain transactions of which he had notice, he would probably be bought oflT at a high price, and so obtain eompensation. 1 Portions of argument, and of opinions, omitted. — Ed. 556 SBATON V. GEANT. Subsequently to the filing of the bill, two extraordinary meetings of the Credit Fonder were held on the 30th of July and the 15th of August, 1866, at which resolutions were passed for winding up the company voluntarilj', and for the formation of a new company, for objects which would include the carrying on of the business of the Credit Fonder. The Defendants put in answers to the bill, but refused to give full information to the Plaintiff as to the transactions complained of ; and their answers were excepted to by the Plaintiff. The motion now under appeal was made by the Defendants Ghrant and the Credit Fonder, and, having been refused by the Vice-Chancellor, was now renewed before the Lords Justices. The Attorney- General (Sir John Bolt), Mr. Karslake, Q.C., and Mr. Waller, for the company ; and Sir Boundell Palmer, Q.C., Mr. Bailey, Q.C., and Mr. Speed, for the Defendant Grant: — We say, first, that this suit is not bond, fide. The Plaintiff had no shares in the company while the bill was being prepared ; he bought five shares just before it was filed, and can give no reason for his proceedings, but that he had lost money by speculating in the shares of the company, and wanted to make the company repay him these losses. The Coui't will not entertain such a bill : Forrest v. Man- chester, Sheffield, and Lincolnshire Bailway Company.'^ That case decided that the Plaintiff must have a legitimate interest in the subject matter of the suit. The interest of the Plaintiff is merely nominal. If his whole claim is recovered, and divided among the shareholders, his share would be about 40s. Such a bill is an abuse of the process of the Court, and partakes of the nature of maintenance : Filder v. London, Brighton, and South Coast Bailway Company;^ FoxweU V. Webster.* [Remainder of argument omitted.] Mr. Wickens, for defendant Seymour. Mr. Glasse, Q.C., and Mr. Cracknall, for plaintiff, were not called on. [The opinion of Sir G. J. Turner, L. J., is omitted.] Lord Cairns, L. J. This motion is one of a very novel, but of a very important character, because it asks the Court to shut the door in the face of the Plaintiff, not on the merits of the case, but on the ground that he has by his conduct disentitled himself to institute the suit. The theory of the law of this country is, that every subject has a right to bring his complaint to a hearing, if it be not capable of being stopped by a demurrer or a plea. The exceptions which have been established to this rule merely shew the strength of the general rule. Those exceptions are four in number : — First, where the Plaintiff is required to give security for costs. That is hardly an exception, because the Court only stays the proceedings in the suit until the 1 9 W. R. 818. » 1 H. & M. 489. » 12 W. R. 94, ISa SEATON V. GKANT. 557 security is given. Second, where tlie Defendant is willing to give to the Plaintiflf all the relief which he asks, and to pay his costs of the suit. Third, where the subject matter of the litigation has perished, or has been removed, and nothing remains to be decided but the payment of costs of the suit. There the Court considers that it would be useless to allow the suit to go on to a hearing when the only question to be determined can be as well decided upon motion. Fourth, where the bill has been filed without the authority of the person who appears as ihe Plaintiff, or where the name of a corporation has been used without a sufficient title to use it. In such a case the bill is treated as a fraud upon the Court, and is therefore ordered to be taken off the file. The grounds alleged for the present motion are three: — First, a personal exception to the Plaintiff. I do not think that I unfairly represent the conclusion which the parties desire to draw from the cross-examination of the Plaintiff if I put it in this way. The Plaintiff had in a collateral way lost some money, and he then finds a blot in the management of the company of which he thinks the shareholders might complain. He buys five shares in the company, and then files this bill, in order to induce the company to buy off the litigation. That, no doubt, is a course of conduct which would meet with little approval in this Court, or, indeed, in any other Court, and such conduct might be material at the hearing with reference to the amount of relief which the Plaintiff could obtain, or whether he was entitled to any relief at all. But the question is, whether these facts are necessarily fatal to the Plaintiff's claim to relief ? Suppose an answer were put in admitting all the allegations contained in the bill, it would be difficult to say at this stage of the suit that the Plaintiff's conduct would altogether dis- entitle him to relief. The case of Forrest v. Manchester, Sheffield, and Lincolnshire Railway^ which was relied upon in the argument, is dis- tinguishable from the present case upon two grounds : first, because that was the hearing of the cause ; and, secondly (and this is the main distinction) , because there the Court came to the conclusion that the Plaintiff was simply a puppet in the hands of another company, and that he was indemnified by that company against the costs of the suit. That objection amounted to this, that a suit professing to be the suit of Company A., was really the suit of Company B. The second ground relied on in support of this motion was, that the Plaintiff's quantum of interest in the suit was very insignificant. But if we should hold that the suit can be maintained in other res^pects, I think that the aggregate interest of all the shareholders in the subject matter of the suit is amply sufficient to sustain the suit. [Remainder of opinion omitted.] Motion refused with costs. 1 9 W. B. 818. 558 BUKT V. BRITISH, &o. ASSOCIATION. BURT V. BRITISH, &c. ASSOCIATION. 1 859. 4 De Gex Sr Jones, 158.1 Appeal bj plaintiflf from the dismissal of his bill by Vice-Chancelloi Stuart. Plaintiff sued on behalf of himself and all other shareholders, except those made defendants. The bill sought to set aside various trans- actions- of certain persons with the association. Greene and Bromehead, for appellant. JMalins, Thrinff, W. W. Cooper, Bacon, and S. B. Bagshawe, for various defendants. Knight Bruce, L. J. [The learned Judge found, upon evidence, that the plaintiff, who had been a director of the association, having had knowledge of the transactions now complained of, had so con- ducted himself that he must be regarded as having acquiesced in and confirmed these transactions. The opinion then proceeds as follows :] I am of opinion, however, looking onlj* at what took place in December, 1856, that by the conduct of the Plaintiff tit that time, and his conduct afterwards, he has precluded himself from any right of complaint, whatever right of complaint others maj' have, either as against the Defendants or as against the Plaintiff himself. As to that it is not necessary to give an opinion. He has sued on behalf of himself and others, and notwithstanding what has been con- tended on the part of the Defendants, I assume that there still exist persons who have a right to complain of these transactions. But that will not give the Plaintiff a title to sue for them. As on one hand a Plaintiff, who has a right to complain of an act done to a numerous society of which he is a member, is entitled effectually to sue on behalf of himself and all others similarly interested though no other may wish to sue, so, although there are a hundred who wish to institute a suit and are entitled to sue, still if they sue bj' a Plaintiff only, who has personally precluded himself from suing, that suit cannot proceed. The present case in mj opinion stands upon the same footing as if the dis- satisfied shareholders (supposing them to be dissatisfied) had sued by a Plaintiff who had released the Defendants. For that in mj- opinion is the position in which effectually Mr. Burt has placed himself. Whether, therefore, agreeing or disagreeing with the particular ground on which his Honor the Vice-Chancellor has proceeded, I apprehend that the grounds which I have stated are amply sufficient to render a dismissal of the bill necessary. TuENEE, L. J., concurred. 1 Statement abridged. Only so much of opinion is given as relates to one point -Ed. WINSOE V. BAILEY. 559 WmSOR v. BAILEY. 1875. 55 New Hampshire, 218 • Bill in equity by Winsor et als. against the Hooksett M'fg Co., and various individuals ; alleging that certain monies of the company have been wrongfully paid over to some of the defendants ; and pray- ing that the recipients may be decreed to repay the same to the corpo- ration. The bill alleges that the plaintiffs are owners of stock in the company, and sets out specifically the number of shares owned by each ; but does not allege that they were owners of stock at the time of the payments complained of. Defendants demurred. Mugridge, for plaintifis. Fowler and Tappan, for defendants. Ladd, J. 2. The bill alleges that the plaintiffs are owners of stock, and sets out specifically the amount owned by each. It is contended for the defendants that'the bill is defective in not showing that they were owners of stock at the time of the alleged wrongful payment to some or all of the defendants. No authority is referred to in support of this position, and I see no sound reason upon which it can be sustained. To hold so, would seem to involve the singular consequence that the transfer of stock in a corporation extinguishes the right to inquire into the previous fraudulent conduct of its oflScers, whereby its funds have been misappropriated. Gushing, C. J., concurred. Smith, J. 2. The plaintiffs allege that they are stockholders in the Hooksett Manufacturing Company, and specify the number of shares owned by each, but do not allege that they were stockholders at the time the dividend was paid the defendants. But that is not necessarj', and it is immaterial whether they were or not. The transfer of the stock con- veyed to them not only the ownership of the shares and the right to the future dividends thereon, but also placed them on an equal foot- ing with the other stockholders in respect to the right to call the oflScers and agents of the corporation to an account for their- fraud- ulent conduct. I Only go much of the case is given as relates to one point. — Ed. 660 PAESONS V. JOSEPH. PARSONS V. JOSEPH. 1890. 92 Alabama, 403.1 Appeai, from the Chancery Court of JefEerson. Heard before the Hon. Thomas Cobbs. The bill in this case was filed on the 19th day of July, 1890, by Henry Joseph, as a stockholder in the Birmingham, Powderly & Bessemer Street Railroad Company, against the said corporation and J. H. Parsons ; and sought the cancellation of certain certificates of stock issued by the corporation to said Parsons, on the ground that the stock was fictitious and fraudulent. There was a demurrer to the bill, and a motion to dissolve the injunction, each of which was overruled ; and this appeal is sued out by the defendants from that interlocutory decree. Lea t& Greene, for appellants. White & Sowze, contra. Coleman, J. The purpose of the bill is to have certain certificates of stock issued by the Birmingham, Powderly & Bessemer Street Rail- 1 road Co. to defendant Parsons, cancelled, on the ground that the stock I is fictitious, and was issued in violation of the Constitution and statute i law of the State. The bill prayed an injunction, and the writ was awarded by the chancellor. A demurrer was interposed, and also an answer by the defendant Parsons. The cause was submitted for decree on the demurrer, and upon motion to dissolve the injunction. The court overruled the demurrer, and denied the motion to dissolve the injunction, and from this interlocutory decree the appeal is taken. Among other averments, the bill substantially alleges that plaintiff is a bona fide stockholder in said company ; that shortly after the organization of the company, the defendant subscribed for one hundred and seven shares of the capital stock of the company, of the par value of fifty dollars each, and paid for the same in full by conveying to the company thirty-nine acres of land (describing the land) at an 'agreed, price and valuation of one hundred and thirty-seven dollars per acre, 1 when the land was not worth more than twenty-five dollars. per acre,/ and for this land Parsons was to receive one hundred and seven shares \ of the stock ; that shortly thereafter, the capital stock of the company \ was doubled, and without further consideration than the thirtj^-nine acres of land, Parsons' stock was doubled, and he received two hun- dred and fourteen shares of the capital stock. The bill, as amended, charges the excessive valuation of the land was made knowingly, wil- \ fully, and with tiie fraudulent intent of having issu6d to Parsons the -1 fictitious stock, in violation of law. This is a sufiScient statement of the facts for the consideration of the demurrer. 1 Arguments omitted. — Ed. PARSONS V. JOSEPH. 561 The demurrer admits the truth of the averments. It is contended, \ that the bill is defective in not averring that plaintiff was a stockholder / at the time of the transaction, complained of as being fraudulent, or that his stock devolved upon him by operation of law. In the case of Dimpfell v. Ohio & Miss. R. JR. Co., 110 U. S. p. 209, relied upon by appellant, it was held, that a stockholder, contest- ing as ultra vires an act of the directors, should aver " that he was a stockholder at the time of the transaction of which he complains, or that his shares have devolved on him since by operation of law." To the same efiect was Hawes v. Oakland, 104 U. S. 450 ; and many others might be cited. Upon an examination of these authorities, it will be seen that the principle asserted rests solely upon equity Rule No. 94 adopted by the United States Supreme Court and which may be found in the preface to vol. 104 of U. S. Eeports. Morawetz on Private Corporations, speaking of this rule, says, it was evidently de- signed as a rule of practice merelj', and was deemed necessary to guard courts from being imposed upon by collusion of parties. — Morawetz on Priv. Corp., §§ 269, 270. The rule is not a general principle of law, applicable to pleadings in all the courts, and has never been applied to the courts of this State. The demurrer to the bill for fail- ing to make this averment was properly- overruled. The motion to dissolve the injunction was heard upon the sworn bill and answer. The answer denied that plaintiff was a bona fide stock- holder, and set up that plaintiff was the transferee of one E. Lesser. The answer admits that defendant's stock was doubled without the payment of any additional consideration than that of the land ; but by way of explanation and defense, avers that the lands were not truly and properly valued at first, and the increased valuation of the lands only raised them to their real and true value, and the additional issue of stock was for property at its fair valuation. The answer continues, however, as follows : that if said transaction had been illegal and fraudulent, and not done in good faith, complainant is estopped from setting up fraud in said transaction, or seeking to cancel said stock, / because E. Lesser, who was complainant's transferrer, participated in/ all of said transactions and himself fixed the value of said lands, witl/ full knowledge of and after full investigation of the value of said land. A tran'sferree of stock is not necessarily disqualified as a suitor in all cases, because the prior holders were personally disqualified. If the transferee purchased the shares in good faith, and without notice of the fact that the prior holder had precluded himself from suing, he would have as just a title to relief, as if he had purchased from a share- holder who was under no disability ; but, if the purchaser was aware \ that the prior holder had barred his right to relief, neither justice nor 1 public policy would require that the transferee, under these circum-/ stances, should be accorded any greater rights than his transferrer.— Morawetz, supra, § 267. The same rule prevails in this State in favor of derivative purchasers. 5G2 PARSONS V. JOSEPH. If a claimant was a bona fide purchaser, without notice of a frauds or of facts which the law considers sufficient to establish it, or from which it is inferable, then he could not be affected by notice to his vendor. — Horton v. Smith, 8 Ala. 78 ; Fenno v. Sayre, 3 Ala. 458 ; Weer v. Davis, 4 Ala. 442 ; Martinez v. Idndsey, 91 Ala. 334 ; Wait on Insol. Cor., §§ 628, 630. If a stockholder participates in a wrongful or fraudulent contract, or silently acquiesces until the contract becomes executed, he can not then come into a court of equity, to cancel the contract, and more especiall3', if the company, or himself, as a stockholder, has reaped a benefit from the contract ; and this" rule holds good, although the con- sideration of the contract m&y be one expressly prohibited by statute. The same disability would attach to the transferee of his stock who bought with notice. We consider this general rule of equity abund- antly sustained. — Morawetz on Priv. Corp., §§ 261, 262; Cook on Stock and Stockholders, §§ 39, 40, 735 ; Wright v. Hughes, 12 Amer. St. Rep. 413. It is sustained bj' the familiar rule, that he who invokes the aid of a court of equitj- must have clean hands. Mr. Cook states the conditions upon which a stockholder can sustain a suit to remedy the frauds, ultra vires acts or negligence of directors, to be, first, the acts complained of must be such as to amount to a breach of trust, and such as neither a majorit3' of the directors nor of the stockholders can ratify or condone; second, that the complaining stockholder himself is free from laches, acquiescence of the acts to remedy which the suit is brought ; third, that the corporation has been requested and refused or neglected to institute the suit, that the suit is instituted by bona fide stockholders as complainants, and that the corporation and the guilty parties, and other proper parties have been made defendants. Cook, supra, § 646. If the averments of the bill are sustained by proof, the stock issued to the defendants was in violation of section 1662 of the Code and of section 6, Article XIV of the Constitution . On the contrary', if the proof shows that the property was received in payment of stock, at a fair valuation, such would not be the result. — Davis Bros. v. Mont' gotnery Fur. c. By. Co., 2 McM. cfc G. 146). VII. There is a distinction between a suit by a shareholder for relief on account of a wrong committed before he purchased his shares, and a suit brought to restrain the performance of an unauthorized and void contract, which had been previously entered into. Sedgwick C. J. [After deciding that, upon this appeal, it is proper to examine the complaint to see if it contains any cause of action.] The learned counsel for the appellant states the claim of the complaint as follows. The plaintiff sues on behalf of himself and all other stockholders of the corporation defendant, alleging that the individual PAESONS V. HAYES. 571 defendants, then being trustees of the said corporation, immediately after the organization thereof, by agreement with one Catlow, issued to him the whole capital stock of said corporation, viz. $2,000,000, in exchange for property worth not to exceed $150,000. That 90,000 shares of the stock were turned over to the defendant Hayes and his associates, and 20,000 shares to the defendant corporation by said Catlow, without payment therefor, in pursuance of the real agreement between the parties for the purchase of property and the issue of stock. That the individual defendants knew, or could have known, the value of the property, and that a portion of the stock was to be turned over as stated. That the defendants, trustees, represented the stock as full paid, and that the stock has been sold as full paid to innocent pur- chasers, including the plaintiff. That the plaintiff purchased his stock regularly in the open market, relying upon such representations, and received regular certificates, and that the stock was regularly trans- ferred to him on the books of the corporation. That the individual defendants have received large gains and profits from the sale of that portion of the stock turned over to them. That the individual defend- ants have sold the stock turned over to the defendant corporation, or a large portion of it, at $1 per share. That the individual defendants have not accounted for the diflference between the value of the stock and the amount of property received (except as to the $1 a share re^ ceived from the treasury stock), nor for the gains and profits received b3' them from the sale of the stock turned over to them. That the corporation defendant is still under the control of the individual defendants. The defendants among other defenses pleaded that plaintiff pur- chased his stock, knowing the facts attending the transaction set out in the complaint. By the terms of the complaint the plaintiff sues for himself and "all other stockholders of the defendant company who may choose to come in and avail themselves of the benefit of the actions." The plain- tiff is excused from naming all of these stockholders, on account of the inconvenience of making a great number of persons parties ; but in legal contemplation, all of them are parties plaintiff", and all of them are in like case with the plaintiff' named. These persons are stock- holders, as it is called, having become so by transfer of shares from Catlow remotely or directly, and Catlow himself, if he have not trans- ferred all his stock ; unless as to Catlow, he is not to be deemed a party because he is not in like case with the plaintiff. It will be convenient first to inquire, if Catlow as a plaintiff could have maintained such an action. The facts would have been, that previous to the impeached issue of certificates of shares, the corporation would have been in existence by virtue of the statute vrhich declares iZaws 1848 c. 40, § 2, 3 ^dm. 733) that when the certificate shall have been filed, the persons who shall have signed and acknowledged the same and their successors shall be a bodj' politic and corporate in fact J 572 , PAE30N3 V. HAYES. and in name, by the name stated in such certificate and by that name have succession and shall be capable of suing and being sued and they and their successors may have a common seal and they shall by their corporate name, be capable in law of purchasing, etc., property. There was no stock or capital and there could be none excepting by third persons paying money or propertj* for certificates of shares of the capital issued to them. There were then, of course, no shareholders. Catlow and the trustees of the corporation, who, by the statute were the corporation, made an agreement that was carried out, that certifi- cates should be issued to him by the trustees which should represent that he was the owner of the whole number of shares of the capital stock, or two hundred thousand shares of the stock which by the certificate of incorporation was to be $2,000,000, and he should convey to the company mining claims and property, which in fact had no ( greater value than $150,000, as the parties to the transaction knew. In substance Catlow subscribed for the whole of the shares, agreeing ' to pay therefor, only property of the value named. The statute declared that only monej- should be taken by the trustees \ to the nominal amount of the shares issued, or propertj', the actual k value of which was equal, to that nominal amount. The agreement ) was unlawful and its execution could not have been enforced by either n party to it. It was in fact made and executed to evade the statute. It was a part of the agreement that upon the certificates being issued to Catlow he should transfer to each of the trustees certain shares. The trustees received these shares from Catlow and afterwards sold them for large sums of money for their own benefit. Upon the certifi- cates being issued to Catlow he would become a shareholder. At least it is necessary to suppose, that although the transaction was forbidden by law, yet it was in fact done, and b3' it, Catlow became a shareholder. Upon the supposition that Catlow, being the owner of all the shares excepting such as he had transferred to the trustees, brought his action, he would claim that he had a right to demand that the company should bring an action against the trustees to compel them to pay the compan}^ money sufficient with the value of the mining property to amount to $2,000,000 which was by the certificate to be the capital, and also pay to the company the amounts of money for which they had sold the shares he had transferred to them. As the action would be by him declared to be for his benefit, it would ordinarily be necessary to say no more, than that he was not entitled to be benefited, through claiming an interest in what may be called damages for an act in which he had taken part, indeed which he had promoted. But certain positions have been taken for the present plaintiff, which would apply to Catlow and those may be now examined. It is said for the present plaintiff that the transaction was unlawful and invalid, and cannot be made lawful or be validated. If that be so, It would be true in the case of Catlow. It is nevertheless also true, PARSONS V. HAYES. 573 that , there is nothing unlawful or invalid, in the parties to an unlawful arrangement, being without a right to share in damages (to use a convenient word) which have flowed from the unlawful act. ) There is at this point a distinction taken for the plaintiff, between the right of the corporation to damages and the right of a partj' con- senting to the wrong, being entitled to damages. It is said that a corporation is an artificial person, a legal entity entirely different and distinct from the persons of which it is composed and the corporation as a distinct person may be injured by one or all of its members, and in either case has a right of action. Without stopping to ascertain the real meaning of this definition of a corporation, and assuming the other proposition to be correct, it is further to be ascertained if the corporation has been injured in the transaction or has suffered damage. The injury or damage in one direction would be the consequence of issuing certificates by an invalid act that on the assumption of the plaintiff's argument is incapable of ratification. If this be a void act, then it would be necessary to say, that the certificates issued were void and the corporation could proceed to issue certificates of shares in a legal manner. But such a view would disclose that Catlow or the plaintiff would not be a shareholder and therefore not entitled to bring such an action as the present. Such an injurj', of course, is not claimed, but it is claimed that the injury was the trustees issuing for property of small value certificates to the nominal amount of $2,000,000, whereas it was the duty of the trustees not to issue them except for $2,000,000. The complaint does not allege nor can it be presumed that if the certificates had been properlj' dealt with^ any more could have been procured for them, than was in fact, and therefore it does not appear that any pecuniary damage was suffered. (Or, in other words, it does not appear that if the trustees had perfornred their dutj', of not issuing except for equivalent value, that the corporation would have had more capital than now.^ Excepting these considerations it maj* be supposed that there was damage to the company from the trustees' acts. Was there any injury under the facts? It is true, that the corporation is something more than its trustees and shareholders ; but its property, chattels, mouey or choses in action, it owns not in its own interest but for the pecuniary benefit of the natural persons connected with it. It would be impossible to look upon the property rights of a corporation merely having regard to its being an ideal creature. It acts through natural persons. It acts for the benefit of natural persons. In truth natural persons com- pose it. The statute under which it was formed says this. The trustees who are trustees under the statute for the corporation are the trustees for the shareholders. In Karnes v. Rochester & Genesee Valley E. E. (4 Abb. Pr. N. 8. 107), the court said, " The directors stand in the relation of trustees to stockholders and between them exists the relation of trustee and cestui que trust." As for this Butts r. Wood (38 £. 181, afterwards affirmed, 37 N. Y. 317), was quoted, 574 PARSONS V. HAYES. it must have been said upon an identification of the stockholders and the corporation. The same case said (p. 110), "The corporation does not stand in any fiduciary relation to its stockholders. Such a relation between the corporation and its corporators, is shown in a well con- sidered opinion by Vice-Chancellor McCoun, in Verplanek v. Mercantile Ins. Co. (1 Edw. Ch. 87), to be impossible. The stockholders are in no sense creditors of the corporation, nor are thej' in the situation of partners. They are constituent parts of the corporation." The language of Vice-Chancellor McCoun, in Verplanek v. Mercantile Ins. Co. (1 Edw. Ch. 87) was, "The corporation is merely the creature of the law, a political bodj', not a natural bodj-, made up of the compact entered into by the stockholders, each of whom becomes a corporator identified with and forming a constituent part of the corporate bod^', and therefore when we speak of stockholders and the incorporated company of which thej' are the components, we refer to one and the same collection of persons. How then, can the relation of trustees and cestui que trust exist, for such a relation requires separate and distinct persons or separate and distinct bodies to constitute it." This ease afterwards affirms that the directors are the agents and trustees of the corporation or stockholders. In Kailway Company v. AUenton (18 Wall. 234), the charter declared that all the corporate powers of the corporations shall be vested in and exercised by a board of directors, etc., and it also declared that the capital stock of the corporation may be increased from time to time at the pleasure of said corporation. The court held that the capital could not be increased by the directors without the consent of the share- holders. The opinion said that a corporation like a partnership is an association of natural persons, and that fundamental changes of cor- porate purposes cannot be made without tlie express or implied consent of the members. Again, considering that the fundamental position, is that Catlow became in fact, shareholder to the amount of all the capital stock, the following was the relation between the parties. The corporation was the holder of the legal title of the property of the corporation, subject to corporate uses. Excepting this legal title for corporate uses, the shareholders were the parties interested in the property in fact, owning all of it, excepting the legal title, which as against them could be used for corporate purposes. The trustees were the statutory corporation. The shareholders were members or a part of the corporation. The corporation held the legal title, for the pecuniary benefit of the share- holders, having no beneficial or pecuniary benefit in it. On the claim for the plaintiff, the thing possessed is the right of the corpora tion to have an antmn ngaina); it.a trna|ppg, for damages for their acts which it is claimed were wrongful to the corporation. This right was, if it existed, held by the same tenure and for the same purposes that other property would be held. T he corporatio mouldhave a bare title to it for the beneficial use of shareholders. It seeins to Be^vident, PARSONS V. HAYES. 573 that the corporation could not claim as damage to its interest what would be damage to the beneficial interest where the owners of the latter had consented to the so called injury. In fact, however, the case is a little different in point of circumstance, although not essentially. The beneficial owner or shareholder having in advance of the occurrence, which but for their participation would have created a cause of action in the corporation, promoted it and then participated in it, the conduct of the trustees never made a cause of action, because that conduct was not wrongful as respects the shareholder. The principles that have now been used are established by Scott v. De Peyster (1 ^Idio. Ch. 513) ; Hotel Co. v. Wade (97 V. S. 13) ; Kent V. Quicksilver Mining Co. (78 N. Y. 159). It is not necessary to give the reasoning of these cases. They are applicable here. It is supposed that in the last case there is a difference, in that acquiescence of shareholders was held to estop them in favor of innocent third parties. But it must be considered that after the power to ratify or acquiesce is held to exist, the same principle would act in favor of third parties although not innocent, against whom damages for the act ratified were claimed. It seems to be clear that Catlow could not maintain an action like this, first because he could not claim that the corporation should bring an action for his benefit on account of a transaction which he took part in, and second because the corporation would have no cause of actio or right to damages. If the second proposition be true, then it necessarily follows there never having been anj' cause of action, or the right to damages having never accrued the claim cannot be revived in the future in favor of any person whether or not a transferee of shares from Catlow. The plaintiff, however, because he claims through a transfer from Catlow cannot bring ah action jwhich Catlow could not have brought upon this case. j ' In Mann v. Currie (2;iS. 298), the court said of the defendant that " if he became a stockholder bj' transfer to him of the stock of an original subscriber, he at once adopted his contract with the company and became substituted' in his place, both as regards his rights and liabilities." This was skid in relation to the obligations of the defend- ant to fulfil the terms of the original subscription of his assignor. The reasoning that tends to the application of this conclusion in this case is just and seems to be clear. The shares which the plaintiff holds \ came to him through a certificate which was issued upou a particular j arrangement under which the plaintiflT claims, necessarily admitting it / to have been effective. One feature of that arrangement was that the/ certificate should be issued to Catlow as his property for a consideration which the plaintiff claims was injurious to the corporation. As the plaintiff claims that the consideration although unlawful was sufficient to give a title which he maintains, he must abide by it as a fact and \ 576 PARSONS V. HAYES. therefore in all its consequences. It is not competent for him to take part and reject part as it was one transaction. Counsel for the defend- ant in a later case before the general term cited on this point : Hooker V. London Railway Co. (7 Tns. 368) ; the opinions in Williams v. Telegraph Co. (48 Super. Ct. 349) ; Mech. Bank v. N. Y. & N. H, R. E. Co. (13 N. T. 599) ; Hughes v. Copper Co. (72 N. T. 207). The claim that the corporation had a right to recover the amounts of profits made by the trustees for themselves individually in a transaction which thej' were conducting for the corporation has not yet been noticed. What has been already said is to be applied to this claim . There is no doubt of this general rule that trustees are liable to respond to those for whom thej' act for any profits made by them individuallj', but this is limited bj- the proposition in the language of the court of appeals (Moody V. Smith, 70 N. Y". 598), " a principal may give an agent express power to act in the business of the principal, so that the agent may reap a benefit, and in such case the principal is bound by the acts of their agent." It has been already considered that the shareholders were the real parties interested and that their consent would bind the corporation, and it follows that the corporation would not recover from the trustees, what shareholders had arranged they should individually receive. This opinion has had in regard solely the right of a member of a corporation to require that corporation to assert for his benefit, a claim for damages in which he may share, when in reality he stands in the shoes of one who took part in the transaction complained of. His want of right to maintain such an action does not affect any claim he may have for individual damage from misrepresentation by the corpora- tion or third parties, nor does it affect the claim of creditors or the liability of the corporation or its trustees to at action by the attorney general. Judgment affirmed, with costs. Teuax, J., dissents. Ingeaham, J. — [Concurring.] — I concur with the Chief Judge on the ground stated hy him that as Catlow was a party to the agreement under which the stock was issued, and received the benefit of such agreement, he would not be entitled to bring such an action as the present one, and that plaintiff's title to the stock he owns and on which he brings his action, having come through Catlow, he can have no greater right as stockholder than his assignor had. LONDON TEUST COMPANY v. MACKENZIE. 577 LONDON TEUST COMPANY, Limited, v. MACKENZIE. 1893. 68 Law Times, New Series, 380.1 Trial of action before Weight, J., sitting as an additional Judge of the Chancery Division. The original plaintiffs were the London Trust Company, Limited, and the Bankers Investment Trust, Limited ; suing on behalf of them- selves and other shareholders of the Barbadoes Water Supply Com- pany, Limited ; and claiming relief against the former directors of the Barbadoes Company, on the ground that the Barbadoes Company had incurred loss through breach of duty on the part of the directors. In the_ first insta ncejthe Trust CompaiLiesjBE£re-the_DnlyLplaintLffis, the defendants having control of the votinsr majority when the a,p.t,inT^ w as instituted ; but siihsequently, in accordan ce with the resolution of a general meeting, the Bj.T-h a.fi oes Compari y wpta joined as co-p laintiffs. The Barbadoes Company was formed in 1886. The capital was limited to 200,000?. At the end of 1888, the Company had issued only 4853Z. shares of 51. each, and debentures for a total sum of 5100?. About Jan. 1, 1889, the directors made an agreement in behalf of the company with a.^firm_of_contractors ; whereby the latter under- took to execute certain works for a specified sum in debentures and fully paid shares of the company (110,000?. in cash or debentures, and 60,735Z. in fully paid shares), and by means of a stipulated portion of those debentures and shares to carry out the provisions of certain contemporaneous agreements, under which debentures and fully paid shares of the company were to be handed over, without consideration, to certain persons (including the directors themselves). This scheme was sanctioned by each existing share holder jad-Cieditor_of_the ,com- pany. Each of the shareholders and d ebent]iie_holderg,fQr_the time being of the company ult imatel :^itook_aiJ:ifiiiefi t under one or o t her j )f the agreements^ each receiving a considerable, thou gh not un iform, bonus. " In order to obtain funds for the purposes of the contract, the di- rectors issued debentures. The prospectus, upon which subscriptions for the issue were invited, did not disclose the above arrangement, nor give any notice that the money raised was to be applied to any other than legal liabilities. The issue was underwritten to the full amount offered for subscription by various financial concerns including the plaintiff trust companies. The underwriting agreemeni_purported_io be made with the Barbadoes Company. It states that thedeEentures are offered at 99^, and that underwriters are to have 2 per cent, com- mission and a bonus in ordinary shares equal to 25 per cent, of their subscriptions. The plaintiff trust companies subscribed for and 1 Statement abridged. Fart of opinion omitted. — Ed. 578 LONDON TRUST COMPANY V. MACKENZIE. acquired some of the debentures ; receiYJug f rom^he contraRtors aa a comntission a certain number^ot ^ares and a money p ayment from the Baf5a3oes Comgany^Jlself. Th g plaintiffs are _jaow_ suing as holders of tEF'Bonils shares which theyreceived unde r this agre ement. TFe defSfdants aIIege37anTthe'pIaintiffs appear to have admitted, that no share capital had been issued by the Barbadoes Company since the completion of the above transactions, in April, 1889. Sir Horace Davey, Q. C, Levett, Q. C, and Waggett, for plaintiffs. [Argument omitted.] Sir John Righy, Solicitor General, and Chadwyck Healey, Q. C. (Ingle Joyce and Reginald Hughes, with them), for one of defendants. Every shareholder, creditor, and debenture-holder of the Barbadoes Company was concerned in the arrangement which is complained of. No person was injured by it, and no shares have since been issued. It was not a scheme to deceive future shareholders, as was the case in Society of Practical Knowledge v. Abbott, 2 Beavan, 559. The scheme was for the benefit of the Barbadoes Company, and the de- fendants, as directors, committed no breach of duty in making it. Re British Seamless Paper Box Company, 44 L. T. n. s. 498 ; 17 Chan. Div. 467. By the issue of further shares and debentures, the position of the shareholders and debenture-holders was altered for the worse, and that alteration gave them a right to bargain. The consent of the individual corporations [corporators ?] was equivalent to a resolution of the Barbadoes Company, by which it became bound. Re Gold Company, 40 L. T. n. s. 5 ; 11 Chan. Div. 701 ; Re Ambrose &o. Co., 42 L. T. N. s. 604 ; 14 Chan. Div. 390. The plaintiffs must show that what was done was a fraud on the Barbadoes Company. They have not done so. There was, moreover, no purchase by the Barbadoes Company of its own shares. In substance and in form the contractors purchased the shares. The share capital remains the same. The court is not obliged to visit directors with the consequences of acts done in good faith. London Financial Association v. Kelk, 50 L. T. N. s. 492 ; 26 Chan. Div. 107 ; Pickering v. Stephenson, 26 L. T. N. s. 608 ; L. E. 14 Eq. 322. Levett, Q. C, in reply. It is conceded that a company can condone or approve matters that are merely ultra vires of the directors, but that is not the case with regard to matters ultra vires of the company. Even if the decision in Re British Seamless Paper Box Company (ubi sup.) is now to be regarded as good law, the case does not apply, for there is here no evidence of any resolution, or even of any inten- tion, that no further capital should be issued after April, 1889. Weight, J. ... It is important_to_observe that the new shares issued or intended to be issued to th e cont ractors must have been intended, in the ordinary course of thin^j^to be transfsrreiJi!z_the LONDON TEUST COMPANY V. MACKENZIE. 579 contractors to other persons, and there is power to issue further shares. First, it is said that the arrangement was one- to which every one who had any interest either as shareholder^or debenture-ho lder. or creditor, agr eed that no one was wronged or"defrauded. an d that, under the cimimsjtajices,_the_cases of Ee The Gold Mining Company {ubi sup.), Re The Ambrose Lake Tin and Copper Company (uhi sup.), and Re The British Seamless Paper Box Company {uhi sup.) applied, and neither t he com pany nor the plaintiff shareliolders coul d compla in. But those were ail cases'or^ersons'who ownidTtlle^ntire capital of the company and inteiided to xemain-Jj he sole proprietors ^_and they were held free to make honest agreements among themselves as to, the appropriation of their property, whereas in the present case therej was to be a large issue of shares Jo. the contractors, which it musti have been intended thatthe public should take up, and there remained a large part of the share capital to be allotted in the future, and thJ parties to the present agreements were taking for themselves some 30,000^. of the capital of the company to the detriment of all who might take any such shares, and they were doing so secretly and were mis- representing by the prospectus and registered deed the real nature of the transaction. It seems to me that the company is entitled to pro- tect the future shareholders and its own funds against such appro- priations, and that the very cases relied on by the defendants are authorities for this view. " If," said James, L. J., in the last cited case, "they were intending, although then constituting the whole company, that other people should come in afterwards to whom what had been done would be injurious, the court would feel no difficulty in saying, as Lord Langdalb did in The Society of Practical Know- ledge V. Abbott {ubi sup.), that they intended to commit a fraud." Objections were raised to the right of the plaintiffs to maintain this action. So far as the company is concerned, it is for the reasons already given entitled to sue in the interest of those who hold the shares issued to the contractors or to be issued to_the public. The other plaintiffs are said to be disentitled because their shares are bonus shares, and they are said to stand in the shoes of the contract- ors from whom they took the shares, and who had notice of all the facts. It is clear, however, that these plaintiffs had no notice of any part of the arrangement, nor any notion that the 28,000Z. would be applied otherwise than for new works or in liquidation of existing legal liabilities. And I think there is no authority for the general \ proposition that an ordinary transferee of shares in a limited company is affected by the fact that his transferor had knowledge which would have disabled him from suing. ... It would seriously affect the position of sharehol ders in limite d j^nmpan ^es ^ and t hevalaaxif-shares. 580 LONDON TKUST COMPANY v. MACKENZIE. if it wer eJieldJjiiat^uch equities against a tr ansfer affect the riglit s o f transfere es for val ue withou tnotice. [The learned Judge held, that, to the extent to which the contract- ors had been provided with debentures and shares to be made over to third parties without consideration, the transaction was ultra vires of the company ; and that the directors were liable to make good the loss occasioned thereby.] BE SEVERN AND WYE AND SEVERN BRIDGE R. CO. 581 CHAPTER XV. DIVIDENDS. PREFERRED STOCK. Re SEVERN and WYE akd SEVERN BRIDGE R. CO. 1896. 74 Law Times, New Series, 219. (Before Romer, J., sitting for "Williams, J.) Summons. The Severn and Wye Railway and Canal Company (hereinafter called the original company) was incorporated by Act of Parliament in 1809, and under an Act passed in 1879 (42 & 43 Vict. c. clxiii.) this company and the Severn Bridge Railway Company were amalga- mated, and the shareholders were united into one company and incor- porated under the name of the Severn and Wye and Severn Bridge Railway Company. By the last-mentioned Act it was provided that the capital of the two companies should after the amalgamation be kept distinct. The original company was prosperous in its early days, and paid dividends half-yearly on the production to its bankers of a notice issued by the secretary to the shareholders and on their signing a special form of receipt. Under the authority of another Act, passed in 1894 (57 & 58 Vict. e. clxxxix.), the amalgamated company sold its undertaking to the Great Western and Midland Railway Companies. Sect. 4 of the Act provided that the amalgamated company should be wound up as if it were a company registered under the Companies Acts 1862 to 1890, and bad on the day of the passing of the Act passed a special resolution for winding up voluntarily. After providing for payments required by sect. 7 of the Act of 1894 it was anticipated that there would be a surplus in the hands of the liquidators of £2000, inclusive of £1238 representing unclaimed divi- dends declared by the original company prior to March, 1878, and this surplus was, under a proviso to sect. 7 of the Act, to be divided amongst the preference and ordinary shareholders of the amalgamated company in certain proportions. Prior to the amalgamation the dividends appeared in a dividend ledger of the original company, and this practice was continued in the 582 EE SEVERN AND WYE AND SEVEEN BEIDGE K. CO. same book after the amalgamation and down to the 30th June, 1885, each shareholder having an account in the ledger. In December, 1895, these were written off the dividend ledger and transferred to the general ledger to an account headed "Unpaid dividends," the whole being aggregated, and that account had ever since remained in the general ledger. In the half-yearly published accounts down to June, 1885, these dividends were entered under one item of "Unpaid dividends and interest," but in subsequent half-3-earl_y published accounts they were included in an item called " Sundry outstanding accounts." The company had in some cases paid dividends which had been unclaimed for over six years. The £1238 was made up entirely of unclaimed dividends on stock which represented shares in the original company, such dividends having all been declared more than twentj^ years ago. This was a summons taken out bj' the liquidators for the determina- tion by the court of the question whether two sums of £753 14s. 3d. and £349 4s. 3d. representing unclaimed dividends which accrued upon the stocks respectively held by William Bobbins and John Sherborne prior to the 3-ear 1874, and which remained in the hands of the liqui- dators should be paid to their respective legal persohal repi-esentatives, or whether they ought to be treated as part of the general assets of the company available for distribution as such amongst the preference and ordinary stockholders as provided bj- sect. 7 of the Act of 1894. F. Thompson for the liquidators. Vernon H. Smith, Q. C, and Rov)den for the stockholders of the amal- gamated companj-. — The claims of the legal representatives of Robbins and Sherborne were barred by the Statute of Limitations, if not at the expiration of six years from the time of the declaration of the dividends, at all events at the expiration of twenty years : (Lindley on Companies (5th edit.), p. 437). As soon as the dividends were declared an action lay to recover them. From that time the company became a simple contract debtor to the shareholders for the amount of the dividends. The entries in the books of the company were entirely consistent with the relationship of debtor and creditor, and cannot be regarded as a sufDcient acknowledgment to take the case out of the statute : J3ush V. Martin, 9 L. T. Rep. 510 ; 2 H. & C. 311. They also referred to the Companies Act 1862, s. 16. Dihdin for the personal representatives of Robbins. — The company held the dividends as trustees for the shareholders, and therefore no question on the Statute of Limitations arises : Smith v. Cork and Bandon Railway Company, Jr. Rep. 5 Eq. 65 ; Gouraud v. Edison Oower Bell Telephone Company of Europe Limited, 59 L. T. Rep. 813 ; 57 L. J. 489, Ch. ; Re Lands Allotment Company, 70 L. T. Rep. 286 ; (1894) 1 Ch. 616. The company was in a position analogous to that of a partnership. In the case of a claim by one partner against the other time does not commence to run under the statute until after the dissolution of the partnership : Penny v. Pickwick, 16 Beav. 246 ; Barton v. North Staffordshire Railway Company, 58 L. T. Rep. 549 ; EE SEVERN AND WYE AND SEVERN BRIDGE E. CO. 583 38 Ch. Div. 458. He also referred to Companies Act 1862, Table A, cl. 76 ; Lindley on Partnership, 6tli edit., pp, 511-2 ; Lindley on Com- panies, 5th edit., p. 401. W. M. Gann, for the personal representatives of Sherborne, adopted the same argument. Vernon H. Smith replied. Cur. adv. vult. March 9. — Romer, J., delivered the following written judgment: The liquidators have raised, as they were entitled to do, the defence of the Statute of Limitations in answer to the claims for unpaid dividends, which I have to consider. That defence is, in my opinion, fatal to the claims. The dividends in question were declared and became payable more than twenty years before the present claims were made, and constituted debts due to the shareholders for which they could have sued at law, as was pointed out bj' Lindley, L. J., in the passage in his treatise on companj' law (p. 437), which was cited in the argument before me. Presumably, therefore, the Statute of Limitations began to run in favor of the company from the time the dividends became payable. But the claimants contend that the statute never began to run against them, on two grounds. In the first place, they contend that the com- pany was in the position of a trustee for them of these dividends. In my judgment, this was not *so. The declaration that the dividend was payable did not make the company a trustee of it for the shareholders. Nor did the company or its successor, the amalgamated company constituted by the Act of 1879, ever constitute itself a trustee. In the books of the two companies an account was kept as of a liability in respect of the unclaimed dividends. But the entry in the books of a debtor of a liability to a creditor does not constitute the debtor a trustee of the amount of that liability for the creditor. There was no setting apart of any special part of the assets of the companies as being or representing these dividends, nor was there any notice given to the shareholders, nor any step taken by the companies, which, so far as I can see, could be treated as putting the companies in the position of trustees or as preventing the Statute of Limitations from running in tlieir favor. In the next place, the claimants contend that the statute did not run, on the ground that the shareholders and the company were in the position of partners, or in an analogous position. In my opinion that contention is untenable. Nor can I see that the reasons upon which the rule is founded, that the Statute of Limitations does not run in respect of a claim between partners during the continuance of the partnership, apply to a claim for unpaid dividends between a share- holder of an incorporated company and the companj'. The case of Penny v. PickwicJc (uhi sup.), relied on by the claimants, was one of a simple partnership which Lord (then Sir John) Eomilly held under the circumstances was a continuing partnership. In the case of Barton V. North Staffordshire Railway Company (ubi sup.) Lord Justice 584 LE BOY v. GLOBE INS. CO. (then Mr. Justice) Kay decided that where persons entitled as stock- holders in a railway company were suing to establish their position as such, their cause of action only arose when the company first refused to treat them as stockholders, and that the Statute of Limitations did not commence to run before that refusal. He did not say that the case was, in fact, analogous to a claim between partners, but only that, if the analogy were applicable, it would support his view, because the statute only runs against a partner from the time of his exclusion. Nor is the claimants' contention supported by the fact that, for many purposes, the directors of the company are held to be in a fiduciary position with regard to their shareholders as shown by the cases, referred to by the claimants, of Qouraud v. Edison Gower Bell Telephone Company of Europe {vbi sup.) and JRe Lands Allotment Company (ubi sup.). For these reasons, in mj' opinion, the claims fail. I should add that, though I cannot find any decision of the English courts on the point I have had to consider, the view I am taking was expressed in the Irish Court of Appeal by Christian, L. J., in the' case of Smith v. Cork and Bandon Railway Company (ubi sup.). J /^ LE EOT u. GLOBE INS. CO. 1836. 2 Edwards Chancery (N. Y.) 657.1 The facts in this case, as they appeared by the pleadings, were briefiy these. The complainant and Catharine A. Newbold, since deceased, as guardians of infants, were stockhold-ers of the Globe Insurance Com- pany. These persons possessed one hundred and ten shares of its capital stock, the par value of each share being fifty dollars. The said company was incorporated for insurance against loss by fire, with a capital of one million of dollars, and conducted its business in the city of New York. At a meeting of the directors of the company held on the tenth day of November, one thousand eight hundred and thirty-five, a statement of its affairs, up to the first of December then next, was exhibited by the proper officers and committees of the company, showing a surplus fund, arising from profits then earned and undivided, amounting to seventy-six. thousand four hundred and twentj'-nine dollars and sixty- nine cents. On the exhibition of these statements, the directors, by a resolution passed on the same day, declared a dividend of three and one half per centum on the capital stock of the company, for the six months then ^ Only so much of the case is given as relates to one point. Arguments omitted — Ed. LE EOY V. GLOBE INS. CO. 585, last past, to be paid out of such surplus profits on and after the first day of December then next. This dividend amounted to thirty-five thousand dollars, which sum, on the thirtieth day of November, one thousand- eight hundred and thirty-five, was carried, in the books of the company, to the debit of profit and loss ; leaving the capital then entire and a further surplus to the credit of the company, for profits then earned and not divided, amounting to forty-one thousand four hundred and twenty-nine dollars and sixtj'-nine cents. Notice of this dividend and that it would be paid on and after the first day of December was given in the public papers on the eleventh day of November, one thou- sand eight hundred and thirty-five. Checks or drafts on the Merchants Bank were accordingly prepared, such checks being severally filled up for the amount of the dividend payable to each stockholder. These checks were all dated the first day of December, one thousand eight hundred and thirty-five. They were signed by Henry Rankin, Presi- dent, made payable to the order of Richard Dunn, Secretary' of the company, and were placed in the hands of the latter, to be endorsed by him and delivered over to the stockholders, as thej' should call for them, on their signing receipts for the same in the dividend book. Between the first and seventeenth daj's of December, about four-fifths, in amount, of these checks, were called for by and were delivered to stockholders and dulj' paid on presentment at the bank. Among the checks thus filled up and signed, was one for one hundred and ninety-two dollars and fifty cents, intended to pay the dividend due to the complainant and Mrs. Newbold on their one hundred and ten shares of stock and to be delivered to them. On the night of the sixteenth of December, one thousand eight hundred and thirty-five, the great fire took place in the city of New York : the complainant and other stockholders, to the amount of about one fifth in value, not having then called for their dividends. On the eighteenth of the same December, the complainant applied for the check payable to him and Mrs. Newbold, to the secretary, who, acting under the orders of the directors, refused to deliver it or otherwise pay the dividend, on the ground that the company had sustained losses by the fire above mentioned to an amount which had rendered it insolvent. On application to the directors, the same answer was given ; and the dividend remained unpaid. On the twenty-fifth day of January, one thousand eight hundred and thirty-six, the directors declared the company to be insolvent; and three of them, namely, the defendants, Henry Ranjiin, Isaac Carow and James Heard, were (under the act) appointed receivers of its estate and effects. The declaration of insolvency and a certificate of the appointment of the receivers, both under the seal of the company, were filed with the clerk of the court of chancery for the first circuit ; on the same day and thereupon the receivers took upon themselves the duties of their office and possessed themselves of all the estate of the company, including the unpaid portion of the said dividend. 586 LE EOY V. GLOBE INS. CO. T. L. Ogdeh, for complainant. D. Lord, for defendants. MoCouN, Vice-Chancellor. — This case does not necessarily call for a decision of the question, whether, as between the stockholders of an insolvent insurance company and the creditors, the former are entitled to all the surplus which remained with the companjr undivided at the time of its disaster over and above the entire capital? Although there is here such a surplus of upwards of fort^-'One thousand dollars, besides the dividend, amounting to thirtj'-five thou- sand dollars, which was declared on the tenth day of November and made payable on and after the first day of December, yet the com- plainants, in their bill, onlj' claim to have their parts or portions of this dividend, which thej' have not received, now paid over to them out of the funds in the hands of the receivers, instead of leaving the money there to be applied as assets of the company in discharge of its debts. The complainants assert their right to the monej- upon the ground of its having become theirs by an express appropriation and setting apart so much out of the company's earnings for the stockholders and thereby distinguished from the general mass of the company's funds ; and I am convinced that enough has been done to produce this separation in the view of a court of equity- and to confer upon this amount the character of a trust fund which could not afterwards be diverted to other objects. The investigation of the affairs of the companj- and the ascertainment of a clear surplus to warrant a dividend — declaring that dividend hy a resolution of the board of directors — fixing the period for its payment — giving publicity to it — carrying the amount on the books of the company to the debit of profit and loss — apportioning the same among the stockholders, b^' filling up and signing checks upon the bank where the funds were deposited for the purpose of being delivered to each stockholder when called for: — these are all acts which the company, by its officers, might lawfulty perform. These acts became binding upon tlie company in its corporate capacity ; and gave to the stockholders individuallj' rights which the directors and officers of the companj' could not afterwards take from them. If, for instance, they had refused, after the first day of December, to deliver out the checks or make payment of the dividends and no insolvenc}- had intervened, it appears to me there would have been no difficulty in the remedy by mandamus in favor of all the stockholders or bj' action at the suit of individuals from ^hom the pa^-ment was withheld. Neither, I apprehend, could there be any valid objection to a bill in equity for the purpose of obtaining possession of the checks or the fund in the bank upon which they were drawn, upon the footing of its being a trust fund which the officers of the compan}' were bound to distribute after the first daj' of December and over which they had no otlicr control. That the officers of the companj- considered the money which was deposited to its credit in the bank appropriated to meet the checks LE KOY V. GLOBE INS. 00. 687 is evidenced by the fact that thej- went on de-Hvering out checks to such of the stockholders as called for them until th(5 seventeenth of December, when the disastrous flre had occurred ; and they would have delivered checks to these complainants in like manner if they had called to receive them. It makes no difference, in my judgment, that the money was not told out and specifically set apart in the bank to meet these checks or that a separate fund was not created for the purpose or that the money intended to meet them still formed a part of the general mass standing to the credit of the company on the books of the bank : for this court can, nevertheless, lay hold of the mass and separate so much as may be necessary to accomplish what was intended and which accident alone prevented at the time. Up to the moment of the prostration of the company, the intention remained, on the part of those who were charged vrith the management of its affairs, to continue the appropria- tion aud consummate the payment of the dividends which had been nearly completed. It was a matter no longer executorj' in the view of the parties ; and so far as it remained unexecuted this court will now perform it. The intention must be fulfilled ; and, for this purpose, a court of equity will consider, not merely the sums which were paid out in dividends, but the whole thirty-five thousand dollars as actuallj' appropriated and set apart for distribution among the stockholders from and after the first day of December and regard it as a trust fund to which the stockholders had acquired vested rights — not in their corporate capacity', but as individuals to whom the money legall}- and equitably belonged distinct from their other interests in the funds and effects of the company'. Having acquired this right, as between them and the corporation, the assignment or transfer to the receivers could not take it awaj\ The receivers do not stand in the light of purchasers for valuable con- sideration without notice ; and, under such circumstances as exist here, are bound by the trust : Adair v. Shaw, 1 Sch. & Lef. 262 ; Wood v. Durnmer, 3 Mason's R. 312. The act of the eighteenth of Januarj', one thousand eight hundred and thirty-six, under which the receivers were appointed, vests in them all the property and effects of the corporation ; but, like any other assignment by operation of law, such as in bankruptcy or under our insolvent acts it does not pass trust property — but only such as the bankrupt or insolvent held or was possessed of or entitled to for his own benefit. I shall decree that the receivers hand over to the stockholders the amount of the unpaid dividend declared on the tenth day of Novembei and payable on the first of December, 1835 ; . . . 588 FOKD V. EASTHAMPTON KUBBEE THREAD CO. FORD V. EASTHAMPTON RUBBI;E THREAD CO. 1893. 158 Mass. 84. Contract for money had and received. At the trial in the Superior Court, without a jury, before Aldrich, J. , there was evidence tending to show that the plaintiff on June 16, 1891, owned fifty-two shares of the capital stock of the defendant company, of the par value of one hundred dollars per share ; that on that day the directors passed the following vote, namely, " That a dividend of 20 per cent be paid to stockholders of this date, payable Tuesday, June 23d, 1891 " ; that on said June 16th the annual meeting of stockholders of the company for the election of directors was held immediately after the meeting of directors, according to custom, and duly elected five directors, as pro- vided by the by-laws of the company, two only of the old directors being re-elected, and no director being re-elected who voted for the twenty per cent dividend, though the two who were re-elected were present at the meeting when it was voted ; and that on said June 16th, as soon as the stockholders' meeting adjourned, the directors elected and re-elected thereat met, qualified, organized for the j-ear, and passed the following votes: "That the vote passed by the directors of this company this day declaring a dividend of 20 per cent on the capital ,stock of the company, payable Tuesday, June 23d, 1891, be reconsidered and rescinded ; the same is hereby rescinded. That a dividend of six per cent, payable June 23d instant to stockholders of record this day, be declared in place of the dividend voted at earlier meeting of this board this day." It also appeared that no money was set aside or provided to pay said dividend of twenty per cent, but the companj' had ample means and facilities for paying the twenty per cent dividend ; that always before money had been provided to pay a divi- dend before it was declared ; that money to pay said six per cent dividend was provided after the meeting and before said 23d of June by borrow- ing, and the same was set aside and deposited in bank therefor ; that the treasurer sent the check of the defendant on the bank where the money was deposited to each stockholder of record of said June 16th to pay the dividend on his stock at six per cent, including the plaintiff, on said 23d June, 1891 ; and that the plaintifl" declined to accept the check, and returned the money to the treasurer. It further appeared in evidence that no stockholder of the defendant had been paid the twenty per cent dividend for June, 1891 ; that a majority of the stock- holders had accepted the dividend of six per cent paid by checks as aforesaid on June 23, 1891, in full ; that the plaintiff, by his attorney, by letter of June 30, 1891, demanded paj-meut of the twenty per cent dividend from the defendant ; and that the plaintiff made no objection to the check of the defendant sent him to pay the dividend of June 16, FOKD V. EASTHAMPTON EUBBEB THEEAD CO. 589 1891, except that it was for a dividend of six per cent, instead of twentj' per cent. The defendant asked the court to rule that the directors elected on /una 16 had a right on that daj' to rescind the vote whereby the twenty per cent dividend was declared payable at a future day ; and that the plaintiff could not recover. The judge declined so to rule, ordered judgment for the plaintiff, and reported the case for the deter- mination of this court. If the refusal to rule and order of judgment were correct, judgment was to be affirmed ; otherwise, judgment was to be ordered for the defendant. G. M. Stearns, for the plaintiff. W. G. £assett, for the defendant. Field, C. J. It seems to be settled that, when a dividend has been fully declared, the corporation thereby manifests its intention that the amount of the dividend should be considered as having been separated from the other property of the corporation, and as having become the individual property of the stoclfholders, and that therefore, when the dividend becomes payable according to the terms of the vote declaring it, each stockholder has a right to demand paj'ment of the proportional part of the dividend which belongs to his shares of stock, and to sue the corporation for it, if it is not paid on demand. In some cases mone^' or other propertj- equal to the whole amount of the dividend declared has been specifically set apart as a fund appropriated to the payment of the dividend, and the stockholders have been regarded as the cestuis que trust of this fund, each entitled to his share. In other cases, the corporation has credited the stockholders with the amount of their shares of the dividend, and the stockholders have assented to this, and the amount so credited has been regarded as a debt of the corporation to the stockholders ; or the corporation has paid to some of the stock- holders their shares of the dividend, and has refused to pay anything to the others, and it has been held that the corporation must pay all alike. See Beers v. Bridgeport Spring Co. 42 Conn. 17; State v. Baltimore dh Ohio Railroad, 6 Gill, 363 ; ^ing v. Paterson & Hud- son River Railroad, 5 Dutch. 504 ; Jermain v. JLake Shore & Michi- gan Sottthern Railway, 91 N. Y. 483'; Hopper v. Sage, 112 N. Y. 530 ; Jackson v. Nev)ark Plankroad Co. 2 Vroom, 277 ; Wheeler v. Northwestern Sleigh Co. 39 Fed. Rep. 347. When a dividend has been declared payable at a definite future time, but no fund has been set apart for the payment of the dividend, and the corporation mean- while becomes insolvent, whether the stockholders to the extent of their proportions of the dividend should'share ratably with the creditors of the corporation in its property has not, so far as we know, been recently considered, but the decision in Lowene v. American Ins. Co. 6 Paige, 482, is that they should. The setting apart of a fund to pay,] a dividend has been held to give a lien upon it to the stockholders, which they can enforce to the exclusion of the general creditors of the corporation. In re Le Blanc, 14 Hun, 8, and 75 N. Y. 598. Le Roy 590 FOED v. EASTHAMPTON RUBBER THREAD CO. V. Globe Ins. Co. 2 Edw. Ch. 657. The English Companies' Act, 1862, (25 & 26 Vict. c. 89, § 38, cl. 7,) provides that " no sum due to any member of a companj-, in his character of a member, by waj- of dividends, profits, or otherwise, shall be deemed to be a debt of the company, paj'able to such member in a case of competition between himself and anj' other creditor not being a member of the company ; but any such sum may be taken into account, for the purposes of the final adjustment of the rights of the contributories amongst them- selves." Upon these questions, however, we desire to express no opinion. It has been argued that there is no consideration for the promise of a corporation to pay a dividend to its stockholders, but we think that the doctrine of consideration applicable to a simple contract between persons having no fiduciary relations to each other is not applicable to such promise. It is the object of a private business corporation to make money for its stockholders, and, under our laws, it is ordinarily the duty of the directors from time to time to declare dividends out of the net earnings, if there are any, and it must be left largelj' to the dis- cretion of the directors to determine when and for how much such divi- dends should be declared. The whole property of the corporation is held on a sort of trust for the stockholders, and the directors are, in a general sense, the managers ; and when a dividend is declared bj' the directors, the declaration is a determination hy a body authorized to make it that the amount of the dividend should be taken from the prop- erty of the corporation and paid over to the stockholders. The cause of action of each stockholder against the corporation for non-payment of the dividend does not arise from way actual contract between the corporation and its stockholders, but from the nature of the organiza- tion, and the relation of the stockholders to the corporation and its property. Unless the rights of creditors intervene, or the corporation \ is enjoined from paying the dividend, on the ground that the dividend has not been earned, or on some other ground, the amount of the divi- dend, after it has been declared and has become payable, is considered as property held by the corporation for the use of the stockholders indi- vidually, and the stockholders may recover their shares as money or \ property had and received to their use. We have been able to find little or no autlioritj' on the precise question involved in this case, namely, whether, after a dividend has been duly declared by a vote of the directors, but payable at a future time, the vote can be rescinded at a subsequent meeting of the directors, held before the time at which the dividend becomes payable according to the vote, when the fact that a dividend has been declared has not been made public, or in any manner communicated to the stockholders, and when no fund has been set apart for the payment of the dividend. On principle, we do not see why the directors may not rescind such a vote, under the circum- stances stated. By the vote no specific property passed to the stock- holders. If the vote be regarded as a declaration of tnist in favor of MoNAB V. McNAB AND HAELIN MANUF. CO. 591 the stockholders, it could be revoked before it was communicated to them or any property was identified and set aside for them. Indeed, cases may easily be supposed of such a change in the affairs of a cor- poration, between the time when a dividend is declared and the time when it becomes paj-able, as to make the exercise of such a power by the directors useful, if not necessary, for the successful continuance of the business of the corporation. It appears in the present case that the meeting of the new directors at which the vote was rescinded was held after the annual meeting of the stockholders, but on the same day as the meeting of the directors at which the vote was passed, which was held just before the meeting of the stockholders ; and that at the meeting of the stockholders "the president did not, as had for many years been the custom, announce that any dividend had been declared, or promulgate the same to the stockholders " ; and it does not appear that any of the stockholders, except the directors, knew of the original vote, or that any of the stockholders had made anj' contracts, incurred any liability, or done anything relying on the vote. It also appears that no fund was distinctly set apart for the payment of the dividend before the vote was rescinded. As the passage of the vote did not constitute an actual contract of the corporation with its stockholders, but was merely a mode of dividing the earnings of the property' of the corporation among the stockholders, we are of opinion that before the division had been actually- made, and before the position of the stock- holders had been changed in reliance on the vote, — certainly before the passage of the vote had been made public, or communicated to the stockholders, — it was within the power of the directors, at a meeting subsequent to that at which the vote was passed, to rescind it. In this action at law, we cannot supervise the exercise of this power by the directors. Judgment/or the defendant. McNAB V. McNAB & HARLIN MANDF. CO., et als._^j,^, 1891. 69 New York Supreme Court (62 Hun.), 18.i New York Supreme Court, General Term, First Department. A-ppeal from Special Term, New York County. Action brought to compel the division of a surplus among the share- holders. A judgment was rendered, dismissing plaintiff's complaint. Plaintiff appealed. Artemus V. Smith, for appellant. Frederic R. Coudert and Frederic G. Dow, for respondents. Daniels, J. The McNab & Harlin Company, defendant, was incor- porated on or about the 28th of April, 1871, under the laws of this 1 Only so much of the case is given as relates to one point. — Ed 592 M.XAB V. McNAB AND HAELIN MANUF, CO, Btate providing foi- the incorporation of manufacturing companies. Its business was declared to be that of manufacturing brass and iron goods for sale, and since its incorporation it has carried on that business. The plaintiff was the owner of 8 shares of its capital stock, which consisted of 150 shares, of f 1,000 each, and the other defendants were officers and shareholders in the company. After its formation, and in or about the j-ear 1877, the company became unable to pay its debts, and a proceeding in bankruptcy was instituted to discharge it from its debts. Soon after the proceeding was commenced the defendant Harlin became the president of the companj'. He owned seventy-eight share^ of its capital stock, and compromised the debts owing to the creditors of 1 the companj'. The agreement for the compromise was to pay seventy- five per cent, within the period of three j-ears. After he took charge of the affairs of the company as its president, and under his manage- ment, the business became prosperous, and the seventy-five per cent, was paid to the creditors, and afterwards they were paid the additional sura of twenty-five per cent., making payment of their demands in full. The prosperity' of the company continued, owing to the judicious management of the president, and for eight j'ears prior to the time of the trial, which took place in May, 1891, its net profits amounted to the sum of $100,000 a year, or a sum slightly in advance of that amount, and from the j'ear 1881 to the j-ear 1891 it made and paid a dividend on its shares amounting to an average exceeding the sum of twentj'-five per cent. ; and, in addition to the dividends made in this manner, it accumulated a large surplus, which was mainly used i in its business, but to the extent of about one hundred thousand \ dollars was in its deposit accounts. And it was stated by the treas- urer in his evidence upon the trial that there was at that time an actual surplus owned bj' the company amounting to the sum of $152,209, and the plaintifl", whose action was brought to secure the distribution ' of the surplus by way of dividends, alleged and claimed that a still larger surplus had been earned and was owned bj' the company ; and it was one of the principal objects of the action to secure the division of i this surplus by way of dividends among the shareholders. But it was -' proved in the course of the trial that the surplus maintained by the company was profitably employed in purchasing the material used by it in the course of its manufactures, and that it was considered for the best interests of the company not to divide this surplus among the shareholders. The directors, in restricting the dividends as they did, seem to have been impressed with the propriety of this conviction, and the dividends were accordingly limited to such amounts from year to year as did not intrench upon the large surplus which had been earned and secured. In their action upon this subject the trustees appear to have exercised the judgment which they deemed to be most consistent with the prosperitj- and maintenance of the interests of the company, and the statute under which the incorporation took place delegated the Ruthority of the trustees to manage the stock, property, and concerns stringer's case, 593 of the company (2 Rev. St., 5th Ed., p. 503, § 29 ;) and to what amount the dividends shall be made, and the extent of the surplus which the interests of the company may require to be retained, are within this delegation of authority confided to the trustees. And it was so regarded in Williams v. Telegraph Co., 93 N. Y. 162, where it was said, with the apparent approval of the court, that "when a corporation has a surplus, whether a dividend shall be made, and, if made, how much it shall be, and when and wher« it shall be payable, rest in the fair and honest discretion of the directors, uncontrollable by the courts." Id. 192. And no broader principle than this was either stated or sanctioned in Scott v. Fire Co., 7 Paige, 198, or in either of the other authorities which have been brought to the attention of the court. The principle to be applied is that which shall secure the observance of good faith on the part of the directors, and this principle was neither denied nor intrenched upon in Seeley v. Bank, 8 Daly, 400, which was aflBrmed in 78 N. Y. 608. The trustees are chosen by the shareholders, to exercise their best judgment, depending upon their knowledge of the affairs and condition of the companj' ; and when that has been done, the courts do not undertake to control their action, although they might differ in their views of the proper management to be adopted and followed. Ko reason has been disclosed by the case for doubting or impeaching the good faith of these trustees. Neither can it be affirmed justly, in view of the large business carried on by the company, that they acted unreasonably or capriciously in declining to order a larger dividend than, that which was in fact paid to the shareholders. [Opinion on other points omitted.] Judgment affirmed. STRINGER'S CASE. In re MERCANTILE TRADING CO. 1869. L. R. i Chan. Ap. 475. This was an appeal from an order of Vice-Chancellor Malins, made [n the winding up of the Mercantile Trading Company, Limited. The company was registered under the Companies Act, 1862, on the 27th of June, 1863. The objects of the company, as stated in the memorandum of association, were the purchase of goods and ships for export and transmission to America, for sale or barter and return and sale of goods from thence, and the chartering or freighting of ships, and all other matters necessary for carrying on the operations of the company, or other operations of a similar character. It was, however, admitted that the real object of the company was to trade with the Confederate States of America, by running the blockade then main- tained by the government of the Federal States. For this purpose 694 ^tkinger's case, thej- provided a line of ships running from Bermuda to Charleston and Wilmington, wiiieh were intended to carry goods from England to tlie Confederate government, and to bring back cargoes of cotton in return. The company had a nominal capital of £150,000, of which about £112,000 had been paid up. The articles of association embodied the rules given in Table A of the Companies Act, 1862, which provide, in Kule 73, that " no dividend shall be payable except out of the profits arising from the business of the company, except so far as modified by the articles ;" and the articles provided, by Article 5, that "the directors shall declare a dividend on the subscribed capital of the com- pany as soon and as often as the profits of the company in hand are sufficient for payment of a dividend of £5 per cent, on such capital, subject to the resolutions of a general meeting of the company called with reference thereto." Shortly after the establishment of the company, the directors entered into a contract with the Confederate government, under which the Con- federate government agreed to be co-owners of the ships employed by the company, and that the ships should be owned in the proportion of two-thirds b^- the Confederate government, and one-third by the com- pany ; the ownership of the Confederate government to be paid for in cotton, at Charleston or Wilmington, on the basis of 6c?. per pound for '■^Middling Upland" cotton. Several successful trips were made by the ships, and although some of them were captured or lost, a considerable profit was at first made by the company on their adventures. In May, 1864, a balance sheet was made out of the state of the company, down to the 29th of February, 1864, showing a profit of £42,718 los. 2d., out of which the directors proposed a dividend to be paid at the rate of £25 per cent, on the capital, amounting to about £28,000. This dividend was adopted by a general meeting of the company, held on the 17th of May. The balance sheet was submitted to the directors of the Agra and United Service Bank, the company's bankers, and was examined by their accountants. The bank then advanced them upwards of £21,000 towards the payment of the dividend to the shareholders, although their account was already overdrawn to the amount of £5000. The dividend received by Mr. E. P. Stringer, the managing director, in respect of his shares, amounted to £3560. The termination of the civil war in America, bj' the success of the Federal gow&cnm&at, caused the failure of the company, the cotton appro- priated to them in the Confederate States being all destroyed or captured, and the debt due from the Confederate government turning out worthless. The company was accordingly wound up, the only creditor of large amount being the Agra and Mastennan's Bank, which had succeeded to the business of the Agra and United Service Bank. The present application was made by the oflBcial liquidator to obtain a repayment by Mr. Stringer of the dividend received by him, on the ground that ,^_ stringer's case. 595 the balance sheet was delusive, and the dividend really paid out of the capital of the company. The sections of the Companies Act, 1862, under which it was contended that the Court had jurisdiction to order the return of the money upon this application, were the 101st and 165th. The principal objections made to the balance sheet were as follows : First, that the directors had taken credit for a sum of £51,589 due to the company from the Confederate government as an asset of the company at its full value ; secondly, that they had also taken credit for cotton within the Confederate States, which was all subsequently' destroyed, at the value of £17,000 ; and, thirdly, that they had entered the loss of three ships as a loss of only one-third of their value, thus reckoning the guarantee of the Confederate government for the other two-thirds at its full value. The Vice-Chancellor was of opinion that the dividend declared was altogether delusive, and that it amounted to a return of one-third of the capital to the shareholders ; but he also held that he had no juris- diction under the 101st or 165th sections of the Companies Act, 1862, to make an order for the return of the dividend ; but that it was necessary for the official liquidator to file a bill for that purpose. The official liquidator appealed from this decision. Cotton, Q. C, and Higgins, for appellant. The declaration of the dividend was both in violation of the articles and delusive, amounting to a return of part of the capital. Table A of the Companies Act, 1862, which was adopted by the company, forbids payment of dividend out of capital, and the 5th clause of the articles is still further restrictive, providing that the dividends are to be paid out of " profits in hand." So far was the company from having profits in hand that they were obliged to borrow part of the money to pay the dividend from the Agra and Masterman's Bank. But the balance could not be called profits in any sense until it was known whether the cotton in the Confederate States and the debt of the Confederate government could ever be realized. The directors were not justified in putting a value upon what they could not realize, and which it was very doubtful whether they would ever be able to realize. At all events, the value put upon these items was much too high. No cotton in the Confederate States or liabilit3' of the Confederate government bore such a high price in the market at that time as was put upon these items in the balance sheet. Glasse, Q. C, and IT. M. Jackson, for Stringer. There is nothing in the articles to render this dividend improper. The 5th clause does not mean that the directors were only to pay profits out of money at their bankers. They were to estimate the profits in the usual mercantile way, that is, by valuation of the assets of the company. This was done ; there was no concealment on the balance sheet, and it was submitted to the Agra and Masterman's 596 stkingek's case. Bank, who understood all the circumstances, and would not have advanced the monej' unless the balance sheet had been honestly made. And yet they are the very parties who are now, through the official liquidator, complaiuing of it. At that time the prospects of the Con- federate cause and the security of the government were thought good by most mercantile men, and it is not right to judge of the fairness of the transaction by the result of the speculation. [The opinion of Sir C. J. Selwyn, L. J., is omitted.] Sir G. M. Giffard, L. J. [After deciding that the Court has power, under the Companies Act, to order a repayment of dividends declared and paid under a delusive and fraudulent balance sheet :] Now, with regard to this case, the first important matter that we have to consider is the effect of these articles of association, and I quite agree that if the effect of these ai'ticles was that you could have no division of dividends until all the transactions were wound up, that you could have no legal dividend except out of what is termed profits in hand, there might be a great deal to be said in this case ; but if we look at the articles of association as compared with Table A., it is clearly manifest that the articles of association amount to nothing of the kind. [His Lordship then referred to the provisions in Table A., and in the articles of association, which have been before mentioned, and continued: — ] I have no hesitation in saying — especiallj- if you compare the word "may" in Table A., and the word " shall" in the 5th clause, and consider that there are negative words in Table A., and that there are none in this clause — that this clause was intended simply to have this effect, and no other, viz., that when the directors had in their hands profits they should not be able to set them aside for a contingency fund, and that they should then, at all events, be com- pellable to make a dividend. It did not prevent their making a dividend ; but I agree, it must be out of profits, although those profits were not profits in hand. Then, when we come to the facts themselves — I will not again go tlirough them, for they have been considered at ver^' considerable length, not only in argument, but also by my learned brother — it was not argued or suggested, nor could it be argued or suggested, that it was intended that this thing, though in terms a dividend, should cover what was not really a dividend transaction. The mode in which the matter was done was fair enough. The books were put into the hands of an accountant, calculations were made, and a certain conclusion was arrived at. True it is, no doubt, that these proceedings were full of risk ; but although, on the one hand, there might be a great loss, everj-- one knows that whenever there was a success the profits were something verj- enormous, and upon the balance sheets as taken from the books it did appear that there was a profit of £42,000, and it was proposed out of that to divide somewhere about £28,000, the profits, I agree, not being profits in hand. The fault that is found with that is, that the 22 STEINGEK'S CASE. 597 estimate was an erroneous estimate; that too sanguine a view was taken of the prospects of success ; and that there ought to have been a ver3' much less sum put upon the face of this balance sheet as assets than really was put there. But I do not think that anj'one can saj- it was not at this date possible for honest persons carrj-ing on this trade, entertaining the view which they did entertain as to their prospects, honestly to make out such a balance sheet as this, and honestly to believe that those were profits fairly divisible between them. As I have said before, this was not done in any underhand manner ; the whole thing was patent and open ; it was known, or capable of being known, by every shareholder, and if the directors of the Agra and Masterman's Bank did not know anything about it, they neglected their dutj', and behaved most shamefully to their own shareholders whose money they lent; for the balance sheet was put in their hands, and they had accounts of every description, and they must have known perfectly well that it was neither more or less than a blockade-running company ; the very nature of the accounts shewed it ; and so far from there being any concealment, the balance sheet itself was put into the hands of the auditors, and no person who knew what the business of the company was could look through that balance sheet without seeing at once that the full value was put upon the Confederate government debt, and that the four ships had been lost, and without knowing at once that if things turned out adversely that which was profit might, from subsequent events, become a great loss. Again, this dividend was declared in May, 1864, and was actually paid in June, 1864, and I cannot forget that it was actually paid by the Agra and Masterman's £ank, who not only advanced the money, knowing the afllairs of the \ company, but who paid the dividends through the medium of cheques j drawn upon them by the shareholders. I think it would be a gross injustice if at this distance of time, when a dividend has been made \ and paid in this way so long ago as the year 1864, because things turn out adversely afterwards, and the companj' is wound up in / 1867 at the instance of a creditor, such a dividend should be repaid. ' I quite agree when there has been what can be termed fairly a misap- propriation of assets as against a creditor, that creditor has a right in the winding-up to have those assets recouped ; but I cannot think that such a dividend as this was in any sense a misappropriation as against either the Agra and Masterman's Bank or any other creditors, or that it was in any sense delusive, or in any sense a fraudulent transaction, or that it was any other transaction than this, viz., that mercantile men who were engaged in adventures which might result in very great or even total loss, and which might also result in very great profit, took a sanguine view of what the value of the assets was, looking at what at that date was the actual profit made, and acted upon that bond fide, not intending to defraud in any way any person whatever. Therefore, I am of opinicJn that this appeal must be dismissed witlj costs. 598 Mcdonald v. williams. McDonald, Eeceivek, v. WILLIAMS. 1899. 174 United States, 397<1 Suit by receiver of the Capital Kational Bank of Lincoln, Ne- braska, to recover from defendants, stockholders in the bank, the amount of certain dividends previously received by them. Upon a trial in the U. S. Circuit Court there was a decree in favor of plaintiff for the recovery of a part of the sums claimed. Both parties appealed. Upon the argument of the appeal in the Circuit Court of Appeals, that court desired the instruction of the Supreme Court on certain questions. It appears from the statement of facts made by the court that the bank suspended payment in January, 1893, in a condition of hope- less insolvency, the stockholders, including the defendants, have been assessed to the full amount of their respective holdings, but the money thus obtained, added to the amount realized from the assets, will not be sufficient even if all dividends paid during the bank's ex- istence were repaid to the receiver, to pay seventy-five per cent., of the claims of the bank's creditors. This suit was brought to compel the repayment of certain dividends > paid by the bank to the defendants on that part of the capital of the bank represented by their stock of the par value of $5000, on the j ground alleged in the bill that each of said dividends was fraudu- ■' lently declared and paid out of the capital of the bank, and not out of net profits. A list of the dividends and the amount thereof paid by the bank from January, 1885, to July, 1892, both inclusive, is contained in the statement, and it is added that all dividends, except the last, (July 12, 1892,) were paid to the defendant Williams, a stockholder to the amount of f 5000, from the organization of the bank. The last divi- dend was paid to the defendant Dodd, who bought Williams' stock, and had the same transferred to his own name December 16, 1891. When the dividend of January 6, 1889, was declared and paid, and when each subsequent dividend, down to and including July, 1891, was declared and paid, there were no net profits. The capital of the bank was impaired, and the dividends were paid out of the capital, \ but the bank was still solvent. When the dividends of January and July, 1892, were declared and paid there were no net profits, the capi- / tal of the bank was lost, and the bank actually insolvent. The defendants, neither of whom was an officer or director, were ignorant of the financial condition of the bank, and received the divi- dends in good faith, relying on the officers of the bank, and believing , the dividends were coming out of the profits. 1 Statement abridged. Part of opinion omitted. The docket title of this case is Hay. ien, Receiver, v. Williams. — Ed. Mcdonald v. williams. 599 Upon these facts tlie court desired the instruction of this court for the proper decision of the following cLuestions : First question. Can the receiver of a national bank recover a divi- ' dend paid not at all out of proiits, but entirely out of the capital, ■when the stockholder receiving such dividend acted in good faith, believing the same to be paid out of the profits, and when the bank, at the time such dividend was declared and paid, was not insolvent ? i [The second question is omitted.] Edward Winslow Paige, for appellant. Theodore De Witt (^George G. De Witt with him), for appellees. Peckham, J. . . . The complainant bases his right to recover in this suit upon the theory that the capital of the corporation was a trust fund for the payment of creditors entitled to a portion thereof, and having been paid in the way of dividends to the shareholders that portion can be recovered back in an action of this kind for the purpose of paying the debts of the corporation. He also bases his right to recover upon the terms of section 5204 of the Revised Stat- utes. We think the theory of a trust fund has no application to a case of this kind. When a corporation is solvent, the theory that its capital is a trust fund upon which there is any lien for the payment oiE its debts has in fact very little foundation. No general creditor has any lien upon the fund under such circumstances, and the right of the corporation to deal with its property is absolute so long as it does not violate its charter or the law applicable to such corporation. In Graham v. Railroad Company, 102 U. S. 148, 161, it was said by Mr. Justice Bradley, in the course of his opinion, that " when a cor- poration becomes insolvent, it is so far civilly dead.that its property may be administered as a trust fund for the benefit of its stockhold- ers and creditors, and a court of equity, at the instance of the proper parties, will then make those funds trust funds, which, in other cir- cumstances, are as much the absolute property of the corporation as any man's property is his." And in Hollins v. Brierfield Coal and Iron Company, 150 U. S. 371, 383, 385, it was stated by Mr. Justice Brewer, in delivering the opin- ion of the court, and speaking of the theory of the capital of a corpo- ration being a trust fund, as follows : " In other words, and that is the idea which underlies all these ex- pressions in reference to ' trust ' in connection with the property of a corporation, the corporation is an entity distinct from its stockhold- ers as from its creditors. Solvent, it holds its property as any indi- vidual holds his, free from the clutch of a creditor who has acquired no lien ; free also from the touch of a stockholder who, though equi- tably interested in, has no legal right to, the property. Becoming insolvent, the equitable interest of the stockholders in the property, together with their conditional liability to the creditors, places the property in a condition of trust, first, for the creditors, and then for 600 Mcdonald v. williams. the stockholders. Whatever of trust there is arises from the peculiar and diverse equitable rights of the stockholders as against the cor- poration in its property and their conditional liability to its creditors. It is rather a trust in the administration of tlie assets after possession by a court of equity than a trust attaching to the property, as such, for the direct benefit of either creditor or stockholder." And also : " The officers of a corporation act in a fiduciary capacity in respect to its property in their hands, and may be called to an account for fraud, or, sometimes, even mere mismanagement in respect thereto ; but, as between itself and its creditors, the corporation is simply a debtor, and does not hold its property in trust, or subject to a lien in their favor, in any other sense than does an individual debtor. That is certainly the general rule, and if there be any exceptions thereto they are not presented by any of the facts in this case. Neither the insolvency of the corporation, nor the execution of an illegal trust deed, nor the failure to collect in full all stock subscriptions, nor all together, gave to these simple contract creditors any lien upon the property of the corporation, nor charged any direct trust thereon." Other cases are cited in the opinion as holding the same doctrine. In Wabash, etc., Railway Company v. Ham, 114 U. S. 587, 694, Mr. Justice G-ray, in delivering the opinion of the court, said : " The property of a corporation is doubtless a trust fund for the payment of its debts, in the sense that when the corporation is law- fully dissolved and all its business wound up, or when it is insolvent, all its creditors are entitled in equity to have their debts paid out of the corporate property before any distribution thereof among the stockholders. It is also true, in the case of a corporation as in that of a natural pei'son, that any conveyance of property of, the debtor, without authority of law, and in fraud of existing creditors, is void as against them." These cases, while not involving precisely the same question now before us, show there is no well-defined lien of creditors upon the capital of a corporation while the latter is a solvent and going con- cern, so as to permit creditors to question, at the time, the disposition of the property. The bank being solvent, although it paid its dividends out of capital, did not pay them out of a trust fund. Upon the subsequent insolvency of the bank and the appointment of a receiver, an action could not be brought by the latter to recover the dividends thus paid on the theory that they were paid from a trust fund, and therefore were liable to be recovered back. It is contended on the part of the complainant, however, that if the issets of the bank are impressed with a trust in favor of its creditors when it is insolvent, they must be impressed with the same trust when it is solvent ; that the mere fact that the value of the assets of the corporation has sunk below the amount of its debts, although as ^ Mcdonald v. williams. 601 yet unknown to any body, cannot possibly make a new contract be- tween the corporation and its creditors. In case of insolvency, how- ever, the recovery of the money paid in the ordinary way without condition is allowed, not on the ground of contract to repay, but be- cause the money thus paid was in equity the money of the creditor ; that it did not belong to the bank, and the bank in paying could bestow no title in the money it paid to one who did not receive it bona fide and for value. The assets of the bank, while it is solvent, may clearly not be impressed with a trust in favor of creditors, and yet that trust may be created by the very fact of the insolvency, and the trust enforced by a receiver as the representative of all the cred- itors. But we do not wish to be understood as deciding that the doctrine of a trust fund does in truth extend to a shareholder receiv- ing a dividend, in good faith believing it is paid out of profits, even though the bank at the time of the payment be in fact insolvent. That question is not herein presented to us, and we express no opin- ion in regard to it. We only say, that if such a dividend be recover- | able, it would be on the principle of a trust fund. Insolvency is a most important and material fact, not only with individuals but with corporations, and with the latter as with the former the mere fact of its existence may change radically and materially its rights and obligations. Where there is no statute pro- viding what particular act shall be evidence of insolvency or bank- ruptcy, it may be and it sometimes is quite difficult to. determine the fact of its existence at any particular period of time. Although no trust exists while the corporation is solvent, the fact which creates the trust is the insolvency, and when that fact is established at that instant the trust arises. To prove the instant of creation may be almost impossible, and yet its existence at some time may very easily be proved. What the precise nature and extent of the trust is, even in such case, may be somewhat difficult to accurately define, but it may be admitted in some form and to some extent to exist in a case of insolvency. Hence it must be admitted that the law does create a distinction between solvency and insolvency, and that from the moment when the latter condition is established the legality of acts thereafter per- formed will be decided by very different principles than in a case of solvency. And so of acts committed in contemplation of insolvency. The fact of insolvency must be proved in order to show the act was one committed in contemplation thereof. Without reference to the statute, therefore, we think the right to \ recover the dividend paid while the bank was solvent would not exist. / But it is urged on the part of the complainant that section 5204 . of the Eevised Statutes makes the payment of a dividend out of I capital illegal and ultra vires of the corporation, and that money thus / paid remains the property of the corporation, and can be followed / into the hands of any volunteer. 602 Mcdonald v. williams. The section provides that " no association, or any member thereof, shall, during the time it shall continue its banking operations, with- draw, or permit to be withdrawn, either in the form of dividends or otherwise, any portion of its capital." What is meant by this lan- guage ? Has a shareholder withdrawn or permitted to be withdrawn in the form of a dividend any portion of the capital of the bank when he has simply and in good faith received a dividend declared by a board of directors of which he was not a member, and which dividend he honestly supposed was declared only out of profits ? Does he in such case within the meaning of the statute withdraw or permit to be withdrawn a portion of the capital ? The law prohibits the making of p. dividend by a national bank from its capital or to an amount greater than its net profits then on hand, deducting therefrom its losses and bad debts. The fact of the declaration of a dividend is in effect the assertion by the board of directors that the dividend is made out of profits. Believing that the dividend is thus made, the shareholder in good faith receives his portion of it. Can it be said that in thus doing he withdraws or permits to be withdrawn any portion of the capital of the corporation ? We think he does not withdraw it by the mere reception of his proportionate part of the dividend. The withdrawal was initiated by the declaration of the dividend by the board of directors, and was consummated on their part when they permitted payment to be made in accordance with the declaration. We think this language implies some positive or affirmative act on the part of the shareholder by which he knowingly withdraws the capital or some portion thereof, or with knowledge permits some act which results in the withdrawal, and which might not have been so with- drawn without his action. The permitting to be withdrawn cannot be founded upon the simple -receipt of a dividend under the facts stated above. One is not usually said to permit an act which he is wholly igno- rant of, nor would he be said to consent to an act of the commission of which he had no knowledge. Ought it to be said that he with- draws or permits the withdrawal by ignorantly yet in entire good faith receiving his proportionate part of the dividend? Is each shareholder an absolute insurer that dividends are paid out of profits ? Must he employ experts to examine the books of the bank previous to receiving each dividend? Few shareholders could make such examination themselves. The shareholder takes the fact that a divi- dend has been declared as an assurance that it was declared out of profits and not out of capital, because he knows that the statute pro- hibits any declaration of a dividend out of capital. Knowing that a dividend from capital would be illegal, he would receive the dividend as an assurance that the bank was in a prosperous condition and with unimpaired capital. Under such circumstances we cannot think that Congress intended by the use of the expression " withdraw or permit to be withdrawn, either in the form of dividends, or otherwise," any Mcdonald v. williams. 603 portion of its capital, to include the case of the passive receipt of a dividend by a shareholder in the bona fide belief that the dividend was paid out of profits, while the bank was in fact solvent. We think it would be an improper construction of the language of the statute to hold that it covers such a case. We are strengthened in our views as to the proper construction of this act by reference to some of its other sections. The payment of the capital within a certain time is provided for by sections 6140 and 5141. Section 5151 provides for the individual responsibility of each shareholder to the extent of his stock at the par value thereof in addition to the amount invested therein. (These shareholders have already been assessed under this section.) And section 6205 pro- vides for the case of a corporation whose capital shall have become impaired by losses or otherwise, and proceedings may be taken by the association against the shareholders for the payment of the deficiency in the capital within three months after receiving notice thereof from the Comptroller. These various provisions of the statute impose a very severe liability upon the part of holders of national bank stock, and while such provisions are evidently imposed for the purpose of securing reasonable safety to those who deal with the banks, we may nevertheless say, in view of this whole system of liability, that it is unnecessary, and that it would be an unnatural construction of the language of section 5204 to hold that in a case such as this a share- holder, by the receipt of a dividend from a solvent bank, had with- drawn or permitted to be withdrawn any portion of its capital. We may concede that the directors who declared the dividend under such circumstances violated the law, and that their act was therefore illegal, but the reception of the dividend by the shareholder in good faith, as mentioned in the question, was not a wrongful or designedly improper act. Hence the liability of the shareholder should not be enlarged by reason of the conduct of the directors. They may have rendered themselves liable to prosecution, but the liability of the shareholder is different in such a case, and the receipt of a dividend under the circumstances is different from an act which may be said to be generally illegal, such as the purchase of stock in one national bank by another national bank for an investment merely, which is never proper. Concord First National Bank v. Hawkins, just decided, ante, 364. The declaration and payment of a dividend is part of the course of business of these corporations. It is the thing for which they are established, and its payment is looked for as the appropriate result of the business which has been done. The presumption of legality attaches to its declaration and payment, because declaring it, is to assert that it is payable out of the profits. As the statute has pro- vided a remedy under section 5205 for the impairment of the capital which includes the case of an impairment produced by the payment of a dividend, we think the payment and receipt of a dividend under 604 BKIGHT V. LORD. the circumstances detailed in the question certified do not permit of its recovery back by a receiver appointed upon the subsequent insol- vency of the bank. The facts in the various English cases cited by counsel for com- plainant are so entirely unlike those vsrhich exist in this case that no useful purpose would be subserved by a reference to them. Not one holds that a dividend declared under such facts as this case assumes can be recovered back in such an action as this. We answer the first question in the negative.* r BRIGHT V. LORD. 1875. 51 Indiana, 272. From the Marion Superior Court. J. E. McDonald, J. M. Butler, S. W. Harrington and H. Francisco, for appellant. N. B. Taylor, F. Rand, E. Taylor, B. Harrison, G. G. Hines and W. H. H. Miller, for appellees. BiDDLB, C. J. — The facts averred in the appellant's complaint are as follows : That on the 1st day of April, 1873, the appellant entered into a provisional contract with John M. Lord, John Lord, and Charles M. Lord, by which they agreed to sell to the appellant five hundred and twenty shares of the capital stock of the Indianapolis Rolling Mill Company, of fifty dollars each, for the sum of thirteen thousand dol- lars, at the option of the appellant, to be by him taken at any time on or before the 18th. day of June, 1873, to be paid for on delivery ; that before the expiration of said option, on the 14th day of June, 1873, the said Lords, for the consideration of one hundred dollars, to them paid by appellant, extended the time of said provisional contract for thirty days, within which time the appellant paid the Lords thirteen thousand dollars, and received the stock, which, on the 16th day of Jul}', 1873, was duly transferred to him on the books of the Rolling Mill Companj' ; that the appellant purchased the stock without the reservation of any dividends or earnings, and with all the benefits and interests that pertain to the same ; that on the 3d of Jul}', 1873, the board of directors of the Rolling Mill Company declared a dividend on the capital stock of the company of five per cent., to be paid on the 1st day of August ensuing, amounting, on the stock, etc., purchased by 1 After the Supreme Court had given the above opinion, the Circuit Court of Appeals rendered judgment against the receiver as to the dividends in the years when the hank was still solvent, and against the defendant stockholders for the dividends paid during in- solvency. La COMBE, J., said: "No question was propounded'* (». c, to the Supreme Court) " as to the dividends paid when the bank was actually insolvent, as we had no iioubt the receiver could recover them in a proper action." Hayden v. Williams, 96 Federal Keporter, 2T9, pp. 283, 284. See, also, Grant v. Ross, A. D. 1896, 100 Kentucky, 44. — Ed. HEIGHT V. LOED. 605 the appellant, to thirteen hundred dollars, which the appellant claims ; that the company was about to pay the said thirteen hundred dollars to the Lords, who also claimed the amount. Prayer to restrain the com- pany from paying the thirteen hundred dollars to the Lords, to decree the amount to the appellant, and for general relief. The Rolling Mill Company was served with process, but made default. Interlocutory proceedings were had after complaint and before answer, but as no question is raised upon them, they are not stated. The Lords answered by a general denial. The case was submitted to the court for trial, which resulted in a finding for the defendants. Motion for a new trial overruled. Exception. Appeal to the general term, where the judgment was aflSrmed, from which an appeal was taken to this court. The only error assigned here is in aflSrming the judgment at the general term. The evidence is before us, and we thinli it fairly proves the allegations in the complaint. Was the appellant entitled to the dividend declared while it was optional with him to purchase or refuse the stock, and before the purchase was completed? This is the sole question in the case. Where a stockholder in a railroad assigned and transferred his stock after two years interest had accrued, which, hy a resolution of the companj' was payable annually, and had been carried to the account of the stockholder, it was held that the interest did not pass bj' the assignment of the stock ; the court stating the rule to be, that ' ' the interest follows the principal, as an incident to it, so long as it remains an incident ; but when it is separated and set apart from the principal • by actual paj'nient, or by being carried, when due, to the credit of the owner of the principal in his account with the debtor, and this in pur- suance of a provision in the contract creating and defining the principal debt,'it is so separated and disjoined from the principal as to cease to be an incident to, and does not follow it." The City of Ohio v. The Cleveland, etc., R. M. Co., 6 Ohio St. 489. And in the case of Jones V. The Terre Haute db Richmond JR. R. Co., 29 Barb. 353, it was held, that " where, by a resolution of the board of directors, a dividend is made to the persons then holding stock, without anj' discrimination, out of the surplus earnings of the corporation for a given period, pay- able at a future day, all who are stockholders on the books of the company, at the time the dividend is declared, are entitled to share therein." This case seems to us as being remarkably similar to the one before us. It has also been held that the purchaser of a share of stock in a corporation has the right to receive all future dividends, JVom whatever source the profits maj' arise,, provided he remain a tJiember of the corporation until a dividend is made. March v. The J^astern E. R. Co., 43 N. H. 515. The same rule was recently held in England. The testatrix was r mer of certain shares in the South Australian Banking Compan}-. 606 BRIGHT V. LORD. On the 7th day of June, 1865, dividends were declared "hy the com- pany, payable on the 15th of July, 1865, and on the 15th of January, 1866. On the 31st of December, the testatrix died, having made her will, devising the stock, in 1863. The question arose as to whether the dividend due on the 15th of January, 1866, passed to the devisee, or belonged to her residuary estate. Sir W. Page Wood, V. C, said: "As soon as the dividend was declared, although payment, for convenience of the companj', was postponed until the following January, from that moment the testatrix became entitled to it, although she could not have then recovered it, and it would have passed to her legatee had she specifically bequeathed it." De Gendre v. Kent, i Equity Cases, 283. In an American case, still later, it was held that a dividend belongs to the owner of the stock, at the time the dividend is actually declared, and that dividends made to the stockholders after the death of a testator belong to the widow who owns the stock, but if made before, although payable afterwards, they will pass by the devise. Brundage v. Brundage^ 65 Barb. 397. In support of this general principle, see, also, In re Foote, 22 Pick. 299 ; Glapp v. Astor, 2 Edwards Oh. 379 ; Phelps v. Farmers and Mechanics Bank, 26 Conn. 269 ; Hyatt v. AUen, 56 N. Y. 553. From the authorities and upon principle, we think the rule may be deduced, that whoever owns the stock in a corporation at the time a dividend is declared owns the dividend also ; and a sale of the stock afterwards will not carry the dividend with it, though it may not be paid, or payable, until after the sale. The same rule governs in the sale of bonds or other securities, where the interest is payable at stated periods, as upon coupon bonds ; but when the interest is accruing from day to da}-, whatever is due on the bond or other security at the time it is sold, will pass with it. The reason of the distinction is, that when the interest accrues from day to daj', it is divisible and payable at any time ; but when the interest is paj'able at stated periods, no part of it is due until the period arrives ; and in the earnings or profits of stocks, it is impossible to know what amount is due until the dividend is declared. In the case before us. Bright did not become the owner of the stock until the 16th day of July, 1873. Up to that time, it was optional with him to purchase it or refuse it. The Lords would have had no remedy, if Bright had refused the stock, and Bright would have suffered no loss, except the consideration he had paid fdr the option, and incurred no liability, whatever. The dividend had been declared on the 3d day of July, 1873, and the amount fixed, by which it became the propertj' of the Lords at that time, although not paj'able until the 1st daj' of August ensuing ; and there is nothing in the complaint to inform us but what Bright knew all these facts at the time he com- pleted the purchase of the stock. At least, ordinary business diligence TAFT V. HAETFOED, PEOYIDENCE, & FISHKILL E. CO. 607 would haveinformed him of the facts, if he did not actually know them, and then he could have purchased the stock, as it then stood, or not, at his option. As he has not averred in his complaint that he did not know these facts, and could not have ascertained them by ordinary business diligence, he must be held to have known them, and to have mada his purchase accordingly. The judgment is affirmed. onditions of, and the charges for the transfer of shares, but no such charge shall exceed 2s. 6d. for every transferor named in the instrument of transfer. By art. 26, every original shareholder shall, on payment of such sum, not exceeding 2s. 6d., as the directors prescribe, be entitled to a certificate under the common seal of the companj', and under the hands of two of the directors, specifying the shares held by him, and the amount paid up in respect thereof. The questions for the opinion of the Court vreve : 1. Whether, as against the company, Mr. Burton and Mrs. Goodburn are entitled to the said shares in the companj', or an equivalent number. 2. Whether they are entitled to any and what damages to be paid to them by the company under the above circumstances. The Court were to make such order and give such judgment as they might think fit, and have power to make and give. J. Brown, Q. 0. (W. G. Harrison with him), for the claimants, Burton and Goodburn. [Argument omitted.] IN EE BAHIA AND SAN FRANCISCO E. CO. 643 Watliin Williams (Oohen with him), for the company. The con- tract which a bu^-er malses in the market is only for a certain number of shares, not anj' specific shares, and it is not till the purchase is com- plete that the company is called upon to act and register the transfer. There is, therefore, no contract on which the company can be held liable to the claimants. Nor is there anj' breach of duty shown on the part of the company ; the secretarj- acted with due caution by notifying the proposed transfer to Miss Trittin, the person purporting to transfer, and the case states (par. 6a) that everything was done by the company in the usual course of business. [Blackburn, J. — The company are bound by the statute to keep a correct register.] Only to use due diligence in keeping it correct, not to have a register absolutely correct : see East Gloucestershire Eailway Company v. Bar- tholomew, Law Repi 3 Ex. 16. [Blackburn, J. — That case does not touch the present case. CocKBURN, C. J. — As far as the register is concerned, it does not appear that the claimants ever referred to the register.] Then it is said that the company', having issued share certificates to Stocken and Goldner, as their credentials of membership, are estopped from denying their title. But the company never asserted they had title, but only that they were on the register as shareholders, which is true. The certificate is no representation to third persons, it is only a document between the holder and the company. [Blackburn, J. — The statute (s. 31) makes the certificate expressly prima facie evidence of the title of the holder.] As between him and the company. [Blackburn, J. — No, prima facie evidence generally'.] In all the cases bearing on the subject, the company sought to be made liable had been guilty of negligence ; as in Ashby v. Blackwell, 2 Eden 299, where the power of attorney was grossly irregular on the face of it. Ilidyard v. South Sea Companj- and Keate, 2 P. Wms. 76, is the only case really in point. There, on a transfer of stock under a forged letter of attorney, the dividends and stock were ordered to be refunded and restored bj' the assignee to the right owner, and the company were held not responsible. [Blackburn, J. — That was a case between the company, the pur- chaser under a forged letter of attornej', and the true owner ; the rights of sub-purchasers had not to be considered.] But surely the remedy is against the vendor, if the purchaser gets nothing, instead of what he contracted for. The company were not in fault ; tiie claimants wei'e not misled by the compan}-, they made no inquiries, nor ever saw the register, as the Lord Chief Justice has pointed out. [Cockburn, C. J. — No ; but by giving the certificate the company practically armed the vendors with the means of holding themselves out as the holders of these shares. 644 IN EE BAIIIA AND SAN FRANCISCO R. CO. Lush, J. — The question comes round to this, what does the certificate mean : does it certify only that A. B. is on the register, or does it not rather amount to certifying that he is in reality a shareholder?] Only that he is on the register. [Blackboen, J. — Can that be said in the face of s. 31 ? ! Lush, J. — Suppose after the contract, but before he pays the pur- chase-money, the purchaser applies to the eompan\' to know if his vendor is a member of the companj-, and the answer is yes? The company would then have made a representation on wliich thej- intended the purchaser to act. How does that differ from issuing a certificate, which says the same thing?] It differs in this : the companj' do not make a voluntary statement, they are bound to keep a register, and issue a certificate. [Blackbuen, J. — They are not bound to put a person on the register who is not rightfully entitled.] But in order to make them liable for putting a person not entitled on the register negligence must be shown, which is, in effect, negatived in this case. In Swan v. North British Australasian Company, 2 H. & C. 175, 181, 188, 32 L. J. Ex. 276, 279, Cockburn, C. J., says, "To bring a case within the principle estabished by the decisions in Pickard v. Sears, 6 Ad. & E. 469 (E. C. L. R. vol. 33), and Freeman v. Cooke, 2 Ex. 654, 18 L. J. Ex. 114, it is, in my opjnion, essentially necessary that the representation or conduct complained of, whether active or passive in its character, should have been intended to bring about the result whereby loss has arisen to the other partj-, or his position has been altered." And in the same case, Blackburn, J., says, " I agree that a party may be precluded from denying against another the exist- ence of a particular state of things, but then, I think, it must be by conduct on the part of that party such as to come within the limit so carefully laid down by Parke, B., in delivering the judgment of the Court of Exchequer in Freeman v. Cooke, 2 Ex. 663, 659, 18 L. J. Ex. 119, 117. It is pointed out by Parke, B., in the course of the argu- ment in that case, that in the majority of cases in which an estoppel exists, ' the party must have induced the other so to alter his position that the former would be responsible to him in an action for it.' And he had before pointed out that ' negligence,' to have the effect of estop- ping the party, must be ' neglect of some duty cast upon the person who is guilty of it.' And this, I apprehend, is a true and sound principle." CocKBTTRN, C.J. — I am of opinion that our judgment must be for the claimants. If the facts are rightly understood, the case falls within the principle of Pickard v. Sears and Freeman v. Cooke. The com- pany are bound to keep a register of shareholders, and have power to issue certificates certifying that each individual shareholder named therein is a registered shareholder of the particular shares specified. This power of granting certificates is to give the shareholders the opportunity of more easily- dealing w;ith their shares in the marketi IN EE BAHIA AND SAN FEANClSCO E. CO. 645 Bnd to afford facilities to them of selling their shares by at once show- ing a marketable title, and the effect of this facility is to make the shares of greater value. The power of giving certificates is, therefore, for the benefit of the company in general ; and it is a declaration by the company to all the world that the person in whose name the certificate is made out, and to whom it is given, is a shareholder in the company-, and it is given by the company with the intention that it shall be so used by the person to whom it is given, and acted upon in the sale and. transfer of shares. It is stated in this case that the claimants acted bona fide, and did all that is requii'ed of purchasers of shares ; they paid the value of the shares in money on having a transfer of the shares executed to them, and on the production of the certificates which were handed to them. It turned out that the transferors had in fact no shares, and that the company ought not to have registered them as shareholders or given them certificates, the transfer to them being a forgery. That bi'ings the case within the principle of the decision in Pickard v. Sears, 6 Ad. & K 469 (E. C. L. R. vol. 33), as 'explained by the case of Freeman v. Cooke, 2 Ex. 654, 18 L. J. Ex. 114, that, if j'ou make a representation with the intention that it shall be acted upon by another, and he does so, you are estopped from denying the truth of what you represent to be the fact. The only remaining question is, what is the redress to which the claimants are entitled. In whatever form of action they might shape their claim, and there can be no doubt that an action is maintainable, the measure of damages would be the same. They are entitled to be placed in the same position as if the shares, which they purchased owing to the company's representation, had in fact been good shares, and had been transferred to them, and the company had refused to put them on the register, and the measure of damages would be the market price of the shares at that time ; if no market price at that time, then a jury would have to say what was a reasonable compensation for the loss of the shares. Blackburn, J. — I am of the same opinion. When joint stock com- panies were established, the great object was that the shares should be capable of being easily transferred ; and the legislature has made pro- vision by 25 & 26 Vict. c. 89, s. 25, that the companj' shall keep a reg- ister of the members, and when the capital is divided into shares, each share is to be distinguished' by a number, and the shares held bj^ each member is to be specified, and the dates at which each person's name was entered on the register. In order to keep up such a register, the company must alter its register whenever a transfer of shares is made, on the application and payment of a certain sum to them by the person to whom the shares are alleged to be transferred. And the first thing the company would have to do when a transfer was tendered to them, would be to inquire into its validity ; but a company may be deceived- and induced, as the company were in the present case, without any neg- ligence, to receive as genuine a forged transfer. They accordingly 646 IN BE BAHIA. AND SAN FEANOISCO E. CO, made an alteration in the register, and made it in fact inaccurate by put- ting the names of Stocken and Goldner on the register as tlie holders of particular shares, when in fact they were not so. The statute (s. 31) further provides that the companj' may give certificates, specifying the shares held by an}- member ; and the object of this provision is expressly stated to be that this certificate should be primS facie evidence of the title of the person named to the shares specified ; and the company, therefore, by granting the certificate, do make a statement that they have transferred the shares specified to the person to whom it is given, and that he is the holder of the shares. If the}' have been deceived and the statement is not perfectlj' true, they maj- not be guilty of negligence, but the company and no one else, have power to inquire into the mat- ter ; and it was the intention of the legislature that these certificates should he documents on which buj-ers might safelj' act. Now, on the facts of this case, although according to the practice on the stock ex- change, the claimants did not originally contract for these particular shares, the money was paid by them or their broker on the execution by Stocken and Goldner of a transfer, and on the certificate under the seal of the company being handed over to them that Stocken and Gold- ner were the holders of these particular shares ; and it is quite clear that a statement of a fact was made bj' the company, on which the companj-, at the very least, knew that persons wanting to purchase shares might 1 act. And the claimants having bon§, fide acted upon that statement, and suffered damage, can they recover from the company? I think they can, on the principle enunciated in Freeman v. Cooke, 2 Ex. 654, 18 L. J. Ex. 114. Suppose an action by the claimants against the com- pany, asserting that the shares were the plaintiSs' and that the company refused to pay them the dividends and deprived them of the use of the shares, in effect an action of trover. The only plea would be that the plaintiffs were not the true owners of the shares, and there would be a replication by way of estoppel, that the company were estopped from saying that the plaintiffs were not the owners, because they had pur- chased on a statement of title made by the company, and intended by them to be acted upon ; this would clearly amount to an estoppel within the rule defined in Freeman v. Cooke, 2 Ex. 654, 18 L. J. Ex. 114. The claimants, therefore, would be entitled to a verdict, and it follows that they are entitled as damages to the value of the shares at the time they were converted ; that is, at the time when Miss Trittin interfered and claimed the shares. Mellor, J. — I am of the same opinion. I think the right of action cannot be grounded on negligence ; but that the facts do amount to an estoppel on the company from denying the claimants' title. The com- pany need not register a person as a member, under a transfer of shares of which they have any doubt ; but can leave the transferee to come to the Court and make out his title. In the present case the company noted apparently without negligence, on the production of the transfer by the broker, and having sent a letter to Miss Trittin and received no IN EE BAHIA AND SAN FRANCISCO E. CO. 647 answer, thej caused the transferees to be registered, and gave them a certificate under seal, clearly intending them to use it iu the market as a voucher or statement that they were the holders of the particular shares. The claimants accordingly purchase the shares, but it turns out that they acquired no title, and their names are struck off the register. I cannot but think that a person must have a remedy against a company for wrongfully striking his name off the register, so as to prevent his having tue advantage of the shares he had purchased, and in such an action by the claimants the estoppel would arise against the company. The measure of damages would be the value of the shares at the time they ceased to be recognized as shareholders. Whether or not the company may have a remedy over against Stocken and Goldner it is unnecessary to consider. Lush, J. — I am also of the same opinion. It is not stated what the usual course of business is, but only that the shares were purchased in the usual course. I take it, the claimants having bargained in the share market for a certain number of shares each, they were offered a transfer of the shares which had been transferred by a forged transfer to Stocken and Goldner, the certificate at the same time being handed to them before the completion of the purchase, and by this certificate, in the usual form and under the seal of the company, it is certified that Stocken and Goldner are the registered holders of the specific shares, giving the numbers. Now there is no doubt that the certificate was given by the company to Stocken and Goldner in order that they might use it in the usual way in which such certificates are used, viz., as a voucher to a purchaser of their names being on the register. And the claimants having acted on this statement by the company, there arises an estoppel as against the company, prohibiting them from denying that what it states is true. And the question then is, what does the certificate mean? Does it mean merelj', that Stocken and Goldner are on the register, and the company have done their best to ascertain that thej' are entitled to the shares, but cannot saj- whether thej' are so enti- tled ? Or does it amount to a statement that the company take upon themselves the responsibility of asserting that they are the registered shareholders entitled to the specific shares? 1 think the certificate must amount to the latter assertion. It is the company who are to keep and look after the register, and they are the only persons who have control over it, and they can refuse to register a person until he shows that he is legally entitled. Having, therefore, put the names of Stocken and Goldner upon the register, and granted them a certificate, the company are estopped after that statement has been acted upon, and cannot deny that those persons were the legal holders of the par- ticular shares which have been transferred to the claimants. The claimants, therefore, are entitled to recover from the company the value of the shares at the time when they were deprived of them. Brown, Q. C, asked that the Court would award interest in addition ; be stated that the company paid 7 per cent, dividend, and that the com 648 WHITECHURCH V. CAVANAGH. -- pany refused to recognize the claimants as shareliolders on the 10th of October, 1866. Per Curiam. — The rule will be that the company do pay to tha claimants the value of their respective shares on the 10th of October, 1866, at interest from that time at 4 per cent., as damages, together with costs. Mule absolute accordingly. GEOKGE WHITECHUECH, Limited, v. CAVANAGH. Aug, 5, 1901. Bouse of Lords, 17 Times Law Reports, 746.1 This was an appeal from an order of the Court of Appeal (Lords Justices A. L. Smith, Collins, and Eomek) affirming a judgment for the plaintiff [Cavanagh] — respondent on the appeal — of Mr. Justice BiGHAM. The case below is reported, 16 The Times L. E. 303. Mr. Lawson Walton, K. C, Mr. Swinfen Eady, K. C, and Mr. Wills appeared for the appellants ; and Mr. Rufus Isaacs, K. C, and Mr. Ryland, for the respondent. ■ The facts are rather complicated, and are sufficiently stated in Lord Macnaghten's judgment. The question was whether a company was estopped for refusing to give effect to the representations of its sec- retary and of its managing director. The action was in effect for damages from the appellant company for refusing to place the re- spondent on its register of shareholders. The House, having taken time for consideration, reversed the deci- sion of the Court of Appeal, and held that the company was not bound by these representations. Lord Macnaghten's judgment was read by the Lord Chancel- lor, who expressed his concurrence therein. It was as follows : This case has been argued very fully and very ably. Many interest- ing points have been discussed, most of which, I am happy to think, are not at all necessary for the determination of the matter in hand. The real question may be stated very shortly. Has the appellant company, George Whitechurch (Limited), incurred any, and, if any, what, liability by reason of representations made by its secretary, Eichard G. Wells, in London, and by its managing director, George Whitechurch, in Paris ? The claim as originally presented was founded on an alleged misrepresentation by the company. The action, however, was treated by the Court of Appeal and by the learned counsel for the respondent at your Lordships' Bar as an action to recover damages from the company for refusing to place the respondent Cavanagh upon its register of shareholders. It was held by the Court of Appeal, and it was strenuously argued at the Bar, that 1 It is supposed that this case will be officially reported in Law Eeports (1901), Appeal Cases. — Ed. ■WHITECHtJEOH V. CAVANAGH. 649 the appellant company was estopped by the representations of Wells and Whitechurch from denying Cavanagh's right to be placed on the register. I quite agree with the Master of the Rolls in thinking that it is necessary to keep the two alleged estoppels distinct and to deal with them separately. Whatever difficulty there may be in ascertain- ing the precise scope and effect of the representations made by White- church, there can be no doubt as to the scope and effect of the repre- sentations made by Wells. They are in writing and in a common form. There can be no question as to the meaning of the written words, except, perhaps, in regard to one point, which in the view I take of the case is not material. It seems that one Eaymond had undertaken to transfer to Cavanagh by way of security a large number of shares in George Whitechurch (Limited) which were of considerable value. On May 29, 1899, at Raymond's bidding. Wells, the secretary of the company, certified two transfers, one of 1,100 preference shares and the other of 9,260 ordinary shares in the com- pany. The shares wera each £1 shares, fully paid, and worth about 15s. apiece. The transfers were executed by Raymond as transferor. They were intended to be executed by Cavanagh, who was named as transferee. The certification on the transfer of the preference shares was in these words : " Coupon for £1,100 preference shares in the company's office. G-eorge Whitechurch (Limited). — Richard G. Wells, Secretary." The certification on the transfer of the ordinary shares was in similar terms. It was common ground that the word " coupon " stood for " certificate " or " certificates," and it was not disputed that the certification was a representation that there had been lodged in the company's office certificates for the shares specified in the bodies of the transfers, such certificates being either in the name of Raymond himself, as registered owner, or in the names of the registered owners who had executed in favor of Raymond trans- fers which had been lodged with the certificates. In the present case the jury found that the certification given by Wells imported that the shares in question were standing in Raymond's own name. It was contended that this finding was not supported by the language of the certification, or by anything in the evidence. In my opinion the point is immaterial. It turned out that no certificates had been lodged In the company's office by Eaymond, nor were any certificates ever forth, coming to answer the transfers which Raymond had executed. As far as Raymond was concerned the whole thing was a fraud. Wells was Raymond's secretary and servant, as well as secretary to the com- pany. He was Raymond's instrument in carrying out the fraud. He lied purposely for Raymond's benefit. The jury have found that Wells joined in the fraud for the benefit of the company as well as for the benefit of Raymond. There is not, however, a shadow of evidence to support this conclusion. The finding, so far as the com- pany is concerned, must be disregarded. It only shows how little the jury appreciated the facts of the case. Then comes the question, 650 WHITEOHUKOH V. CAVANAGH. Is the company bound by the representations of their secretary ? That must depend upon what authority the secretary had or was held out as having. Now the duties of a company's secretary are well understood. They are of a limited and of a somewhat humble char- acter. " A secretary," said Lord Ushee, " is a mere servant. His position is that he is to do what he is told, and no person can assume that he has any authority to represent anything at all " (Barrett v. South London Tramways Company, 18 Q. B. D. 817). In the present ease the secretary was not even in the pay of the company, at least not directly. The company, it seems, was provided with an office and a secretary too for £50 a year by another company which appears to have -been under Raymond's control and management. No doubt the practice of certifying transfers is a convenient one. It facili- tates dealing in shares on the Stock Exchange, and so tends indi- rectly to increase the value of shares as a marketable commodity. But in permitting its secretary to certify transfers, it cannot be sup- posed that a company authorizes the secretary to do more than to give a receipt for certificates which were actually lodged in the office. I cannot think that a company is estopped by the certification of its secretary if he gives a receipt or an acknowledgment for certificates which have not been lodged with him. If authority be wanted for this proposition it seems to me that there is ample authority to be found in the case of Grant v. Norway (10 C. B. 665). Grant v. Norway was a much stronger case than the present. There it was held that a shipowner is not bound by bills of lading signed by the master for goods not received on board. The court declared that it could not " discover any ground upon which a party taking a bill of lading by endorsement would be justified in assuming that " the mas- ter " had authority to sign su.cli bills whether the goods were on board or not." Having regard to the authority which the master undoubt- edly possesses, and the important part which bills of lading play in the commerce of the country, there was much to be said in favor of an opposite view. It was argued in Grant v. Norway that the doc- trine for which the shipowner was contending would go far to de- stroy the negotiability of bills of lading, and that as the master had an unlimited authority to sign bills for goods received, and was for some purposes regarded as the general agent of the owner, it was but just that the owner should be responsible if the master exceeded his authority or deceived third persons. But, for all that,- the principle of the decision was accepted in Coleman v. Riches (16 C. B. 104), and the decision itself has been recognized in this House as sound law ; and the commerce of the country has not suffered, nor has the credit of bills of lading been impaired in consequence. There is a marked difference between a certificate and a certification. A certificate is under the seal of the company. By the Companies Act, 1862, a cer- tificate is made prima facie evidence of title. If faith were not given to the solemn assertions of a company under its common seal, " it ■WHITECHUECH V. CAVANAGH. 651 would," as Lord Caiens observed in Burldnshaw v. Nicolls (3 App. Gas. 1004), " paralyse the whole of the dealings with shares in public companies." A certification stands on a different footing altogether. Transfers are never certified under the company's seal. There is no obligation on a company to certify transfers at all. The certification is not passed by the directors or brought before the board. A certifi- cation, in fact, is only required for a temporary purpose, to meet the exigencies of business on the Stock Exchange, which has stated days and fixed periods for the different stages of a business transaction in- tended to be carried out under its rules. In dealings in shares not under the rules of the Stock Exchange certification is really out of place. In such dealings, in the case of a purchase, the price would only be paid in exchange for the transfer and share certificate — on the completion of the transaction and not before. Still less would a certification be required if the shares were merely intended to form a security. A good equitable charge may be created by the deposit of certificates, and if the certificates happened to include shares which were not intended to be the subject of the security, there would be no very great difficulty in defining the extent of the proposed charge in the memorandum of deposit. It seems to me that it would be most unreasonable in any case, whether the transaction takes place on the Stock Exchange or not, to hold a company estopped by the certifica- tion of its secretary if the secretary certifies a transfer without hav- ing received the certificates. The supposed estoppel, therefore, founded on Wells's certification, in my opinion, fails altogether, and for the same reason the case founded on alleged misrepresentation by the company fails also. I now come to the estoppel founded on representations made by George Whitechurch. [His Lordship here stated the evidence, and continued.] The jury found that George Whitechurch " allowed the plaintiff to think it was all right in order to induce the plaintiff to withdraw 'the opposition.' " It is not very clear what the jury really meant. The Master of the Kolls thinks they meant to say that Whitechurch represented that "the certified transfers were as good as transfers plus certificates." Lord Justice Collins held that the " jury meant that Whitechurch led Cavanagh to believe that nothing more was required by the company to entitle the plaintiff to receive a certificate giving him the right to be registered as the transferee of the shares." My Lords, I must confess I am utterly at a loss to see any ground upon which an estoppel can be raised against the company. To begin with, what authority had George Whitechurch to make any represen- tation in regard to these certified transfers which could bind the company ? He was no doubt the managing director. The commer- cial business of the company was entrusted to him. But nobody can suppose that this was commercial business. I put that aside. Then 652 WHITECHUECH V. CAVANAGH. I have always understood that a representation to bind anybody as an estoppel must be a representation of an existing fact, or rather a representation as to some fact alleged to be in existence and not to promises defuturo. What was it that Whitechurch represented as an existing fact ? That Wells was the secretary of the company, and that the certification on the transfers were signed by him ? Well, that was perfectly true. That Wells had actually received the neces- sary certificates ? It is absurd to suppose that Whitechurch was asked to guarantee that. He had no reason to doubt Wells's honesty, and naturally took it for granted that Wells would not have given a receipt for that which he had not received. The Master of the KoUs seems to think that the representation attributed to Whitechurch was a representation to the effect that the company or the board of direc- tors would act on the certified transfer without requiring anything more. That seems to be the view of Lord Justice Collins also. That is not a representation of an existing fact. If it is anything it is a promise defuturo, which cannot be an estoppel. The doctrine of estoppel by representation is a very old head of equity. It has been discussed not unf requently in this House, notably in the case of Jorden V. Money (5 H. L. C. 185), to which Lord Selborne was constantly in the habit of referring. It is founded upon a broad principle which enters so deeply into the ordinary dealings and conduct of mankind that I sometimes rather doubt whether any great advantage is to be gained by endeavoring to reduce it to rules such as those which have been formulated in the case of Garr v. London and North Western Bailway Company (L. E., 10 C. P. 307). Perhaps some of the diffi- culties which have gathered round the present case have come from clinging to rules rather than attending to principles. [His Lordship added inter alia, that Cavanagh and his solicitor, who were both present at the interviews with Whitechurch, must be taken to have been cognizant of the articles of association of George Whitechurch, Limited, which deal with the transfer of shares in that company. Whether they were in fact acquainted with the regulations of the company or not, they must be taken to have had notice of them.] The LoED Chancellor said that Lord Shekkod concurred in the judgment proposed. Lord James of Hereford, Lord Brampton, and Lord Egbert- SON read judgments to the same effect. Appeal allowed. Action dismissed. NEW YOEK AND NEW HAVEN E. K, CO. v. SCHUYLER. 653 NEW YORK AND NEW HAVEN R. R. CO. v. SCHUYLER. 1865. 34 New York, 30.1 This is an action in the nature of a suit in equity, against Robert Schu3-ler and several hundred other defendants. The complaint was sustained b}' this court on demurrer, as will appear by reference to the reported case in 17 N. Y. 592. The object of the complaint was to have a large number of alleged false and fraudulent certificates and transfers of pretended stock of the company, made by Schuyler, and charged to be held by the defendants, adjudged spurious and void ; and to compel the certificates to be brought into court and cancelled ; and to enjoin the several defendants from further prosecuting actions then pending, and from bringing suits against the company to enforce such certificates and transfers, or to recover damages for any reasons connected therewith. A large number of the defendants answered, setting forth various facts and grounds upon which they claimed that the plaintiffs were not entitled to the relief sought, and that the certificates or transfers re- spectively held by them were, or ought to be, treated as valid and binding on the company ; or damages awarded to them for injuries sustained by the alleged frauds of Schuyler, and many asking for relief by way of judgments for damages against the company. The case was tried at Special Term before Ingeaham, J. The court found various facts, some of which are hereinafter summarized. A judgment entered at the Special Term was affirmed at the General Term. From such affirmance the plaintiffs and some of the defendants appealed. It appeared that, from 1847 to 1854, the issue of certificates, both for entirely new stock and for stock reissued upon transfers, was left wholly in charge of Robert Schuj'ler, the transfer agent of the companj'. The charter provided that the shares should be transferred in such manner as the by-laws should direct. By-laws were adopted, according to which shares were transferable only on the books of the company by the shareholder or his attorney duly appointed, and on the surrender of the certificate held by him when any certificate had been issued. Each certificate issued recited that the person named therein was entitled to shares transferable on the books of the company by such person, or his attorney, on the surrender of this certificate. Schuyler, as transfer ao-ent, was authorized to sign and issue certificates on a transfer from one shareholder to another upon the books and on the surrender of the previous certificates. He also had authority to issue certificates in precisely the same form to the original subscribers for the stock (there was a large increase in the capital stock in 1851, in conformity with a 1 The greater part of the case is omitted. — Ed. 654 NEW YOKK AND NEW HAVEN K. K. CO. V. SCHUYLEE. provision of the charter). He also had authority to dispose of the stock of the companj- not taken by the original subscribers (of which there was a laro-e amount), and issue certificates in the same form to the purchasers. He also had authority to dispose of certain for- feited shares, and in such case issue like certificates. He also had authority to receive transfer to himself of shares on behalf of the company, and transfer the same to purchasers and issue like certificates to them. From 1848 to 1854, Schuyler fraudulently issued stock in excess of the amount limited by the charter. There were over-issues of what purported to be the original stock. There was also "over-issue by transfer," Schuyler issuing new certificates for shares of already exist- ing stock in cases where the previously issued certificates had not been surrendered but were still outstanding. In many cases where valid certificates of stock had been issued to R. & G. L. Schuyler for stock actnally belonging to them, and outstanding to their credit on the books at the time, and while such certificates with the usual assignments and powers of attorney executed in blank were outstanding in the hands of bona fide holders, the stock was permitted to be transferred by R. Schuyler in the firm name to other persons, who took the same for value in good faith, without the surrender of the outstanding certificates. The stock books kept by the transfer agent were not open to the inspection of the public. An examination of those books by the direc- tors would have disclosed Schuyler's frauds at an early stage of the over- issue ; and the directors were culpably negligent in not thus discovering the frauds. Geo. F. Comstoch and Wm. Tracy, for plaintiffs. Twenty-four counsel appeared for various defendants. Davis, J. ■ ■•••••• This somewhat summary disposition of the preliminary points of the case leaves an open path to its meritorious questions, some of which, however, may be disposed of even more summarily. One of these is the question whether the stock purporting to be created by the false certificates and fraudulent transfers of Schuyler can be valid stock of the corporation and become part of its capital. ' In the nature of things this is impossible. A corporation with a fixed capital divided into a fixed number of shares can have no power of its own volition, or by any act of its ofllcers and agents, to enlarge its capital or increase the number of shares into which it is divided. The supreme legislative power of the State can alone confer that authority and remove or con- sent to the removal of restrii-tions which are part of the fundamental law of the corporate being ; and hence every attempt of the corpora- tion to exert such a power before it is conferred, by any direct and express action of its officers is void ; and hence every indirect and fraudulent attempt to do so is void ; for if such a result cannot be ao« NEW YOKE AND NEW HAVEN E. E. CO. V. SCHUYLEK. 655 complished directly by the whole machinery of the corporate powers, it is absurd to suppose that it can be produced by the covert or fraudulent efforts of one or more of the agents of the corporation. The Special Term was, therefore, right in holding that the spurious stock, attempted to be created by Schuyler in excess of the capital, formed no part of the capital stock of the company, but was utterly invalid ; and it neces- sarily followed from the decision of this court when the case was before it on demurrer, that the plaintiffs were entitled to have all certificates and transfers which represented such spurious stock declared void and ordered to be cancelled. Another important legal proposition in the case is so clear upon principle, and so distinctly settled by authority, that nothing but con- fusion can flow from its discussion. It will bear no more than plain enunciation. A corporation is liable to the same extent and under the same circumstances as a natural person for the consequences of its wrongful acts, and will be held to respond in a civil action at the suit of an injured party for every grade and description of forcible, mali- cious or negligent tort or wrong which it commits, however foreign to its nature or beyond its granted powers the wrongful transaction or act may be. {Life and Fire Ins. Co. v. Mechanics' Fire Ins. Co., 7 Wend. 31 ; Angell on Corp., §§ 382, 388, 391 ; Albert v. Savings Bank, 2 Mary. Dec. 169 ; Goodspeed v. East Saddam Bank, 22 Conn. 541 ; Bissell v. Michigan Southern and Northern Indiana Railroad Co., 22 N. Y. 305-309, per Selden, J. ; 1 Wend. Black, [note], 476 ; Qreen V. London Omnibus Co., 7 C. B. 290 [N. S.] ; Frankfort Bank v. Johnson, 24 Maine, 490 ; Philadelphia and Baltimore Railroad Co. V. Quigly, 21 How. U. S. 209 ; and cases cited by Campbell, J.) ■« It follows, from this proposition, that if it were established in this case that the corporation itself issued the false certificates of stock and permitted the fraudulent transfers of spurious stock, it would be liable to the party directly deceived and injured by that transaction. The incapacity to create the spurious stock would be no defense to an action for damages for the injury. On the contrarj', that ver^' incapacity, since it would render the certificate or transfer a fraud and deceit, would itself be the cause of the injury and the basis of recovery. No court would hear the corporation assert that its wrongful act was bej'ond its chartered powers, and therefore ineffective to charge it with the inju- rious consequences of the fraud. But in this case the false certificates were issued and the spurious stock transferred by an officer of the cor- poration. A corporation aggregate being an artificial body — an im- aginary person of the law, so to speak — is, from its nature, incapable of doing any act except through agents to whom is given by its funda- mental law, or in pursuance of it, every power of action it is capable of possessing or exercising. Hence the rule has been established, and may now also be stated as an indisputable principle, that a corporation is responsible for the acts or negligence of its agents while engaged in {he business of the agency, to the same extent and under the same 656 NEW YORK AND NEW HAVEN K. K. CO. v. SCHUYLER. circumstances, that a natural person is chargeable with the acts oi negligence of his agent ; and " there can be no doubt," saj-s Lord Ch. Cranwoeth in Banger v. The Great Western M. H. Co., " that if the agents employed conduct themselves fraudulently so that if they had been acting for private employers the persons for whom the}' were act- ing would have been affected by their fraud, the same principles must prevail where the principal under whom the agent acts. is a corpora- tion." (5 House of Lords Cases, 86, 87; Thayer y. Harlow, 19 Pick. 511 ; 4 Serg. & Rawl. 16 ; 7 Wend. 31 ; Frankfort Banh v. Johnson, 24 Maine, 490 ; Story on Agenej', sec. 308 ; Angell & Ames on Corp., sec. 382, 388.i [After expressing the .opinion, " that the plaintiffs are estopped by the facts and circumstances of this case, to deny the authority of Schuyler to do the acts from which the injury to the defendants has arisen."] But conceding that the whole question of this case is governed by the law of principal and agent, it becomes of grave significance to as- certain the scope and extent of the powers conferred on the agent. Herein, I think, the case essentially differs from that of the Mechanics' Bank, 3 Kernan, 599. {Mechanics^ Bank v. New York rovers' Bank case, that the drawee should have funds in deposit enough to pay the check. In Griswold v. Haven, that the grain for which the receipt was given should actually have been received. In Exchange Bank v. Monteath (so far as it rested on a question of agency), that the drafts should be for the use and benefit of the de- fendant's line of boats. In each of these cases, the extrinsic fact which constituted the condition of the authority was peculiarly within the agent's knowledge, and was necessarily represented to exist by the execution of the agent's powers. It might or it might not be discovered by inquiry. So in this case, in the narrow view in which we are now considering it, the condition upon which the agent could issue the cer- tificate was, a transfer in the books and the surrender of a previous certificate, if any had before been issued. These facts are wholly ex- trinsic and peculiarly within the knowledge of the agent, as part of the special duties to be attended to b}- hira, and were represented hy him to exist by the certificate itself. I can see no shade of difference be- tween the question in this case and in those cited, and whicli seem to me to settle the law. The rule which governs this class of cases, in my judgment, rests upon a sound principle. As was said bj' Selden, J. , in Griswold v. Haven, " The mode in which the liabilitj- is enforced in all these cases, is by estoppel in pais. The agent or partner has in each case made a representation as to a fact essential to his power, upon the faith of which the other party has acted, and the principal or firm is precluded from controverting the fact so represented." It goes back to the celebrated aphorism of Lord Holt, in Hern v. Nichols (1 Salk. 289), " For seeing somebody must be a loser by this deceit, it is more reason that he that employs and puts a trust and confidence in the deceiver, should be a loser than a stranger," or as more tersely expressed by Ashurst, J., in lAchharrow v. Mason (2 T. E. 70), " Whenever one of two innocent parties must sufEer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it.'' (Story on Part., § 108, and authorities there cited.) In truth, the power conferred in these cases, is of such a nature that the agent cannot do an act appearing to be within its scope and authorit}-, without, as a part of the act itself, representing expressly or by neces- sary implication, that the condition exists upon which he has the right to act. Of necessity the principal knows this fact when he confers the power. He knows that the person he authorizes to act for him, on condition of an extrinsic fact, which in its nature must be peculiarly within the knowledge of that person, cannot execute the power without as res gestae making the representation that the fact exists. "With this knowledge he trusts him to do the act, and consequently to make the representation which, if true, is of course binding on the principal. But the doctrine claimed is that he reserves the right to repudiate the act if the representation be false. So he does as between himself and the agent, but not as to an innocent third party who is deceived by it. The latter may answer, you intrusted your agent with means efiectually NEW YORK AND NEW HAVEN E. K. CO. V. SCHUYLER. 661 to deceive me by doing an act which in all respects compared with the authority you gave, and which act represented that an extrinsic fact known to your agent or yourself, but unknown to rae, existed, and yon have thus enabled your agent, by falsehood, to deceive me, and must bear the consequences. The very power you gave, since it could not he executed without a representation, has led me into this position, and therefore you are estopped in justice to deny his authority in this case. By this I do not mean to argue that the principal authorizes the false representation. He only in fact authorizes the act which involves a representation, which, from his confidence in the agent, he assumes will be true ; but it may be false, and the risk that it may he takes because he gives the confidence and credit which enables its falsity to prove injurious to an innocent party. I have already shown how this principle in many cases sustains liability after all actual authority has been withdrawn, as between the principal and parties who have a right to infer that the authority continues. The contrary doctrine would be singularly inconvenient, if not absurd, in practice. For instance, under a general power to draw bills, which means, of course, only in the business of the principal, no party could safely take a bill drawn by the agent without pursuing the inquiry whether it was drawn in such business, to extremes. If the peril is on the party to whom the bill is given, nothing short of personal applica- tion to the principal himself can relieve it, for nowhere short of that is absolute certaintj*. Every intermediate appearance or representa- tion may be false or deceptive, and the rigid rule of actual authority will be satisfied with nothing less than absolute verity. So, then, the gen- eral power carries no safety whatever, since each bill made under it must be verified as to extrinsic facts by resort for perfect security to the principal himself. Or to bring the illustration nearer to this case : It is claimed that every receiver of a stock certificate, executed by an agent, must verify, at his peril, the extrinsic facts that a transfer of the stock has been made and the former certificate surrendered. But how? If he go to the board of directors the}' can only refer him to the transfer agent or the books kept by him, for these are alone their sources of information. If he resort to the books thej' are at best but other representations of the agent which, if they in form show a transfer, may still be deceptive, and nothing but a transfer of actual stock will answer the condition. He must therefore trace the lineage of the stock repre- sented by the certificate to some point behind which no " strain upon the pedigree " will enable the corporation to bastardize the issue. Such a rule would be vastly detrimental to the business interests, both of corporations and of the public. It would be far better to establish a rule that no man shall take an instrument made bj' an agent without first having the principal's cer- tificate that it is genuine and authorized ; and even this would be im- practicable in corporations, for every new certificate, being another act 662 NEW YORK AND NEW HAVEN E. E. CO. V. SOHUYLEE. of an agent, would only open a new circuit of inquiry. But such is neither the policy nor good sense of the law. It is a mistake to suppose that the conventional rule of commercial negotiability has anything to do with this question, except in cases where the paper carries no notice on its face that it is made By some- body assuming to be an agent. That rule stands upon an arbitrary doctrine of the law merchant, and not at all upon any principle of estoppel. It extends only to instruments which usage or legislation has brought within it ; and its substance is, that by force of the arbi- trary rule the possessor of such negotiable instrument has power to give by delivery to a botia fide purchaser for value, a good title not- withstanding any defectiveness in his own. Hence, under it a finder or a thief may confer such title with none in himself, not because the loser is estopped b^' his misfortune from asserting his rights, but be- cause from real or supposed commercial necessities, " ita lex est scripta." But it is a fixed requisite of the rule that the buj'er shall be for value without notice, and therefore nothing that gives notice on its face is, in that particular, within the rule. So an instrument that shows on its face that it is made by one man for another, at once warns the taker to inquire if the assumed agent be authorized, and that question becomes one independent of the arbitrary rule of the law mer- chant, and dependent on the doctrines that govern the law of principal and agent. {Atwood v. Munnings, 7 B. & C. 278 ; Fearn v. Felica, 8 Scott N. C. 241.) I concur, therefore, with Judge Selden, when he asserts that in no respect, except as it touched the question of privity of contract, was the negotiability of the paper of any importance in the case of The North River Bank v. Aymar (25 N. Y. 602). In that case it appeared on the face of the paper that it purported to be made by an agent. A different rule as to the effect of negotiabilitj' may well obtain where the paper is negotiable within the law merchant, and bears on its face no notice whatever that it is made by some party other than the one it purports to charge, as where it is made in a firm name, or in the form and by the officers, through and by which a corporation can by law issue its authorized evidences of debt. We have alreadj' seen how far privity is essential in actions of tort. (Kedfield on Railways, 61 and note ; Gerhard v. Bates, 20 Eng. L. & Eq. 129, &c.) 1 shall not inquire how far the English cases, and especially the lead- ing case of Norway v. Grant (10 C. B. 665), so much relied upon, may be in conflict with the law of this State. Both the Judges Selden have sought to show that Norway v. Grant is distinguishable from the cases under their consideration, and I will only add that if they did not suc- ceed in pointing out the distinction, and the case really stands in con- flict, so much the worse for that case. We may come back, therefore, to the solid ground of The North River Bank v. Aymar, regarding it only as shaken down to greater BOSTON MUSIC HALL ASSOCIATION V. COET. 663 firmness by the severe ordeal of The Farmers' and Mechanics' Bank case, and with confidence declare the true doctrine of this branch of the law of agency to be, that where the principal has clothed his agent with power to do an act upon the existence of some extrinsic fact necessarily and peculiarly within the knowledge of the agent, and of the existence of which the act of executing the power is itself a repre- sentation, a third person dealing with such agent in entire good faith pursuant to the apparent power, may rely upon the representation, and the principal is estopped from denj-ing its truth to his prejudice. In Griswold v. Haven, this rule was distinctly settled. The dissenting opinion touched only the right to maintain the form of action brought in that case, but a majority of the court held that the representation of the agent not only charged the principals, but estopped them from denying the actual possession of the wheat asserted to be in store, so as to defeat an action of trover or replevin to recover the property. In this view I see no ground upon which the plaintiffs can, in this case, be permitted to deny that Schuyler was acting within the scope of his authority in issuing the false certificates ; and they are therefore to be treated as though issued by the board of directors. [The judgments against the plaintiffs for damages were affirmed.] BOSTON MUSIC HALL ASSOCIATION v. CORY. 1880. \2'i Massachusetts, iZh. Colt, J. In 1874, Howard L. Hayford sold five shares in the stock of the Boston Music Hall Association to his brother Nathan H. Hay- ford, to whom he delivered a stock certificate, and upon which he indorsed and signed a written transfer in the usual form. No transfer was made on the books of the corporation, and there was no provision in the charter or bj--laws of the association requiring it. It was not until after the shares were levied on as the property of Howard L., in May, 1878, that the corporation was notified of the alleged sale and transfer to Nathan H. In the mean time Howard L., with the knowl- edge of his brother, collected the annual dividends declared on the stock, attended meetings of the stockholders, and served upon com- mittees appointed at such meetings. Under the levy made in 1878, Barney Cory bought the stock as the property of Howard L. ; and the question presented by this bill of interpleader is, which of the two acquired the title. The case comes up on an appeal from the decree of a single judge. In favor of Nathan H. Hayford, accompanied by a report of the evi- dence taken at the hearing. In the first place, it is contended that the gvidence fails to show that the stock was sold and assigned to Nathan 664 BOSTON MUSIC HALL ASSOCIATION V. CORY. H. in good faith at any time before the levy. Upon this question of fact, the decision of the single judge will not be reversed, unless it clearly appears to be erroneous. Heed v. Seed, 114 Mass. 372. Mont- gomery V. PicJcering, 116 Mass. 227. The only evidence of the transaction in 1874 comes from the two Hayfords, who were the parties to it. But we cannot say that the fact that the apparent ownership remained unchanged for such an unusual length of time upon the books of the corporation, and that Howard L. received the dividends and continued to act as the real owner, is suflflcient to lead us to believe that the judge erred in not treating it as sufficient to overcome the positive evidence of a valid sale of the property, coming from the two witnesses who were before him, and of whose truthfulness he had the best opportunity to judge. In the next place, it is strenuouslj' urged that, by force of the various statutes of this Commonwealth relating to the ownership and transfer of stock in corporations, authorizing the attachment of shares, requiring returns' to the Secretarj' of the Commonwealth, and imposing a personal liability on stockholders for the debts of the corporation, there can be no transfer of stock, valid against the claims of an attaching creditor, unless such transfer be recorded in the books of the corporation. Gen. Sts. c. 68, §§ 10, 12 ; c. 123, §§ 59-61 ; c. 133, § 46. St. 1864, c. 201. The intention of the Legislature, it is said, must have been to provide for the owners of stock a convenient and uniform method of trans- ferring title on the books of the corporation, which should be the only valid transfer as to creditors, and others interested ; and, although the statutes have not provided in express terms that, as to creditors, trans- fers shall not be valid till they are so recorded, yet such, it is contended, is the necessary implication, for otherwise the design of the statutes, requiring registration and making the shares liable to be taken for debts, would be defeated. But this consideration is not sufficient to control the law as long since settled by the decisions of this court. It requires a clear provision of the charter itself, or of some statute, to take from the owner of such property the right to transfer it in accord- ance with known rules of the common law. And by those rules the delivering of a stock certificate, with a written transfer of the same to a bona fide purchaser, is a sufficient delivery to transfer the title as against a subsequent attaching creditor. Sargent v. Essex Marine Bailway, 9 Pick. 201 . Sargent v. Franklin Ins. Co. 8 Pick. 90. Msher v. Essex Bank, 5 Gray, 373. Dickinson v. Central National Sank, ante, 279. It would not be in accordance with sound rules of construction to infer, from the provisions of several different statutes passed for the purpose of obtaining information needed to secure the taxation of such property, or for the purpose of subjecting stockholders to a liability for the debts of a corporation, or for protecting the corporation itself in its flealings with its own stockholders, that the Legislature intended thereby to take from the stockholder his power to transfer his stock in any SCEIPTUEE V. FEANCESTOWN SOAPSTONE CO. 665 recognized and lawful mode. If a change in the mode of transfer be desirable, for the protection of creditors, or for anj' other reason, it is for the Legislature to make it bj' clear provisions, enacted for that purpose. We see nothing in the facts which can be held to deprive Nathan H. Hayford of the stock in question, on the ground that he is charge- able with laches in not causing the transfer to be sooner recorded, or that he is now estopped from setting up his title to the shares in his possession. It must be taken, upon the findings of the judge, that Nathan H. bought these shares in good faith in 1874 ; and that all which the law required was done to vest a perfect title in him, as against an attaching creditor of Ho\,ard L. He was under no legal duty to have the transfer recorded in order to perfect his title as against strangers, and he can be charged with no neglect or laches which would involve the forfeiture of his title. The evidence in the case does not require us, against the findings of the single judge, to find that Nathan H. is estopped to set up his title against a creditor of Howard L. The acts and declarations of the latter, after the sale, would not affect the title, except so far as they were authorized by Nathan H., and there is nothing to show any act or declaration authorized by the latter, with intent to give a false credit to Howard L. , or that any creditor of his was in fact defrauded. Decree affirmed, F. C. Welch, for the attaching creditor. J. P. Treadwell, for the transferee. SCRIPTURE V. FRANCESTOWN SOAPSTONE CO. 1871. 50 New Hampshire, 571.1 Assumpsit for not delivering to the plaintifl!" certificates for forty-five shares of stock in the defendant company, which plaintiff had pur- chased of one Barton. Plaintiff purchased the stock of Barton on May 24, 1867. Barton transferred the same to him by his indorse- ment upon the back of the certificate. On Feb. 3, 1868, the said certificate so transferred was presented to the treasurer of the com- pany, and a new certificate for those shares demanded by the plaintiflP. The treasurer declined to issue a new certificate, for the reason that the shares had been attached as Barton's property, on January 28, 1868, in a suit brought by the Francestown Soapstone Company against Barton. At the trial the plaintiff proposed to introduce certain evi- dence to prove that the company had notice of the aforesaid sale and transfer before the attachment. Thereupon the cause was taken from the jury for the purpose of determining, as matter of law, whether the evidence offered was competent to prove notice or knowledge in the 1 Statement abridged. Arguments omitted. — Ed. 666 SCEIPTUEE V. FEANCESTOWN SOAPSTOKB CO^ companj' ; and whether, with such notice or knowledge, the attachment would be valid to hold these shares against the plaintiff. A. W. Sawyer, for plaintiff. Geo. Y. Sawyer <& Sawyer, Jr., for defendant. Ladd, J. The sale and transfer of these shares were made by Bar- ;ton to the plaintiff May 24, 1867 ; and the case shows that the plaintiff paid $95 per share for them, the par value being $100. It is alleged in the declaration, that on February 3, 1868, the plain- tiff caused the certificate and assignment to be delivered to the treasurer of the company ; and it appears that the reason assigned for not issu- ing to him a new certificate was, that prior to that time, namely, on the 28th day of Januarj-, 1868, said shares had been attached as Barton's property on a writ in favor of the company against him. If by the attachment a valid lien was created in favor of the com- panj', it was under no obligation to enter the transfer on its books at the time the certificate was presented ; and the plaintiff cannot maintain this suit. The question then ts. What effect shall be given to the attachment made January 28, 1868? The plaintiff offered to prove that at the time of the sale said Barton was president of the corporation, and acted as its general agent in superintending the affairs thereof, and continued so to act until January 27, 1868, the day before the attachment was made ; that the agent who succeeded Barton, and who procured the attachment and caused a levy to be made on the shares, was a director in 1867, and knew of the sale tind transfer of the shares from Barton to the plaintiff prior to the time of the attachment ; and that the treasurer of the company had actual notice of the sale and transfer as early as June, 1867 ; and other facts tending to show knowledge of the sale by the corporation at or about the time of the transaction. "We think this evidence was clearly admissible for the purpose pro- posed. The president and treasurer, by the by-laws, were directors ex-officio ; and it is fair to suppose that they were active members of the board, participating largely in the control and management of the affairs of the corporation. But even if those officers had not been members of the board of directors, there would probably be no difficulty in holding that notice to a general agent, who has the superintendence of the affairs of a corporation, is notice to the corporation, and there- fore that the defendant is chargeable with knowledge possessed by its president and general agent, Barton. Angell and Ames on Corp. , § 305, and cases in note ; Homy v. Blanehard, 13 N. H. 145 ; Marshall v. Ins. Co., 27 N. H. 157 ; Camp- bell V. Ins. Co., 37 N. H. 35 ; Patten v. Ins. Co., 40 N. H. 375 ; Fitz- Jierbert v. Mather, 1 T. R. 12 ; N.Y. & N. H. Railroad Co. v. Schuyler, 34 N. Y. 84. We are thus brought to the question whether the attachment made by the defendant, with knowledge that the shares had been previously SCRIPTURE V. FRANCESTOWN SOAPSTONE 00. 667 sold and transferred bj' Barton to the plaintiff, will hold them, for the reason that the transfer had not been made on the books of the com- pany according to the provision contained in the certificate. It does not appear that any mode of transfer is provided in the char- ter, and the only provision in the bj'-laws on that subject is contained in Art. 10, as follows : " Shares may be transferred by assignment on the back of the certificate, and surrender of the certificate to the treas- urer." This corresponds with the provision in the certificate, except that the words " only on the books of the company" appear in that instrument. It is not necessary to inquire whether the provision contained in the bj'-laws was authorized by the charter ; nor whether there is anj- differ- ence in legal eflTect between a provision in the charter and one in the bj'-laws which have been adopted in pursuance of an authority conferred by the charter ; nor whether the provision in the certificate should have any effect by way of contract between the share owner and the corpo- ration ; for we think that, by a fair construction of the general law of the State in force at the time of this transaction, a transfer of shares in a corporation of this sort, to be complete and perfect for all purposes, /nust be entered upon the books of the company — Eev. Stats., chap. 141 ; Pinkerton v. The M. S L. Railroad, 42 N. H. 424 — the object being, as is well said b3' defendant's counsel in their brief, " not only to give notice of the title, but to furnish an authentic record that would determine membership in the corporation, the right to vote, private liability for debt, liability to taxation, and all other incidents of owner- ship," &c. ' It being admitted, then, that, for the protection of these various rights and interests of the corporation, the public, and creditors of the stock- holders, the law provides that the title of a purchaser of shares shall not be complete, as against those having these various interests, until the transfer is entered on the books of the company, it becomes a very important inquiry to ascertain what is, in point of fact, the origin and basis of a purchaser's title to such shares when they pass from seller to buyer. Does it originate in and rest upon the contract of sale between the parties, or is it a creation of law, dating its birth from the record of the transfer on the company books ? A share in a corporation, which has for its object a division of profits among its stockholders, has been defined to be " a right to partake, according to the amount of the party's subscription, of the surplus profits from the use and disposal of the capital stock of the company to the purposes for which the company^ is constituted." Angell and Ames on Corp., § 557. It cannot be disputed that this right is property of a definite and important character, with many of the qualities of visible, tangible, per- sonal property, and having a value, and as capable of appreciation as vressels or merchandise, or other personal chattels. Shaw, C. J., in Fisher v. Essex Bank, 5 Gray 377. From this it follows, by inevi- table inference, that it may be the subject of sale as much as any other 668 SCEIPTUEE V. EEANCESTOWN SOAPSTONE CO. species of property, real or personal, so that, as between vendor and vendee, the title may pass by their own act, and be thereby vested absolutely in the vendee. It seems too clear for argument, that the ownership of the shares passes from the seller to the buyer by force of the contract of sale, and not by operation of law ; and if that be so, the buyer's title, so far as the seller is concerned, attaches the moment this contract is fully con- summated between them. This kind of propertj-, being an intangible right, somewhat akin to the right to receive money due upon a bond or other chose in action, is incapable of actual manual delivery. All the seller can do, that cor- responds at all to the delivery of personal chattels in other cases of sale, is, to hand over to the buyer his certificate, with a sufficient assign- ment by deed or otherwise to entitle him to a transfer of the shares on the books of the company. "When the seller has done this, his power and duty in the matter are ended, and it is at the option of the pur- chaser whether the transfer shall be recorded or not. If the purchaser omits to have the record made, he can claim no rights as a member of the corporation ; and he also incurs the further risk of having his title defeated by a subsequent attachment or sale to a bona fide purchaser. It is difficult to see any substantial difference between the position of this plaintiff after the sale and assignment of the shares to him by Barton and before a transfer was made on the books, and that of the grantee in a deed of land before his deed is recorded. In both cases the seller has parted with his title, and, as to him, the buyer has ac- quired it. It is only third persons in either case whose rights or inter- ests are affected by the omission. In the case of an unrecorded deed, the grantor continues to be clothed with evidence of ownership- after the conveyance, very similar to that which remains with the seller of shares before the transfer has been entered on the books. The record shows that he is still the owner of the land, when in fact he is not ; and, so far as any interest a cred- itor can have in the matter is concerned, the same is precisely true in the case of shares in a corporation sold but not transferred on the books. The statutes which we hold require the transfer of shares to be en- tered on the books of the corporation kept for that purpose, are certainly no more explicit and absolute than that which requires the recording of deeds. The object of the law, so far as creditors are concerned, is the same in both cases. As between the parties the title passes by contract and not by the record in both cases alike.^ It is difficult to suggest any reason for holding that actual notice of an unrecorded deed to a subsequent purchaser or attaching creditor Bhall be equivalent to a record, so far as that purchaser or creditor is _ > A note by the reporter is omitted. — Ed. SCBIPTUEE V. FEANCESTOWN SOAPSTONE CO. 669 concerned, which does not with equal force require us to hold, in tha present case, that actua;! notice to the defendant of a sale of these shares was equivalent, so far as its rights as a creditor are concerned, to a transfer entered in due form upon its books. This view is sus- tained by Gooding v. Miley, 50 N. H. 400, where the chief justice, upon an exhaustive review of the authorities bearing upon the question, arrives at the conclusion that purchasers or mortgagees of personal propertj', having notice of a prior outstanding equitable title, are affected by such knowledge in the same way and to the same extent as the grantee of land is affected by knowledge of a prior unrecorded deed ; that both stand upon the same equitable principle. The same result, substantially, is reached, if we consider that the omission of the plaintiff to have the transfer recorded places him in the same position as a purchaser of chattels, who permits them to remain in the hands of the seller after the sale. Taking that view, the consequence contended for by defendant's counsel does not follow. The circumstance of such retention of pos- session may be explained. It is true that, in the absence of explana- tion, a secret trust will be presumed; but when an explanation, is offered, it is for the jury to say, under proper instructions, whether the explanation is sufficient ; and the fact that possession was so re- tained, is for them to weigh in connection with all other evidence bear- ing upon the actual character and complexion of the transaction between the parties. Here the defendant had notice of the sale and assignment, and, as we hold, of all the facts attending the transaction, for the reason that Barton, its general agent, by whose knowledge it is bound, was a *■ party to the transaction and knew all about it. Under these circum- stances it can hardly be heard to say that it inferred fraud from the plaintiff's conduct, as a conclusion of law, when it knew, as matter of fact, that no fraud did really exist. Suppose, after the sale by Barton to the plaintiff, Barton had sold the same shares again and applied the proceeds of such sale to his own uses. If the second purchaser were ignorant of the prior sale, he would get a good title, although Barton would have been guilty of a fraud against the plaintiff of the most gross and flagrant character. But if this second purchaser had notice of the former sale — was aware of the situation of the title as between Barton and Scripture — by con- certing with the former to deprive the latter of his property he becomes a party to the fraud, and no process of reasoning, in logic or morals, will lead to any other result but that he would be equally guilty with the seller. To hold that such a purchaser acquired a good title would be to countenance the most scandalous bad faith and encourage dishonesty. The difference between an attempt to gain a title under such cir- cumstances by purchase and by an attachment is not very apparent, »nd certainly not very broad. At all events, we think it entirely clear 670 HOTOHKISS AND UPSON 00. V. UNION . NATIONAL BANK. that what cannot be accomplished in one way cannot be brought about in the other. In any view we are able to take of the case, we think the question for the jury is, whether the sale by Barton to Scripture was a bona fide sale, or whether it was so tainted with a secret trust, or other element of fraud in fact, that it cannot be sustained ; and upon that question the price paid for the shares as compared with their actual value, the omission of plaintiff to have the transfer recorded, and all other facts and circumstances tending to throw light upon the actual character of the transaction, will be proper evidence for the jury to consider. In short, that the sale may be attacked in the same manner and upon the same grounds as though the transfer had been entered upon the books of the corporation at the time the fact of the sale was brought to its knowledge. Case discharged. HOTCHKISS AND UPSON CO. v. UNION NATIONAL BANK. ' 1895. 37 U. S. Appeals, 86.1 Circuit Court of Appeals. Sixth Circuit. Appeal from U. S. Circuit Court for the Northern District of Ohio. Bill in equity by Union National Bank of Cleveland, Ohio, against the Hotchkiss & Upson Company, a Connecticut corporation, to enforce a lien upon stock of the latter company alleged to have been acquired by a pledge from Charles A. Hotchkiss. It appeared that Hotchkiss, as a collateral security for a loan, assigned in pledge to the bank cer- tificates for 140 shares of the Hotchkiss & Upson Company. The assignment consisted in delivering the certificates to the bank ; with a blank power of attorney for the transfer of the stock upon the books of the company, executed by Hotchkiss. The stock has never been trans- ferred upon the books of the company to the bank, and no copy of the power of attorney was ever filed in the office of the company. Subsequently to the above pledge, Hotchkiss embezzled a large amount of the funds of the Hotchkiss & Upson Company, of which he had charge as president. It is contended that by force of the general laws of Connecticut re- lating to corporations a lien was given to the company upon the stock standing upon its books in the name of Hotchkiss for the amount of the indebtedness created by his embezzlements, and that this lien is para- mount to that of the bank, for the reason that there was no transfer of the stock by Hotchkiss to the bank upon the books of the company, and no copy of the power of attorne}', was filed in the office of the com- pany as required by the law of Connecticut in order to make the assign" ment good as against the company. 1 Only part of the case ia given. — Ed. HOTCHKISS AND UPSON CO. V. UNION NATIONAL BANK. 671 The provision of the statutes of Connecticut giving the company such lien is found in section 1923 of the General Statutes of that state (Re- vision of 1887), which reads as follows : "When not otherwise provided in its charter, the stock of every corporation shall be personal property, and be transferred only on its boolis in such form as the directors shall prescribe ; and such corporation shall at all times have a lien upon all the stock owned by any person therein for all debts due to it from him." And section 1924 declares how such stock may be pledged, and the manner in which such pledge may be made effectual, as follows: "Shares of stock in any corporation, organized in this state under the laws of this state or of the United States, may be pledged, by execut- ing and delivering a power of attorney for its transfer, with the certifi- cate of stock therein mentioned, to any party to whom the pledge is made ; but no such pledge, unless consummated by an actual transfer of the stock to the name of such party, shall be effectual to hold such stock against any person but the pledger and his executors and admin- istrators, until a copy of said power of attorney shall be filed with the cashier, treasurer or secretar}- of said corporation." The provisions of section 1924 were not complied with in the making of the above pledge. But the bank introduced evidence tending to show that the Hotchkiss & Upson Company had notice of the pledging of these shares before the embezzlement commenced. The court below found that the company had such notice ; and held, that the bank's lien was superior to that of the company. A decree was made, sustaining the bank's lien upon the 140 shares pledged as above stated. Jl E. Ingersoll, for appellant. W. B. Sanders {Squire, Sanders & Dempsey were on the brief), for appellee. Sevekens, J. For, assuming that the bank was bound to take notice, not only of the charter, but the general laws of Connecticut affecting the Hotch- kiss & Upson Company, we think it was competent for the bank to show that the Connecticut corporation had the notice of the pledge of its stock to the bank for the payment of the $15,000 note, which it was the purpose of section 1924 of the laws of that state, above quoted, to secure. It is a widely prevalent doctrine, applying to a variety of statutes enacted for the purpose of protecting parties deahng bona fide with property upon the assumption of its ownership by the persons dealing with them, against prior liens and conveyances, that, notwithstanding the generality of the language of such statutes declaring that such for- mer liens and conveyances should be held void, if not registered in conformity with the provisions of the statute, as against subsequent purcliasers, jet, seeing that the whole object of such provisions was to guard the subsequent purchaser against transfers of which he had na 672 IIOTCHKISS AND UPSON CO. V. UNION NATIONAL BANK. notice, if the object of the statute had been subserved by actual knowl- edge of the fact, the prior transferee would be protected. And there is no reason whj' this should not be so. Such laws are not designed to accomplish so unjust a result as that a person having knowledge of an- other man's equities may defeat them by an act of his own, taken with such knowledge. Converting those statutes to such purpose would be quite contrary to the spirit of their enactment. That such is the gen- eral doctrine upon this subject cannot, we think, be disputed. The cases are too numerous to justify a review of them here. Many of the principal decisions are collected in 1 Jones, Mortg. (5th Ed.) § 538, and the result of them stated ; and it is there said : " The doctrine is the same under statutes which declare without qualification that an un- acknowledged or unrecorded deed shall be void as against purchasers, or as against all persons who are not parties to the conveyance." The rule is the same in respect to personal property. No distinction in the application of the doctrine can be based upon a distinction be- tween the two classes of propert}'. Jones, Chat. Mortg. (4th Ed.) § 308. It rests upon a broad and fundamental equity. It must be conceded that there are occasionally to be found cases which seem to lead to a different conclusion, but the general current and weight of authority is as above indicated. No doubt there are exceptions to this rule where the statute goes further than to provide for the mere giving of notice, and expressly declares that the instrument shall only become valid upou its registration. In such case the condition is made essential to its validitj-. The decisions of the supreme court of the state of Connecticut show beyond doubt that the rule which prevails in that state upon this sub- ject is the same as the rule which prevails generally in the courts of the several states and of the United States, and it may be regarded as the settled rule of Connecticut that statutes of a kindred character, and having the same purpose as that here under consideration, are to be construed, not as rendering prior transactions void as between the par- ties themselves or others who had equivalent notice of such transactions, and who, therefore, were in no predicament requiring protection, but as provisions whose whole scope and intended effect was the protection of parties who had an equity arising upon the fact of their having altered their situation, in reliance upon the apparent condition of things. Wheaton v. Dyer, 15 Conn. 307 ;■ Blatchley v. Osborn, 83 Conn. 226 i Hamilton v. Nutt, 34 Conn. 501. [Eemainder of opinion omitted.] Decree affirmed. FOKT MADISON LUMBER CO. V. BATAVIAN BANK. 673 FORT MADISON LUMBER CO. v. BATAVIAN BANK. 1887. 71 Iowa, 270. Action in equity to compel the defendants to interplead, in order that their respective claims against each other, and against the plaintiff com- pany, may be determined. The facts appear to be that one Weston was at one time the owner of certain shares of stock in the plaintiff company, and the same stood in his name on the books of the com- pany. In 1883 he borrowed money of the defendant, the Batavian Bank of La Crosse, Wisconsin, and assigned to it certificates of his stock as collateral security ; but no transfer of the stock was made upon the books of the company. Afterwards he became insolvent. Among his creditors -were the defendants D. Hammell & Co., the Clark County Bank and the Neillsville Bank. These creditors brought actions upon their respective claims in the circuit court of Lee county, Iowa, and caused writs of attachment to be issued, and levied upon the stock in question. At the time of the levy they had no knowledge of any trans- fer of the certificates by Weston. Shortly after the levy the Batavian Bank procured the secretary of the plaintiff to indorse upon the stubs of the book from which the certificates had been detached an entry or memorandum of a transfer. This action is brought for the purpose of procuring a determination of the question as to whether the rights of the Batavian Bank, as pledgee, ai-e subject to the attachments, or the attachments subject to the rights of the Batavian Bank. The court held that the attachments were subject to the rights of the Batavian Bank. The defendants D. Hammell & Co., the Clark County Bank and the Neillsville Bank appeal. Casey